Home Mortgage
A mortgage for your own home is equally one of the most exciting and important financial decisions you will make. We believe you will have the best chance of buying your home if you are fully prepared and that's where we can help you.
We help you fully understand the process and establish what is the maximum you can borrow. This is especially helpful to people who may be self employed, contract workers, shift work, receive dividend payments, commission, bonuses, but just as important for people in permanent fixed salary employment.
Feel daunted by the whole process or want to know more about your options? Why not have a no obligation appointment (or virtual appointment) with Adrien.
We help you fully understand the process and establish what is the maximum you can borrow. This is especially helpful to people who may be self employed, contract workers, shift work, receive dividend payments, commission, bonuses, but just as important for people in permanent fixed salary employment.
Feel daunted by the whole process or want to know more about your options? Why not have a no obligation appointment (or virtual appointment) with Adrien.
The first thing you need to do is decide how much you can afford. You will need to look at how much money you have available yourself and how much you can borrow.
There are a number of different financial institutions which offer loans to people buying a property, for example, building societies and banks. We will consider and recommend who we feel is the most suitable lender for you.
Most building societies and banks provide buyers with a certificate that states that a loan will be available provided the property is satisfactory. You may be able to get this certificate before you start looking for a property. We provide more information on this under the mortgages section on this page.
Before finally deciding how much to spend on a property, you need to be sure you will have enough money to pay for all the additional costs. These include:-
1. Survey fees
2. Valuation fees
3. Stamp Duty Land Tax
4. Land registry fee
5. Local authority searches
6. Fees, if any, charged by the mortgage lender or someone who arranges the mortgage, for example, a mortgage broker
the buyer’s solicitor’s costs and VAT on certain fees and services.
7. Removal expenses
8. Any final bills, for example, gas and electricity, from your present home which will have to be paid when you move.
For more information about Stamp Duty Land Tax, go to the GOV.UK website.
You should be aware that if you start the process of buying a property and then the sale falls through you may have already paid for a valuation or a survey. If the solicitor has started any legal work you may also have to pay for the work done. Lloyd Vine can instruct their recommended solicitors who will not charge you if a purchase fails to complete. Any survey fees will be non refundable once the survey valuation is completed. Some lenders also have a non refundable application fee, but we would be warning you of this at illustration stage.
You should also take into account the running expenses of the property you wish to buy. These may include:-
1. Council Tax (in England and Wales)
2. Water rates (in England and Wales)
3. Ground rent, if the property is leasehold
4. Service charges, if the property is a leasehold flat
5. Insurance costs, including life insurance, buildings and contents insurance
6. Heating bills. An energy performance certificate can help you work out how energy efficient your property is.
7. You will have to pay a deposit on exchange of contracts a few weeks before the purchase is completed and the money is received from the mortgage lender. The deposit is often 10% of the purchase price of the home but it can vary and be negotiated.
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There are a number of different financial institutions which offer loans to people buying a property, for example, building societies and banks. We will consider and recommend who we feel is the most suitable lender for you.
Most building societies and banks provide buyers with a certificate that states that a loan will be available provided the property is satisfactory. You may be able to get this certificate before you start looking for a property. We provide more information on this under the mortgages section on this page.
Before finally deciding how much to spend on a property, you need to be sure you will have enough money to pay for all the additional costs. These include:-
1. Survey fees
2. Valuation fees
3. Stamp Duty Land Tax
4. Land registry fee
5. Local authority searches
6. Fees, if any, charged by the mortgage lender or someone who arranges the mortgage, for example, a mortgage broker
the buyer’s solicitor’s costs and VAT on certain fees and services.
7. Removal expenses
8. Any final bills, for example, gas and electricity, from your present home which will have to be paid when you move.
For more information about Stamp Duty Land Tax, go to the GOV.UK website.
You should be aware that if you start the process of buying a property and then the sale falls through you may have already paid for a valuation or a survey. If the solicitor has started any legal work you may also have to pay for the work done. Lloyd Vine can instruct their recommended solicitors who will not charge you if a purchase fails to complete. Any survey fees will be non refundable once the survey valuation is completed. Some lenders also have a non refundable application fee, but we would be warning you of this at illustration stage.
