Mortgage A – Z
A is for Affordable Homes
The Affordable Homes Programme was created to increase the supply of new affordable homes in England and is often known as a shared ownership scheme.
The scheme is simply where you buy a share of a property from a landlord, usually a council or housing association, and rent the remaining share from them.
You normally need a mortgage to pay for the share that you buy. This mortgage amount is typically between 25% and 75% of the value of the property, you also pay a reduced amount of rent on the share of the property you don’t own. At a later date you will be given the option to buy a bigger share of the property (up to 100% of its value).
The scheme is primarily aimed at first time buyers and people wanting to buy new build properties.
You cannot sell the property for more than the affordable home value (under Section 106 property clauses). This means it is important to always get legal advice to understand how the Section 106 restrictions may affect you in the future.
If you are considering buying an affordable home and are looking for the best mortgage deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881 to find out more.
B is for Buy-To-Let
A Buy-To-Let mortgage is a mortgage that is taken out for the sole purpose of buying a residential property that is to be let out to tenants.
Prior to Buy-To-Let mortgages becoming popular and widely available, property investors who needed to borrow the money to buy property had no option but to raise commercial or business type mortgages, often at very high interest rates.
Unlike residential mortgages which are based on the applicant’s income and affordability, Buy-To-Let mortgages are based on the amount of rental income the borrower is likely to receive (verified by a local valuer). This value is then increased by an additional ‘safety net’ rate which is usually around the 125% mark (although this figure varies between lenders).
Let-To-Buy mortgages are also widely available, although maybe not as well known. This type of mortgage works by allowing you to raise capital against your current residential property (the one you live in) and use this money to purchase a new home for you to move into, while renting out your existing property to tenants.
If you are considering buying a property to let and are looking for the best mortgage deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881 to find out more.
C is for Capital Raising
Capital raising is a way of releasing funds from the equity in your property by taking out a loan which is secured against it. You could raise funds for any reason such as home improvements, a new car, a holiday, buying a second property or simply to consolidate other debts.
Raising capital can be achieved by applying for a further loan on an existing mortgage, remortgaging to a new lender by transferring your mortgage (and borrowing an additional amount at the same time) or even by taking a brand new mortgage on a mortgage free (unencumbered) property.
With moving costs high and the housing market slow, improving or extending your home remains an attractive option with an estimated eight million home owners embarking on these projects every year. Whatever the reason for capital raising, there are many good deals available on the market.
If you are considering capital raising and are looking for the best mortgage deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
D is for Debt Consolidation
Debt consolidation is simply the combining of unsecured debts into a single new loan, usually to save money on a monthly basis by reducing your total monthly outlay. Debt consolidation involves taking out a new loan to pay off any other individual debts. The new single loan may result in a lower interest rate and lower monthly repayments. It can often be seen as a way out of high interest debt, however there are pitfalls which must be investigated and considered thoroughly.
Your overall monthly payments are likely to reduce through debt consolidation but you may end up paying more interest, particularly if you raise the loan by increasing your mortgage and taking the new loan over a longer term.
Consolidating doesn’t clear the debt it moves it. Improving financial habits, reducing spending and concentrating on saving is the answer to most debt worries; however debt consolidation can help you achieve your goal.
Always consider debt consolidation borrowing carefully by taking expert, whole of market advice to help you consider all possibilities.
If you are considering consolidating your debts and are looking for advice and help finding the best deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
E is for Equity Release
Equity release is simply the process of borrowing money against the equity in your property with the aim of either using it as a lump sum for a specific purpose, or to invest the money providing a new monthly income.
There are two main equity release schemes on the market, lifetime and home reversion. With a lifetime scheme you borrow a proportion of your home’s value, interest is charged but usually not paid back until you die or your home is sold. Home reversion schemes are where you sell a share of your property to the provider for less than the market value, however you have the right to stay in the property for the rest of your life. When you die, or your property is sold, the provider gets back their share of whatever the property sells for.
Equity release schemes are designed to be a lifelong commitment, this means that if you change your mind, decide to move home, or need the equity for something else later on, you could find yourself in difficulty. Releasing equity in this way is therefore a huge decision and can have implications on your financial situation in later life so should never be considered lightly meaning that you should always seek expert financial advice.
If you are considering releasing the equity in your home and are looking for the best mortgage deal available, let our expert Mortgage Advisers do the hard work for you contact us today on 01228 711881.
F is for First Time Buyers
If you’ve decided it’s time to buy your first property, you should plan ahead as there are lots of things you can do to make the process simpler.
Save hard for your deposit and all of the associated costs and fees. You will need a deposit of at least 5% of the purchase price of your new property and it’s worth noting that the bigger the deposit, the better the mortgage deals available to you.
Mortgage lenders also require you to prove you can afford the mortgage using more than just your income as evidence so having a proven track record of saving will go in your favour. Save as much as you can on a monthly basis and be prepared to provide evidence of this. If all you can show a lender is how much you spend each month it can be hard convincing them you can change your spending habits overnight to incorporate a mortgage and the costs involved in running a home.
Consider and budget for other costs that are associated with owning a property. There may be essential works and repairs to carry out, you will want to buy furniture and other essential items plus chances are the décor won’t be to your taste and you’ll have plans to redecorate – you’ll need cash available for all of this.
Find out how much you can borrow and make sure you can afford the monthly mortgage repayments. Speak to a Mortgage Adviser before you even start looking at properties to get all of this information as well as details of all associated fees such as valuation and legal fees so you are fully prepared.
