Mortgages

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What Is A Mortgage?

A mortgage is a loan which is used to purchase a property. This loan is secured on that property.

What Is A Mortgage Broker?

A mortgage broker is a person who specialises in advising and arranging mortgages and insurances for their customers. There are a few types. Some are Independent meaning they can search the whole of the market for both and some are tied or can only offer mortgages or insurances from a range or even just one single lender. Banks and building societies can sonly offer mortgages from their own range but an independent can offer mortgages from the whole of the market, therefore, independent mortgage advisers or brokers are the best people to use.

A good broker will have a good knowledge of the whole market and offer you the cheapest rate on the market.

How Does A Mortgage Broker Work?

A mortgage broker will have an initial meeting to discuss how much mortgage you can afford, over how long, interest rate types you may be interested in (i.e. fixed rate, tracker rate etc) mortgage repayment types, and obtain a budget for you, they will then search the market or their own products and offer you the cheapest mortgage they can find based on what you told them in their initial meeting and present their research to you, if you are happy with the figures the mortgage broker has come back with, then the broker will apply for the mortgage you have discussed and agreed to apply for and they will process your mortgage application from start to finish updating you regularly every step of the way. They will contact solicitors, lenders, estate agents all for you

Why Use A Mortgage Broker?

Using an independent mortgage broker is a must because they will find the cheapest rate in the marketplace for you and they also have access to exclusive mortgage deals which you cannot get direct, they will advise and process your application from start to finish. If you have any questions along the way then they will answer them for you and if there are any problems during the process they can advise you on what to do next. Using an independent mortgage broker is a must.

What To Ask Your Mortgage Broker?

You can ask a mortgage broker whatever you want. How much can I borrow? How long can I have a mortgage? Can I remortgage if I’m divorced? What will my monthly repayments be? You can ask them anything mortgage related and they will know the answer.

How Much Do Mortgage Brokers Charge?

Mortgage brokers all charge different amounts of fees. This can range from £0 (i.e. none) to any amount. Some may have a minimum fee but as I said they all differ. The brokers MUST tell you how much they charge if they are going to charge you a fee so you can decide whether to use them or not

Do All Mortgage Brokers Charge fees?

Most mortgage brokers do charge fees. They all charge differing amounts and some even do not charge any at all.  

How Much Can I Borrow?

This does vary from lender to lender. The maximum loan you will ever be able to borrow is 5 times your gross annual income. For example, if you earn £20,000 per annum and have no debts at all then you could potentially borrow up to £100,000. There are certain stipulations to this but in essence that’s it. There are over 100 lenders on the market and they all differ massively so speak to an adviser to see if they can help.

Stamp Duty Land Tax(SDLT)

This is a tax which is payable when purchasing a property. It has 2 sub categories; residential rates and non-residential rates. Residential is on a property you intend to live in and non –residential is for a property you do not intend to live in.

Residential Rates

If the purchase price of your property is:

Up to £125,000 = zero (nothing to pay)
The next £125,000 = 2% between these amounts (the portion between £125001-£250000)
The next £675,000 = 5% (the portion between £250,000 and £925,000)
The next £575,000 = 10% (the portion between £925001 and £1.5 million)
The remaining amount (the portion above £1.5 million) = 12%

Examples

If you buy a house for £275,000, the SDLT you owe is calculated as follows:

  • 0% on the first £125,000 = £0
  • 2% on the next £125,000 = £2,500
  • 5% on the final £25,000 = £1,250
  • Total SDLT £3,750

Additional Properties

You’ll usually have to pay 3% on top of the normal SDLT rate if you are buying a second property. This includes on new residential property if you are keeping your existing one.

This is normally paid to the solicitor on exchange of contracts

Mortgage Fees Explained

There are many fees involved with setting up a mortgage. The typical ones are below. Any mortgage lender or adviser will give you an illustration. These fees will be explained to you before you take the new mortgage. Typical fees are as follows:

  • Arrangement fee – a fee charged by the lender and not on every mortgage – in most cases can be added to the loan so not payable up front but not in every case
  • Valuation fees – if you are buying a property then these are normally charged by lenders and they are payable on application. Some lenders do offer products with free valuations, but it does vary so please check

There are many other fees, but these are the two most common. Ask you adviser or contact us if you would like to know more information

Using A Mortgagebroker According To Martin Lewis Of Money Saving Expert:

On 14th April 2006 Martin put on his website moneysavingexpert.com the following:

“The right broker is a big benefit. For better to go to a broker than direct to one lender who will simply try to flog you their own mortgage.They will look after the market and possibly bring you better negotiating power: Overall I’m a broker fan!”

Types Of Interest Rate And What’s Right For Me?