You should also take into account the running expenses of the property you wish to buy. These may include:-
1. Council Tax (in England and Wales)
2. Water rates (in England and Wales)
3. Ground rent, if the property is leasehold
4. Service charges, if the property is a leasehold flat
5. Insurance costs, including life insurance, buildings and contents insurance
6. Heating bills. An energy performance certificate can help you work out how energy efficient your property is.
7. You will have to pay a deposit on exchange of contracts a few weeks before the purchase is completed and the money is received from the mortgage lender. The deposit is often 10% of the purchase price of the home but it can vary and be negotiated.
Return to this Page Menu:
There are a number of ways in which you could find a property to buy:
1. Using local estate agents
2. Looking at the property pages in local newspapers
3. Contacting house building companies for details of new properties being built in the area
4. Looking on the internet.
5. You may need to consider shared ownership or one of the Government backed Help to Buy schemes.
6. Buying at an auction needs to be fully prepared for.
Deciding on a property
When you find a property you should arrange to look at it to make sure it is what you will need and to get some idea of whether or not you will have to spend any additional money on the property, for example, for repairs or decoration. It is common for a potential buyers (and we strongly recommend this) to visit a property two or three times before deciding to make an offer.
Energy Performance Certificates
If you are thinking of buying a property, you must receive an Energy Performance Certificate (EPC), free of charge. An EPC gives information on the energy efficiency of a property using A to G ratings, with A being the most energy efficient and G the least efficient. The certificate is produced by an accredited domestic energy assessor.
Where there is a Green Deal plan on a property for which payments are still to be made, information about this must be included on the EPC. More information on EPCs is available here.
More about the Green Deal here.
Warranties for newly-built properties
If the property is a newly-built property, check whether it has a Buildmark warranty. Buildmark warranties are organised by the National House-Building Council (NHBC) which is an independent organisation with over 20,000 builders of new houses on its register. Before being accepted onto the NHBC register, builders must be able to show that they are technically and financially competent and they must also agree to keep to NHBC Standards.
The Buildmark scheme covers homes built by NHBC registered builders once the NHBC has certified them as finished. The scheme will, for example, protect your money if the builder goes bankrupt after contracts have been exchanged but before completion. It also covers defects which arise because the builder has not kept to NHBC Standards. For more information, go to the NHBC website here.
As well as protection under Buildmark, buyers also have protection under the home-building industry’s independent Consumer Code for Home Builders. More information is available here.
Next, is the property leasehold, freehold or commonhold?
Freehold property
If the property is freehold, this means that the land on which the property is built is part of the sale and no ground rent or service charge is payable.
Leasehold property
A property may be leasehold, which means that the land on which the property is built is not part of the sale. You have to pay ground rent to the owner of the land - who is called the freeholder.
The length of a lease can vary and we will ensure that the length of the lease on the property you are interested in buying is acceptable to the mortgage lender. Lenders usually have two ways of considering the length of the lease. They either want it to have a minimum period such as 90 years left or they alternatively that at least 60 years is left by end date of your new mortgage term. Some freeholders charge a lot of money of money to extend the years on lease and so this is an important consideration.
In addition to ground rent on a leasehold property, you may have to pay an annual service charge. This usually happens with a flat. The service charge covers such items as maintenance and repairs to the buildings, cleaning of common parts and looking after the grounds.
A group of leaseholders living in the same building may have a right to jointly buy the freehold of the building or take over its management. Sometimes when you buy a leasehold property, you also buy a shareholding in a limited company which owns the freehold. So you would be a part freeholder as well.
In England and Wales, you can get further advice about leasehold from here.
Commonhold property
If the property is commonhold, this means that you can buy the freehold of a flat and own common parts of the building jointly with the owners of other flats in the building (known as a commonhold association).
In commonhold a ground rent or service charge is not payable. However, a share of the commonhold association's expenditure on maintenance, insurance and administration will be payable for the common parts of the building.
Making an offer
When you decide you would like to buy a particular property you do not necessarily have to pay the price being asked for it by the owners. You can offer less if, for example, you thinks there are repairs to be done which will cost money or you simply want to try and get a lower price.
If the property is being sold through an estate agent, you should tell the estate agent what you are prepared to pay for the property. The estate agent will then put this offer to the owners.
If the owners do not accept the first offer put to them by you, you can decide to make an increased offer. There is no limit on the number of times you can make offers on a property. If you make a written offer it will always be made subject to contract. This means that you will not be committed to the purchase before finding out more about the state of the property. If you make an oral offer this is never legally binding.
