Guiding you with the largest single investment you may ever make
A mortgage is a loan provided by a bank or building society to purchase a property. The mortgage is ‘secured’ against the property until it has been paid off.
The number of years in which you pay off the mortgage is known as the mortgage term. The mortgage term is tailored to the needs of the individual with factors such as your age and the property’s affordability taken into consideration.
The mortgage lender (bank or building society) will charge you interest on your mortgage and you will pay back both the capital (how much you borrowed on which interest will be charged) and the interest to the lender, which is known as a repayment mortgage. However, in some instances, you can just pay back the interest, known as an interest only mortgage, but you will still owe the full amount you borrowed at the end of the mortgage term. These types of mortgages are not so common these days, except in the case of buy-to-let mortgages, where often the sale of the property is used as security.
Also known as an Agreement in Principle (AIP), a DIP is a certificate from the lender to say that ‘in principle’ they will lend you a specified amount based on the basic information provided to them. However, it is important to note that this is not a guarantee to lend.
In almost all cases, a DIP will need to be undertaken by the lender prior to any application being made. The information you provide allows the lender to check your credit file and helps them establish whether they are happy to lend you the amount required.
A Decision/Agreement in Principle is a useful document to have when you are looking to purchase a property as it shows estate agents that you are able to obtain a mortgage and can put you in a better position when putting in an offer over someone who does not yet have a DIP in place.
Depending on the lender, a DIP will either leave a ‘hard’ or ‘soft’ footprint on your credit file. A soft footprint is a basic look at your credit report prior to submitting a full application to determine whether or not you are likely to be successful. It is recorded on your credit file, but does not have an impact on your credit rating. A hard footprint does have an impact on your credit report as it investigates your full credit history. Having multiple credit searches in a short space of time, for example by applying for a decision in principle or mortgage with one lender and then applying with another lender or opening a credit card or applying for an overdraft, can adversely affect your credit rating and will be viewed dimly by lenders.
A remortgage is the process of moving your existing mortgage to a new deal with a new lender (staying with the same lender is known as a product transfer).
There may be many reasons for remortgaging, including:
Each lender will have different criteria which determines how much you can borrow and unfortunately there is no set calculation.
The amount you are eligible to borrow will be determined by the cost of the property you wish to purchase, the size of your deposit, your income and affordability (taking into consideration your monthly financial commitments and any future commitments).
Equity is the value of your home you own after any mortgage or debt secured upon your home has been repaid. For example, if your house is worth £150,000 and you owe £100,000 on your mortgage and any secured debt, the equity you own is £50,000.
Loan To Value is a percentage figure to determine the amount of the property you own compared to that which is mortgaged.
How to calculate your LTV: –
Take your outstanding mortgage balance and divide it by your property value and multiply it by 100 = LTV%
Here is an example, based on an outstanding mortgage balance of £150,000 and a property valued at £200,000: –
£150,000 divided by £200,000 x 100 = 75(%)
Therefore, you have equity in the property of £50,000 or 25%
Ideally, you should start looking into your mortgage position at the very start of your home buying journey, this is because you need to find out how much you are able to borrow (your affordability)
If you are remortgaging due to your initial mortgage rate coming to an end, it’s a good idea to start looking into this a good few months before your existing mortgage is due to expire, this gives you plenty of time to look at your options and avoids you going onto your lenders’ standard variable rate, which could mean your monthly payments are much higher.
Stamp Duty (SDLT) is a charge you may have to pay to HMRC when buying a home.
How much you pay will depend on a few different factors, such as; the value of the property, whether it is your only property, where you live (i.e different charges apply in Scotland, Wales and Northern Ireland).
The Chancellor has recently announced that from 8th July 2020 until 31st March 2021 you will not pay SDLT on properties up to £500,000, this includes first time buyers and home movers. However, a surcharge applies if you are buying a second home or a Buy to Let property.
I can provide you with general information on the rates payable., however, most mortgage advisers are not qualified to give tax advice, therefore, if you need advice regarding SDLT or the implications of tax, you would need to speak to a taxation specialist or your legal representative.
Shared ownership doesn’t mean you have to share your house with a complete stranger!
Shared ownership allows you to buy a share of a home (usually between 25% and 75% of the home’s value) and pay rent to the housing association on the remaining share. Because you only need to find a deposit on the share you are buying, it means you do not need to find such a large deposit, this could be a solution if you are a first time buyer or starting again after divorce or separation and don’t currently own a property. You may be able to buy further shares later when you can afford to do so (this is known as ‘staircasing’ – shares can usually be purchased up to 100% ownership).
You may be able to buy a home through shared ownership, in England, if:
You can buy either a new-build home or an established home that is already in the shared ownership scheme.
A self-build mortgage is a specialist mortgage specifically designed for you to build your own home. With a self-build mortgage, the money you need to borrow for the build project will either be released in advance stage payments or arrears stage payments, depending on your need.
Arrears stage payments – To fund arrears stage payments, you will need to have access to savings or cash to fund the build until the lender is happy with the valuation after each stage has been completed.
With arrears stage payments, money is released at the end of each stage of the build, after a valuation has been carried out and provided to the lender – this is to ensure that the lender does not lend too much – valuation based arrears stage payments are not guaranteed, although there are cost based arrears stage options available, giving greater financial security, which can be discussed when looking at your mortgage needs. To fund valuation based arrears stage payments, you will need to have access to savings or cash to fund the build until the lender is happy with the valuation after each stage has been completed.
Advanced stage payments – are guaranteed and are released at the start of each build stage, ensuring you have the money to complete each stage of the build. This could be a good solution if you do not have access to a large amount of savings and also if you have to show you have finance in place, for example if you are building a German Style kit house that is being built overseas.
With a repayment mortgage, you pay off both the capital and interest monthly, so by the end of the mortgage term, as long as the payments are kept up-to-date, the loan will be fully repaid.
With an interest-only mortgage, you only pay the interest due on the amount you borrow. This means you will still owe the amount you originally borrowed when you reach the end of your mortgage term.
Lenders will require you to have a repayment strategy in place, to ensure you will be able to pay off the capital at the end of the mortgage term.
Interest-only mortgages are more common with buy-to-let properties these days. Interest-only mortgages for residential properties are far and few between.
With a Standard Variable Rate (SVR) mortgage, the amount of interest you pay each month can change.
Each lender sets their own SVR, and they can raise or lower it by any amount and at any time. It tends to be the default interest rate that applies if you do not have a limited-term deal or discount. Typically, when one of these deals comes to an end, you’ll be transferred automatically onto your lender’s SVR.
With a fixed rate mortgage, the interest rate stays the same for a set period. This gives you the certainty that for the duration of the set term, you will know exactly how much you will pay each month.
Tracker mortgages are a type of variable rate mortgage, which track the movements of another rate (most commonly, the Bank of England base rate). Tracker rates do not match the rates they track but track at a set percentage above or below that rate (typically above).
Tracker rates can be for an introductory period or you can get a lifetime tracker (which means you would be on it for the whole term of their mortgage).
A discounted variable rate mortgage offers a discount on a certain interest rate; most commonly a lender’s standard variable rate.
The discount can be for an introductory period or it can be for the entire term of the mortgage (a lifetime discounted rate).