Fixed Rate

A rate which keeps your monthly payment the same for a given period of time, typically 2,3 or 5 years but longer fixed rate periods are available. These are suitable for people who want to know what they are paying every month. If interest rates increase then your monthly payment stays the same which is a bonus, however, if interest rates go down then your payment will also stay the same therefore you will not benefit.

Tracker Rate

This is a rate which goes up and down with (tracks) the Bank of England Base rate. Every month on the news you will hear the newsreader say “the Bank of England decided to keep interest rate the same today” this is what you need to keep an eye out for because if you are on a tracker rate then this could affect your monthly payment. If the BoE rate goes up then so does your monthly payment, but if the BoE base rate goes down then your monthly payment will also go down

LIBOR Rate Tracker

LIBOR stands for (London Inter-Banking Offer Rate) the rate at which banks charge each other to borrow money. This rate is reviewed every 3 months and can go up and down like the tracker or variable rate. These rates are normally associated with mortgage lenders in the “sub-prime” marketplace. These mortgage lenders normally charge higher rates and are designed to assist people who have had credit problems in the past. The rates are higher because of the higher risk in lending to someone who has a history of missing payments to their creditors.

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Variable rate

A rate which is set by the mortgage lender who is lending you the money. This rate can change anytime the lender decides i.e. the BoE base rate can stay the same, but the lender may just decide to increase or lower the rate whenever they want and vice versa. The BoE base rate can increase but the lender may decide to keep or lower their variable rate at any time. The variable rate is also the rate you normally revert to after your initial irate finishes. The variable rate is higher than your initial rate in most cases so just before your initial rate finishes make sure you contact an adviser or your mortgage lender to negotiate a new deal before it increases to the lenders variable rate

Discounted rate

This is a discount from the variable rate as described above. You normally qualify for a discount from the lender’s variable rate for an initial couple of years. After the discount period ends, the rate reverts to the lender’s variable rate

Offset Mortgages

Also known as an Australian mortgage – this is a brilliant concept. An Offset mortgage is a mortgage which is tied to a bank account and a savings account. If you have a £100,000 mortgage and £10,000 worth of savings then you only pay interest on £90,000 worth of mortgage. This is because your savings have been “Offset” against the balance of your mortgage. As interest on mortgages are mostly charged daily if you pay your salary through your linked bank account along with your savings you have one of 2 options in this instance to either reduce the term of your mortgage and keep the payment the same or reduce the payment and keep the term the same. Either way, depending on how much you pay through the accounts and dependent on savings, you could potentially save a great deal of money. You would not earn any interest on your savings, but you save interest on the money you owe on your mortgage, therefore if your mortgage is at a rate of 2% then you will be saving 2% per annum on that money. Savings accounts these days are below 1% normally depending on who and what savings account you have.

Tips:

After your initial rate finishes your mortgage will normally revert to a variable rate. The variable rate is higher than your initial rate in most cases so just before your initial rate finishes make sure you contact an adviser or your mortgage lender to negotiate a new deal before it increases to the lender’s variable rate.

Good advisers will contact their clients around 3 to 4 months before their rate is due for renewal to get their new mortgage deal in place in time. After all, you do not want to be paying the higher variable rate when your initial deal ends. Do not leave it until the last minute it can take around 6 – 8 weeks to get all the necessary paperwork sorted to re-mortgage to a new lender with a better deal, so, please do not start a couple of weeks beforehand otherwise it will not go through in time

Repayment types

There are 2 types of repayment on a mortgage:

  1. Repayment (aka Capital and Interest) – this repays the mortgage as you go along like a normal loan ie if you borrow £100,000 over 25 years, after 25 years you owe the bank nothing because you have repaid what you have borrowed. Every month you pay part capital and part interest
  2. Interest Only – All you do every month is pay the interest on the money borrowed. You do not repay any of the money you borrowed, so, if you borrow £100,000 over 25 years, after 25 years you will still owe £100,000, Interest Only repayment types are harder to get these days due to tightening of criteria and regulations

You should be aware that like most things in life if it’s too good to be true then sometimes it is. For example,various comparison websites may show you lists of great deals, but are they deals which you can apply for?

There may be an underlying issue which you may not think are relevant to doing the mortgage, for example, the lender may not be able to lend you as much as you need because some lend more than others, or, you may have a freehold flat with no lease which narrows the amount of lenders you can potentially use. These websites do not tell you all of the “lending criteria” of each lender,so if you do manage to apply for the mortgage and something comes up during your application which does not fit within the lenders criteria, you may have paid good money to be declined,this is why it is always best to speak with a professional.

Let’s face it, your adviser must justify to you and the FCA exactly why they have recommended the deal they have.