Sale by tender process where the buyer pays the agent's fee
Some estate agents are selling properties by a tender process where you view the property at an open day and make an offer through a sealed bid. You will usually have to enter into an agreement to pay the agent's commission fee as part of the tender process. The seller is only charged a small marketing fee or no fee. You will need to pay the fee on completion of the sale.
It is not against the law for an estate agent to sell a property by a tender process, but it can be confusing for the buyer if the agent isn't clear about the process.
If you don't agree to pay the agent's fee, you can still make an offer and the agent must pass it onto the seller.
The disadvantages of buying a property for sale by the tender process where you pay the agent's fee are:-
1. It's more expensive than if the seller pays the fee, which is usually the case
2. The agent's fee will be part of the purchase price and may increase the stamp duty you need to pay
3. The agent's fees are unlikely to be part of the value of the property for the mortgage calculation.
The Property Ombudsman has more information on this here.
When your offer has been accepted
When your offer for the property has been accepted you will have to consider the following:-
1. Whether a holding deposit is payable. Normally in England & Wales this would only apply on new build.
2. You should already have a mortgage agreement in principle & the application should now be completed.
3. Consider what type of survey you require: Basic, Homebuyers or Full Structural.
4. We recommend you have already decided upon a solicitor by this time.
We provide more detail of this stage under our mortgage section.
Back to Buying a Property
1. Using local estate agents
2. Looking at the property pages in local newspapers
3. Contacting house building companies for details of new properties being built in the area
4. Looking on the internet.
5. You may need to consider shared ownership or one of the Government backed Help to Buy schemes.
6. Buying at an auction needs to be fully prepared for.
Deciding on a property
When you find a property you should arrange to look at it to make sure it is what you will need and to get some idea of whether or not you will have to spend any additional money on the property, for example, for repairs or decoration. It is common for a potential buyers (and we strongly recommend this) to visit a property two or three times before deciding to make an offer.
Energy Performance Certificates
If you are thinking of buying a property, you must receive an Energy Performance Certificate (EPC), free of charge. An EPC gives information on the energy efficiency of a property using A to G ratings, with A being the most energy efficient and G the least efficient. The certificate is produced by an accredited domestic energy assessor.
Where there is a Green Deal plan on a property for which payments are still to be made, information about this must be included on the EPC. More information on EPCs is available here.
More about the Green Deal here.
Warranties for newly-built properties
If the property is a newly-built property, check whether it has a Buildmark warranty. Buildmark warranties are organised by the National House-Building Council (NHBC) which is an independent organisation with over 20,000 builders of new houses on its register. Before being accepted onto the NHBC register, builders must be able to show that they are technically and financially competent and they must also agree to keep to NHBC Standards.
The Buildmark scheme covers homes built by NHBC registered builders once the NHBC has certified them as finished. The scheme will, for example, protect your money if the builder goes bankrupt after contracts have been exchanged but before completion. It also covers defects which arise because the builder has not kept to NHBC Standards. For more information, go to the NHBC website here.
As well as protection under Buildmark, buyers also have protection under the home-building industry’s independent Consumer Code for Home Builders. More information is available here.
Next, is the property leasehold, freehold or commonhold?
Freehold property
If the property is freehold, this means that the land on which the property is built is part of the sale and no ground rent or service charge is payable.
Leasehold property
A property may be leasehold, which means that the land on which the property is built is not part of the sale. You have to pay ground rent to the owner of the land - who is called the freeholder.
The length of a lease can vary and we will ensure that the length of the lease on the property you are interested in buying is acceptable to the mortgage lender. Lenders usually have two ways of considering the length of the lease. They either want it to have a minimum period such as 90 years left or they alternatively that at least 60 years is left by end date of your new mortgage term. Some freeholders charge a lot of money of money to extend the years on lease and so this is an important consideration.
In addition to ground rent on a leasehold property, you may have to pay an annual service charge. This usually happens with a flat. The service charge covers such items as maintenance and repairs to the buildings, cleaning of common parts and looking after the grounds.
A group of leaseholders living in the same building may have a right to jointly buy the freehold of the building or take over its management. Sometimes when you buy a leasehold property, you also buy a shareholding in a limited company which owns the freehold. So you would be a part freeholder as well.
In England and Wales, you can get further advice about leasehold from here.
