Information  

New House; New Mortgage

Buying a new home can be an exciting experience. 

There are a number of factors to consider;

• Where would you like to live

• What is the price range, is it affordable

• Is it convenient for work, schools, shops, leisure

• What features are important, workshop, garden, parking

Historically, buying a house has been profitable over the long term. Please be aware that, as we saw in the 90's house prices can fall as well as rise. If you have to sell your home in the short term you may owe more money than you recoup from the sale of your home.

There is a vast array of mortgages available. The deals on offer change  weekly as companies compete for business. Newspapers and magazines regularly produce 'best buy' lists, but these are often selected from the lowest 'headline' rate. Taking professional advice from a mortgage broker will help you to make the right choice. 

A mortgage is one of the biggest investments you are likely to make. On  a £100,000 mortgage you are quite likely to pay back over £200,000  to the lender. Plan your investment carefully, are you likely to move house or re-mortgage every few years or to keep your mortgage for the full term.

Remortgage

Most people with an existing mortgage should consider remortgaging as part  of a periodic review of their finances. Competition amongst mortgage lenders  is fierce and the potential savings significant.

Click on the remortgages link for more information

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Buy to Let

Click on the Buy to Let link for more information

Capital Raising

As part of a re-mortgage you may wish to raise finance  for home improvements, to consolidate debts or for another purpose. Mortgages are available for  capital raising up to 95%  loan to value.

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Borrowing Limits

Mortgages are available for property loans of up to 100% loan to value.  The larger the deposit, the better the mortgage terms available.

Most building societies and banks use income multiples to calculate how much they are prepared to lend. Generally, lenders will offer between 3 and 4x's the  annual basic salary of the first applicant (plus the annual salary of the second  applicant if joint mortgage) or 2.5x's  the combined salary if greater. the annual amount of any  loans or credit agreements should be deducted from your salary before applying the multiple. Some lenders may extend these multiples. If you have a deposit and wish to borrow in excess  of the criteria, complete our fact find, we may be able to help.

Most lenders will allow 50% of your commission income, which can be added to your basic salary, providing that you can prove that you have received this commission in the past. If your income contains a large proportion of commission income, you may wish to consider 'self certification' mortgages.

If some or all of your income derives from a source which you are unable (or unwilling) to prove, then you may wish to consider 'self certification' mortgages.

It is important to assess whether you will be able to afford future mortgage  payments. Think about what would happen if you or your partner were unable  to work in the future (see insurances)

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Self Certification

If your actual income is higher than your provable income, then there is a type of mortgage known as 'self certification' which may be worth considering.

Please click on the self certification link

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Guarantor Mortgage

If your income is currently insufficient to cover a mortgage, but you can show that this will change in the near future, then a guarantor mortgage may be available to you.

Mainly intended for students, a family member, normally the parents, would need to guarantee that the mortgage will be paid until the applicant is ready to take over the mortgage.

For this to be acceptable, the guarantor would need to have sufficient income to cover both the new mortgage and any existing mortgage. A charge may be placed on the guarantors primary residence.

This mortgage is not suitable for students intending to let their property to other students.

A Guarantor mortgage should not be considered lightly. Legal advice should be sought by all parties, prior to entering into a mortgage.

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Self Employed

If you are self employed or a company director with over a 20% share of the company, your net income will be  your drawings (salary) plus your share of the net profits shown on the annual accounts. If you do not file accounts, your taxable income will be that declared on your annual tax return. 

Some lenders will average your income over the last 2 or 3 years. If your accounts do not give a true picture of your financial situation, please see self certification

For a full explanation of the self employed and the mortgage process, please visit our sister site at www.1st-mortgage-brokers.co.uk.

Mortgage Options

There are many different mortgage options available:

Fixed Rate allows you to fix the interest rate of your loan so that  for a set period you have  the reassurance of knowing that your repayments  will not alter.

A Capped Rate fixes a upper ceiling to the interest rates so that  in the event of rising interest  rates  you will not pay any more than  the limit set by the cap. If rates fall below the cap then your repayments  will reduce.

Fixed and Capped rate mortgages are most suitable to those who are working  to a budget and need to know that their repayments will not exceed a set  figure.

Discounted Rate mortgages allow a discount to the standard variable  interest rate for a set period.

As an incentive to attract new clients many companies now offer a lump  sum Cash back.  These are obviously useful if cash is needed at the  outset, however the opening interest rates may not be as attractive.