Another example of criteria that may hinder you in using ANY lender on the market are types of income or types of property. It is ALWAYS worth a conversation with a professional to see what deals are available to you. A professional experienced mortgage adviser will have an idea of where you can potentially obtain a mortgage within a few minutes of talking to you.Get In Touch withone of our professional and friendly advisers.It won’t cost anything to talk to someone

I do not mean to sound like the voice of doom, however, it may transpire that you apply for that mortgage and it goes through without any problem.

TIP: ALWAYS call the lender before you apply for the mortgage and part with any money to discuss all aspects of your situation to them because that way you find out up front whether your application is likely to go through or not. This is exactly what a broker will do for you

Mortgages Q&As

There may be an underlying issue which you may not think are relevant to doing the mortgage, for example, the lender may not be able to lend you as much as you need because some lend more than others, or, you may have a freehold flat with no lease which narrows the number of lenders you can potentially use. These websites do not show you all the “lending criteria” of each lender. So, if you do manage to apply for the mortgage and something comes up during your application which does not fit within the lenders criteria then you could have paid out good money to be declined. Therefore, it is always best to speak with a professional.

Let’s face it, your adviser must justify to you and the FCA exactly why they have recommended the deal they have.

Another example of criteria that may hinder you in using ANY lender on the market are types of income or types of property. It is ALWAYS worth a conversation with a professional to see what deals are available to you. A professional experienced mortgage adviser will have an idea of where you can potentially obtain a mortgage within a few minutes of talking to you. Click here to Get in Touch with an adviser to call you or call us whenever you are ready. It doesn’t cost anything to talk to someone

I do not mean to sound like the voice of doom, but it may transpire that you apply for that mortgage and it goes through without any problem.

TIP: ALWAYS call the lender before you apply for the mortgage and part with any money to discuss all aspects of your situation to them because that way you find out up front whether your application is likely to go through or not. This is exactly what a broker will do for you

There are 2 types of repayment on a mortgage
1. Repayment (aka Capital and Interest) – this repays the mortgage as you go along like a normal loan i.e. if you borrow £100,000 over 25 years, after 25 years you owe the bank nothing because you have repaid what you have borrowed. Every month you pay part capital and part interest
2. Interest Only – All you do every month is pay the interest on the money borrowed. You do not repay any of the money you borrowed, so, if you borrow £100,000 over 25 years, after 25 years you will still owe £100,000, Interest Only repayment types are harder to get these days due to tightening of criteria and regulations

Please note this is different to the credit score on your credit report. Each lender has their own credit scoring system. Some do not credit score at all, but most do.
Credit scoring is done when you apply for a Decision in Principle or Agreement in Principle. As mentioned above, every question that you answer and the type of answer you give to those questions will give you an amount of points and if you reach the required amount of points then you pass their credit score. Even things as simple as an email address or telephone numbers all help to give points so if the lender asks for it give it to them

This depends completely on what your circumstances are. It depends on whether you have had bad credit in the past or low incomes or different types of income, what you do for a job, what type of property you are buying. In fact, we could be here all day, but every person is different, and everyone has a different financial situation so please Get in Touch if you wish to see what mortgages are available to you.

The reason for this is because there are hundreds of bits of criteria that different lenders take into consideration so best to speak with someone who can let you know.

They look at lots of information in order to assess your mortgage application. They use back office systems that we cannot see like the Hunter system to detect fraud and to assess your application they will look at; what you do for a living, how much your income is, how long you have been doing it, what your credit history is like, how much deposit are you putting down, how much money do you earn, what other finances you have in the background and how well they have been conducted.

All these bits of information will have a set amount of points within the lenders credit scoring system. If you get enough points you will pass their credit score. Simple things like declaring your landline and work telephone numbers all add up points so if they ask the question please fill in the box because it will help you pass each lenders credit score.

Yes, you can get a mortgage if you are self-employed. You need at least 1 year’s worth of accounts or income declared to the Inland Revenue.

Different lenders have different ways of assessing self-employed income. For example, they can either use net profit for sole traders or partnerships or salary and dividends if you are a company director with more than a 25% share-holding, some lenders use the above incomes plus retained profit in the business. As you can see there are several ways of proving your income and different lenders like to see various different things so best to speak to an adviser who can point you in the right direction and get you the best deal available.

There are many lenders out there in the “sub-prime” or “adverse” mortgage market designed to assist people who have had financial difficulties in the past. They are normally only accessible through mortgage brokers. I.e. you cannot access these mortgages yourself, you need to speak with a professional and they need to arrange the mortgage for you.
In all cases the lender will charge you higher rates and the rate depends on how recent or how bad the credit history is.

Most lenders do allow you to transfer the mortgage to a new property. This is called porting. The only stipulation is that you must re-qualify for the entire mortgage all over again. This is great if you are 2 years into a 5 year fixed rate which has Early Repayment Charges. If you transfer or port your mortgage to your new property you do not have to pay any of these early Repayment Charges.

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