Commonhold property
If the property is commonhold, this means that you can buy the freehold of a flat and own common parts of the building jointly with the owners of other flats in the building (known as a commonhold association).
In commonhold a ground rent or service charge is not payable. However, a share of the commonhold association's expenditure on maintenance, insurance and administration will be payable for the common parts of the building.
Making an offer
When you decide you would like to buy a particular property you do not necessarily have to pay the price being asked for it by the owners. You can offer less if, for example, you thinks there are repairs to be done which will cost money or you simply want to try and get a lower price.
If the property is being sold through an estate agent, you should tell the estate agent what you are prepared to pay for the property. The estate agent will then put this offer to the owners.
If the owners do not accept the first offer put to them by you, you can decide to make an increased offer. There is no limit on the number of times you can make offers on a property. If you make a written offer it will always be made subject to contract. This means that you will not be committed to the purchase before finding out more about the state of the property. If you make an oral offer this is never legally binding.
Sale by tender process where the buyer pays the agent's fee
Some estate agents are selling properties by a tender process where you view the property at an open day and make an offer through a sealed bid. You will usually have to enter into an agreement to pay the agent's commission fee as part of the tender process. The seller is only charged a small marketing fee or no fee. You will need to pay the fee on completion of the sale.
It is not against the law for an estate agent to sell a property by a tender process, but it can be confusing for the buyer if the agent isn't clear about the process.
If you don't agree to pay the agent's fee, you can still make an offer and the agent must pass it onto the seller.
The disadvantages of buying a property for sale by the tender process where you pay the agent's fee are:-
1. It's more expensive than if the seller pays the fee, which is usually the case
2. The agent's fee will be part of the purchase price and may increase the stamp duty you need to pay
3. The agent's fees are unlikely to be part of the value of the property for the mortgage calculation.
The Property Ombudsman has more information on this here.
When your offer has been accepted
When your offer for the property has been accepted you will have to consider the following:-
1. Whether a holding deposit is payable. Normally in England & Wales this would only apply on new build.
2. You should already have a mortgage agreement in principle & the application should now be completed.
3. Consider what type of survey you require: Basic, Homebuyers or Full Structural.
4. We recommend you have already decided upon a solicitor by this time.
We provide more detail of this stage under our mortgage section.
Back to Buying a Property
If you wish to buy a home you may be able to borrow money to do this. This is called a mortgage. The loan is for a fixed period, called a term and you have to pay interest on the loan. If you do not keep up the agreed repayments, the lender can take possession of the property.
Who do you trust to help you arrange your mortgage?
It is very important to note that Lloyd Vine are totally independent and work for you. We are directly authorised by the Financial Conduct Authority. We source mortgages from the whole of the available market. You will experience varying degrees of pressure from estate agents & builders trying to persuade you to use their own financial advisers. We would urge you to resist this and consider whether you would feel comfortable that an agent working for the seller is arranging your mortgage.
Additionally, you may be inclined to speak with your bankers. But will they by chance have your most suitable mortgage? It is so important you know what the whole market may offer you. It could mean being able to borrow extra amounts. You may achieve lower product fees and better rates.
Remember, the choice of financial adviser and solicitor is yours.
There are two basic types of mortgages - repayment mortgages and interest-only mortgages.
Repayment is a mortgage by which the capital borrowed is repaid gradually over the period of the loan. The capital is paid in monthly instalments together with an amount of interest. The amount of capital which is repaid gradually increases over the years while the amount of interest goes down.
With an interest only mortgage, you only pay interest on the loan in monthly instalments to the lender. Pure interest only mortgages make no regular provision to repay the loan. So at the end of the term you would have to sell the property unless you had accumulated sufficient funds or made payments of capital over the mortgage term.
Some time ago investment backed loans were popular. Instead of repaying the capital each month you just pay the interest and each month, you additionally pay into a long-term investment or savings plan which you hope (net of gains and losses) would be sufficient to clear the loan at the end of the mortgage term. However, if you do not save enough and/or the investment growth is poor, you will have a shortfall and this would require making up. Typically investment linked mortgages would use a pension, an endowment or an ISA.
Can you you qualify for a mortgage?