Flexible mortgages , also termed Australian mortgages have become  increasingly popular in recent times. They enable the borrower to actively  manage their mortgage perhaps by  altering the monthly payments or by paying  off lump sums. Other options include the facility to take payment holidays  and to borrow further amounts.

Early Repayment charges: To attract new borrowers, mortgage lenders may  offer an introductory discount or some other incentive. This will invariably  cost the lender money. To protect their  investment the lender may impose  early repayment charges should the borrower redeem their mortgage within a specified  period. These charges are likely to apply during the first few  years of a  new mortgage. Schemes are available which exclude these charges.

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Repaying the Loan

While there are many different mortgage options, there are just two types  of mortgage, interest only and repayment (capital and interest).

With an interest only mortgage you pay the interest only to the lender and  take out a further investment alongside which you hope will pay off the  loan at the end of the term. Mortgage  lenders are fairly flexible about  what investment method is used to pay off the loan and popular choices have  been endowment policies, unit trusts and pensions.

With a repayment mortgage each payment made pays both the interest and  a small part of the capital. With this type of mortgage your mortgage loan  will be paid off at the end of the term.

With a repayment mortgage you are using your capital to actively reduce  your debt at whatever the prevailing building society interest rate is.  With a interest only mortgage you  hope that your invested capital will achieve  a better rate of return than the building society interest rate.

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Investments

The following investments have been popular choices for people with interest  only mortgages.

Endowment policies : These policies are run mainly by insurance companies  and friendly  societies. They are regarded as low to medium risk investments.  The fund managers invest on the stock market, in property and in fixed interest  investments. Policies can be unit linked  or with profits. Unit linked means  that a value is calculated, usually daily which directly relates to the  value of the underlying fund. Unit prices can be followed in the broadsheet  newspapers.

A 'with profits' policy entitles you to a share in the profits of the insurance  company. Issuing companies vary their annual bonus according to investment  performance and anticipated  future investment conditions. The variance in  annual bonus has historically been small which provides a degree of security  to the policyholder. A terminal bonus is also normally declared  at the end  of the term. Life assurance is included in the contract which will pay off  the mortgage in the event of death.

Unit trusts : Predominantly stock market investments where your money  is 'pooled' together with other investors in a fund which may be managed  or unmanaged (tracker). There is a  risk element to your capital as unit  prices can fall as well as rise, and a periodic review would be recommended  to ensure that the fund performance is adequate. This type of fund  is quite  flexible and tax free benefits are available if taken out within an ISA.

Pensions : If you are eligible for a personal pension, you can opt  to use part of your pension  fund to clear your mortgage. This will obviously  reduce the amount that you will have available to go towards your pension,  however you will receive full income tax relief on your  contributions. This  means that a higher rate taxpayer paying £100 per month into a pension  fund will in fact only contribute £60 per month, the balance being   paid by the inland  revenue. There are many different types of pension fund  available and we would be happy to advise on this subject.

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Property types

A mortgage is agreed on the basis that the property is a good security. Lenders in general do not like lending on the following properties:

Property that requires any structural work or remedial works

Freehold Flats, Studio flats, Ex local authority flats, High rise flats, Flats above commercial premises (particularly food)  

Non standard construction, ie. timber or concrete walls.

If the property you are considering falls into any of the above categories, please contact us.

Auction Properties

If you are considering buying a property at an auction. It is most important that you have a mortgage agreed before you bid for a property. On the fall of the hammer, you will be expected to pay a deposit (often 10%), with the balance paid within a short time period.

Your deposit may be lost if your mortgage does not succeed within this time period.

Please read carefully the terms specified by the auction provider. 

Please discuss with one of our advisers.

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Mortgage Costs

Please click on the mortgage costs link

Insurances

Insurance provides protection against unforeseen events in the future.

Please click on mortgage related insurances

Step by Step Guide

• Select and apply for the type of mortgage that suits your preferences (flexible, discounted, fixed rate etc.) Obtain a decision in principle from the lender, you will then know how much you are able  to borrow and you will be in a position to make an offer. (Note: Some lenders will not permit you to apply without property details) 

• House hunting.

• Make an offer, subject to survey and contract.

• Instruct the valuation.

• Appoint a solicitor.

• Arrange insurance

• Exchange contracts, pay deposit.

• Arrange removals.

• Move home!

How long will it take? It depends on the lender's administration and how quickly your references are returned - say 3-4 weeks from application to offer, another 2 weeks to exchange of contracts, another two weeks to completion.

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