Obtaining a mortgage is dependent on three basic requirements:
Your income. Lenders judge how much to lend you in relation to how much you earn and can therefore afford to repay. Their assessment on how much they can lend you is based on your gross pre-tax earnings multiplied by their own set multiplier. This is called income multiples. Income multiples vary between lenders and products. You could be allowed to borrow up to 5 times your gross regular income. However, all lenders now use electronic affordability calculators taking into account your general financial position. Many lenders have reduced the salary multiple to 4.5.
Where there are two applicants the multiples and the affordability calculators work much the same and include both gross incomes and other allowable income.
How much you can borrow will depend on many things and will vary between lenders as each have their own criteria. If you are committed to hire purchase loans and credit cards loan repayments, this affects your ability or spare income available to pay a mortgage.
Your Credit History. Mortgage lenders will perform a credit check search. This will be carried out by checking your credit file records with credit information companies. Examples of these are Equifax and Experian. You can contact either of these companies and for a small charge they will send you details of your credit history at any given address. Please refer to our Credit Search page. This information includes whether you are on the voters role, if you have had any county court judgements issued, if you have been late paying or defaulted on any loans, amongst other information. Lenders will want to know your address(es) covering the last three years and will need proof that you have lived at the addresses provided. You can now obtain a copy of your credit file online.
The Property. Finally, they will want to ensure that the security for their loan (ie the property you wish to buy) is worth what you are paying for it and that it is in marketable condition. They will require a valuation for mortgage purposes and you normally have to pay for this at the application stage. Whilst such a valuation survey will point out any obvious defects in the property, it does not provide you with professional full structural inspection. Such surveys cost more and should be considered by you especially if you have any doubts or are buying an older style property which is outside of any ten year builder’s guarantee.
Mortgage Product Types
Above we explained of all the ways by which you can repay your mortgage loan. The lenders also offer variations to their mortgages to entice people to borrow from them. The following explain the types of mortgage deals you can have and in most cases, you can choose which repayment you require to link to these deals: -
Standard Variable Rate:
This is the basic mortgage rate provided by the lender. It is their true repayment rate which is the starting position for any other deals they may be offering. It is usually the highest rate a lender offers and it is also the rate you will have to pay once any chosen introductory deal has finished. This mortgage rate usually changes when the Bank Base Rate changes though lenders can change it at will as it has no direct connection to the Bank of England base rate. Normally there would be no onerous redemption penalties and you could move the mortgage or pay it off at anytime with minimal administration costs. Some lenders have two or more standard variable rates. The highest and normal rate is usually for smaller loans and the slightly reduced rates are for larger loans.
Fixed Rate:
A Fixed Rate is a special deal whereby the lender agrees to fix the loan payment rate. The length of time the fixed rate applies depends on the particular deal from the lender. Normally short periods of up to two years would be under the standard variable rate and for periods in excess of two years, the rate may be similar or even higher than the standard variable rate. Once on a fixed rate it means your monthly pay is fixed and does not change, no matter what happens to the lenders standard variable rate. Once the agreed fixed period finishes, your mortgage usually reverts to the lenders standard variable rate applicable at the time unless another rate variation is specified.
Discounted Rate:
This is a variable rate mortgage providing a discount of the lenders standard variable rate. Again, you will generally find that the discount will be larger for a shorter period of discount and less for longer periods of discounts. For instance, you may be offered a three per cent discount over one year, but a one per cent discount over three years. This discounted rate is variable and will fluctuate in line with any changes to the lenders standard variable mortgage rate. However, it will always remain the agreed discounted amount under the standard variable rate until the period of the offer finishes. Once the agreed discounted period finishes, your mortgage reverts to the lenders standard variable rate applicable at the time.
Tracker Rates:
This is variable rate mortgage that is directly linked to a market base rate which is usually the Bank of England base rate. It may be linked for a limited time or for the whole of the mortgage. It may have a discounted period depending on the particular lender deal.
Flexible & Offset Mortgages:
Traditional mortgages were and can still be quite inflexible. If you wanted to pay extra amounts of the loan you may have to make special arrangements. When you did, the lenders often did not reduce the capital sum on which the interest is being charged, until the start of their next financial year. To borrow extra amounts involved completing forms and missing a month’s payment was treated as having your account in arrears. Flexible Mortgages provide can provide all of these facilities. Overpayments, underpayments, payment breaks, extra finance and interest charged and applied daily or monthly. The exact terms vary from lender to lender. You do not usually have the opportunity to have fixed rate though most providers do provide a permanent small discount of their standard variable rate.
Some providers also let you run your mortgage account as a normal bank account. Cheque books and cheque cards can be provided and salary and wages can be paid in. You can link your mortgage to an acceptable bank account and any funds & savings held within this account with offset the interest being charged on the mortgage account and at the prevailing mortgage rate.
Caps and Collars:
Not often available. These are variable rate mortgages. A capped rate will have a maximum it can rise to in the agreed period whilst a collar will have a minimum rate it could fall to in the agreed period.
Cashback:
No often available now other than a small bonus cashback on completion of your purchase. Originally, the ideas of a cashback mortgage was that rather than you enjoying a reduced discounted mortgage payment for a while, why not pay the true monthly payment and have what would have been discounted up front as a cash sum. Cashback deals vary, but can be as much as 5% of the mortgage amount borrowed. Obviously you cannot expect to claim a cashback and then switch lenders or close the mortgage. Usually there is a tie in period for which you must pay the standard variable rate. If you pay of the loan before this period expires, then the cashback usually has to be repaid. These deals are not generally available these days.
Miscellaneous:
Lenders can offer a mixture of some of the above products. You may have a discounted rate with a small cashback. There are fee free deals, especially for re-mortgage clients. There could be deals with fee refunds. For instance a refund of the survey/valuation fee. Some deals are not what they may seem. You may see a good discount or fixed rate, but the lender may tie you in after the special rate finishes and may also force you to have there own branded insurance add-ons which may cost up to twice as much as those we could place for you.
Mortgage Related Fees Charged by the Lender
Basic Valuation Survey Fee
The lenders wish to make sure the home you are buying is in good order and offers adequate security to the loan. They require a basic valuation survey conducted which they arrange, but they charge you the fee. The fee is from each lenders own table and increases in stages depending on the value of the house you wish to purchase. A typical valuation fee structure could be:-
House Value not exceeding £ 150,000.00 from £240.00 to £455.00
House Value not exceeding £ 200,000.00 from £270.00 to £480.00
House Value not exceeding £250,000.00 from £310.00 To £505.00
all these fees are examples and can vary considerably between lenders
Sometimes, the lender will offer a free standard valuation and we always look for the most suitable mortgage deals for you.
Application Fee
Some lenders charge a non-refundable application fee such as £90. This would have to be paid in advance when we submit your application.
Mortgage Product Fees
Each lender has many variations on the mortgage products they offer. Often the lower rates have the higher fees. A product fee is where the lender expects you buy your chosen product. For example if you require a 3 year fixed rate, they may charge £995 to effectively buy the product. This can usually be added to your mortgage advance, but it is still a cost to you. Some products have no fee and where there is a fee, this could be any amount. We ensure you have the most suitable product. For instance, that you do not pay a higher product fee for a lower rate which will not save you the extra cost of the product fee.
Please be assured you will receive very detailed illustrations on all the mortgages we offer. All terms and conditions and costs and fees will be shown.
High Loan to Value Fee
Most lenders have now waived this fee. So if you have heard of this cost, it will most likely not apply. It is sometimes referred to as a Mortgage Guarantee Premium. It used to be, that any proportion of your loan in excess of 75% of the value of your property is insured with an insurance company by the lender to protect the lender against falling house prices or a build up of debt if they had to repossess the property. The one off premium would have been paid by you. Often the lenders allowed this to be added to your mortgage.
Back to Buying a Property
Who do you trust to help you arrange your mortgage?
It is very important to note that Lloyd Vine are totally independent and work for you. We are directly authorised by the Financial Conduct Authority. We source mortgages from the whole of the available market. You will experience varying degrees of pressure from estate agents & builders trying to persuade you to use their own financial advisers. We would urge you to resist this and consider whether you would feel comfortable that an agent working for the seller is arranging your mortgage.
Additionally, you may be inclined to speak with your bankers. But will they by chance have your most suitable mortgage? It is so important you know what the whole market may offer you. It could mean being able to borrow extra amounts. You may achieve lower product fees and better rates.
Remember, the choice of financial adviser and solicitor is yours.
There are two basic types of mortgages - repayment mortgages and interest-only mortgages.
Repayment is a mortgage by which the capital borrowed is repaid gradually over the period of the loan. The capital is paid in monthly instalments together with an amount of interest. The amount of capital which is repaid gradually increases over the years while the amount of interest goes down.
With an interest only mortgage, you only pay interest on the loan in monthly instalments to the lender. Pure interest only mortgages make no regular provision to repay the loan. So at the end of the term you would have to sell the property unless you had accumulated sufficient funds or made payments of capital over the mortgage term.
Some time ago investment backed loans were popular. Instead of repaying the capital each month you just pay the interest and each month, you additionally pay into a long-term investment or savings plan which you hope (net of gains and losses) would be sufficient to clear the loan at the end of the mortgage term. However, if you do not save enough and/or the investment growth is poor, you will have a shortfall and this would require making up. Typically investment linked mortgages would use a pension, an endowment or an ISA.
Can you you qualify for a mortgage?
Obtaining a mortgage is dependent on three basic requirements:
Your income. Lenders judge how much to lend you in relation to how much you earn and can therefore afford to repay. Their assessment on how much they can lend you is based on your gross pre-tax earnings multiplied by their own set multiplier. This is called income multiples. Income multiples vary between lenders and products. You could be allowed to borrow up to 5 times your gross regular income. However, all lenders now use electronic affordability calculators taking into account your general financial position. Many lenders have reduced the salary multiple to 4.5.
Where there are two applicants the multiples and the affordability calculators work much the same and include both gross incomes and other allowable income.
How much you can borrow will depend on many things and will vary between lenders as each have their own criteria. If you are committed to hire purchase loans and credit cards loan repayments, this affects your ability or spare income available to pay a mortgage.
Your Credit History. Mortgage lenders will perform a credit check search. This will be carried out by checking your credit file records with credit information companies. Examples of these are Equifax and Experian. You can contact either of these companies and for a small charge they will send you details of your credit history at any given address. Please refer to our Credit Search page. This information includes whether you are on the voters role, if you have had any county court judgements issued, if you have been late paying or defaulted on any loans, amongst other information. Lenders will want to know your address(es) covering the last three years and will need proof that you have lived at the addresses provided. You can now obtain a copy of your credit file online.
The Property. Finally, they will want to ensure that the security for their loan (ie the property you wish to buy) is worth what you are paying for it and that it is in marketable condition. They will require a valuation for mortgage purposes and you normally have to pay for this at the application stage. Whilst such a valuation survey will point out any obvious defects in the property, it does not provide you with professional full structural inspection. Such surveys cost more and should be considered by you especially if you have any doubts or are buying an older style property which is outside of any ten year builder’s guarantee.
Mortgage Product Types
Above we explained of all the ways by which you can repay your mortgage loan. The lenders also offer variations to their mortgages to entice people to borrow from them. The following explain the types of mortgage deals you can have and in most cases, you can choose which repayment you require to link to these deals: -
Standard Variable Rate:
This is the basic mortgage rate provided by the lender. It is their true repayment rate which is the starting position for any other deals they may be offering. It is usually the highest rate a lender offers and it is also the rate you will have to pay once any chosen introductory deal has finished. This mortgage rate usually changes when the Bank Base Rate changes though lenders can change it at will as it has no direct connection to the Bank of England base rate. Normally there would be no onerous redemption penalties and you could move the mortgage or pay it off at anytime with minimal administration costs. Some lenders have two or more standard variable rates. The highest and normal rate is usually for smaller loans and the slightly reduced rates are for larger loans.
Fixed Rate:
A Fixed Rate is a special deal whereby the lender agrees to fix the loan payment rate. The length of time the fixed rate applies depends on the particular deal from the lender. Normally short periods of up to two years would be under the standard variable rate and for periods in excess of two years, the rate may be similar or even higher than the standard variable rate. Once on a fixed rate it means your monthly pay is fixed and does not change, no matter what happens to the lenders standard variable rate. Once the agreed fixed period finishes, your mortgage usually reverts to the lenders standard variable rate applicable at the time unless another rate variation is specified.
Discounted Rate:
This is a variable rate mortgage providing a discount of the lenders standard variable rate. Again, you will generally find that the discount will be larger for a shorter period of discount and less for longer periods of discounts. For instance, you may be offered a three per cent discount over one year, but a one per cent discount over three years. This discounted rate is variable and will fluctuate in line with any changes to the lenders standard variable mortgage rate. However, it will always remain the agreed discounted amount under the standard variable rate until the period of the offer finishes. Once the agreed discounted period finishes, your mortgage reverts to the lenders standard variable rate applicable at the time.
Tracker Rates:
This is variable rate mortgage that is directly linked to a market base rate which is usually the Bank of England base rate. It may be linked for a limited time or for the whole of the mortgage. It may have a discounted period depending on the particular lender deal.
Flexible & Offset Mortgages:
Traditional mortgages were and can still be quite inflexible. If you wanted to pay extra amounts of the loan you may have to make special arrangements. When you did, the lenders often did not reduce the capital sum on which the interest is being charged, until the start of their next financial year. To borrow extra amounts involved completing forms and missing a month’s payment was treated as having your account in arrears. Flexible Mortgages provide can provide all of these facilities. Overpayments, underpayments, payment breaks, extra finance and interest charged and applied daily or monthly. The exact terms vary from lender to lender. You do not usually have the opportunity to have fixed rate though most providers do provide a permanent small discount of their standard variable rate.
Some providers also let you run your mortgage account as a normal bank account. Cheque books and cheque cards can be provided and salary and wages can be paid in. You can link your mortgage to an acceptable bank account and any funds & savings held within this account with offset the interest being charged on the mortgage account and at the prevailing mortgage rate.
Caps and Collars:
Not often available. These are variable rate mortgages. A capped rate will have a maximum it can rise to in the agreed period whilst a collar will have a minimum rate it could fall to in the agreed period.
Cashback:
No often available now other than a small bonus cashback on completion of your purchase. Originally, the ideas of a cashback mortgage was that rather than you enjoying a reduced discounted mortgage payment for a while, why not pay the true monthly payment and have what would have been discounted up front as a cash sum. Cashback deals vary, but can be as much as 5% of the mortgage amount borrowed. Obviously you cannot expect to claim a cashback and then switch lenders or close the mortgage. Usually there is a tie in period for which you must pay the standard variable rate. If you pay of the loan before this period expires, then the cashback usually has to be repaid. These deals are not generally available these days.
Miscellaneous:
Lenders can offer a mixture of some of the above products. You may have a discounted rate with a small cashback. There are fee free deals, especially for re-mortgage clients. There could be deals with fee refunds. For instance a refund of the survey/valuation fee. Some deals are not what they may seem. You may see a good discount or fixed rate, but the lender may tie you in after the special rate finishes and may also force you to have there own branded insurance add-ons which may cost up to twice as much as those we could place for you.
Mortgage Related Fees Charged by the Lender
Basic Valuation Survey Fee
The lenders wish to make sure the home you are buying is in good order and offers adequate security to the loan. They require a basic valuation survey conducted which they arrange, but they charge you the fee. The fee is from each lenders own table and increases in stages depending on the value of the house you wish to purchase. A typical valuation fee structure could be:-
House Value not exceeding £ 150,000.00 from £240.00 to £455.00
House Value not exceeding £ 200,000.00 from £270.00 to £480.00
House Value not exceeding £250,000.00 from £310.00 To £505.00
all these fees are examples and can vary considerably between lenders
Sometimes, the lender will offer a free standard valuation and we always look for the most suitable mortgage deals for you.
Application Fee
Some lenders charge a non-refundable application fee such as £90. This would have to be paid in advance when we submit your application.
Mortgage Product Fees
Each lender has many variations on the mortgage products they offer. Often the lower rates have the higher fees. A product fee is where the lender expects you buy your chosen product. For example if you require a 3 year fixed rate, they may charge £995 to effectively buy the product. This can usually be added to your mortgage advance, but it is still a cost to you. Some products have no fee and where there is a fee, this could be any amount. We ensure you have the most suitable product. For instance, that you do not pay a higher product fee for a lower rate which will not save you the extra cost of the product fee.
Please be assured you will receive very detailed illustrations on all the mortgages we offer. All terms and conditions and costs and fees will be shown.
High Loan to Value Fee
Most lenders have now waived this fee. So if you have heard of this cost, it will most likely not apply. It is sometimes referred to as a Mortgage Guarantee Premium. It used to be, that any proportion of your loan in excess of 75% of the value of your property is insured with an insurance company by the lender to protect the lender against falling house prices or a build up of debt if they had to repossess the property. The one off premium would have been paid by you. Often the lenders allowed this to be added to your mortgage.
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