Once you have your savings at the ready and a mortgage agreed the fun begins and you can start house hunting. Make sure you look at lots of properties, buying a house is probably the biggest purchase you will ever make so don’t be in a rush, take your time and get it right.
If you are a first time buyer considering buying your first home and are looking for the best mortgage deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
G is for Guarantor
A guarantor is someone who legally accepts the financial responsibility for another person. A mortgage guarantor agrees to take on the mortgage repayments if the borrower becomes unable to make the payments themselves, so clearly this is a massive commitment. Guarantors are often used by mortgage lenders when the applicant’s income perhaps doesn’t stretch far enough to meet normal lending criteria. The most common guarantor to a mortgage is a parent providing the guarantee for one of their children.
The guarantor must be able to afford the mortgage repayments in full as if it were their own mortgage, this means that any debts the guarantor has themselves will be taken in to account when assessing affordability. It can also affect their own future ability to obtain credit as the mortgage will be linked to them as a debt.
A guarantor should never enter into a guarantor mortgage without fully understanding the risks as they too become legally responsible for the mortgage repayments including any missed or late repayments meaning their own credit rating could be affected. It is recommended to always seek mortgage and legal advice before entering into a guarantor contract.
If you are considering becoming a guarantor or would like to find out more information let our expert Mortgage Advisers guide you, contact us today on 01228 711881.
H is for Help to Buy
Help to Buy is an equity loan scheme which makes new build homes available to house purchasers who would otherwise have struggled to afford to buy their own home. The equity loan part is funded by the Government HCA (Homes and Committees Agency).
Help to Buy is available in England from registered house builders and the scheme is scheduled to run until 31 March 2016 (or earlier if all the funding is used up). The scheme offers a maximum 20% loan on a house purchase of up to £600,000 with the money being paid directly to the builder by the HCA.
Many lenders are offering Help to Buy mortgages as they are able to lend higher percentage mortgages with the increased security of additional equity within the property as the equity loan is registered as a second charge. The equity loan is interest free for the first five years after which time it is repayable at an initial rate of 1.75%, rising annually. It can be repaid in full at any time, it can also be paid on the sale of the property or after twenty five years.
There are some restrictions such as a property cannot be altered or extended and the mortgage cannot be increased without consent from the HCA.
If you are considering buying a property through the Help to Buy scheme and are looking for the best mortgage deal available let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
I is for Interest Only
There are two main ways of repaying your mortgage.
Number 1: Interest only
This method does not repay your mortgage at all. You simply pay the interest to the lender each month and the loan always remains outstanding. At the end of the agreed mortgage term, the loan must be repaid in full by using either an investment vehicle, selling the property or remortgaging. An interest only mortgage is also known as an endowment mortgage.
The monthly repayments are much lower as they do not include any of the loan, however the loan somehow still needs to be repaid and most lenders will restrict the loan-to-value ratio (which is the ratio of the amount of the loan to the value of the asset purchased) to increase their security.
Interest only loans have become less popular in recent years. In the late 1980’s and early 1990’s endowment mortgages were widely sold. An endowment policy (a monthly savings plan, usually with built-in life cover) was sold alongside an interest only mortgage. The plans usually invested in stocks and shares and were designed to repay the mortgage in full at the end of the term, plus the hope of a nice tax free lump sum. However during the mid 1990’s many endowment policy holders discovered they were going to be left with a predicted shortfall, resulting in one of the most well-known mis-selling scandals of recent times. Most lenders now only agree to interest only lending with a guaranteed repayment method.
Number 2: Capital and interest
The alternative option is the traditional capital and interest method of repayment. This is the only secure method of repaying the mortgage within the agreed term. Every month you pay back the interest on the loan and some of the actual loan, so when the term comes to an end, providing all repayments have been made in full and on time, the mortgage will be completely repaid. As the repayments include part of the loan, the repayments are higher.
If you are unsure about which type of mortgage is best for you, speak to our expert Mortgage Advisers for expert, impartial advice on 01228 711881.
J is for Joint Mortgages
When two people buy a property, they can own it as joint tenants or as tenants in common.
On purchasing a property with another person, you both need to decide on what basis you would like to own it together, and you should always take advice from a specialist like a conveyancer. The type of ownership you choose affects what you are able to do with the property if one owner dies or if your relationship breaks down.
Joint tenants have equal rights to the property which will mean that the property automatically belongs to the other owner should one of you die. You are unable to pass part of the property on to a third party (via a Will for example) and you can’t sell your share, remortgage the property, or raise a loan against it without the other owner’s consent.
Tenants in common have rights only on the share they own. The share can be 50/50 or split differently as you are able to own non equal shares and you are able to leave your share to another person in your Will.
You can change the type of ownership of the property at a later date if you wish, for example if you are joint tenants and divorce you may wish to leave your share to another person. If you are tenants in common and marry, you may want to have equal rights to the whole of the property.
It is vital to take legal advice before entering into either contract so all parties are fully informed.
If you are considering a new mortgage and are looking for the best mortgage deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
K is for Know Your Limits
Until recently, lenders would multiply your income to calculate how much they were prepared to lend a mortgage applicant, typically anywhere between three and four times your salary for a single applicant, or between two and a half and three times for joint borrowers (after deducting loan repayments or any other financial commitments).
Nowadays the approach is very different, calculating borrowing is entirely based on how much lenders think you can afford. It has become far more complex to calculate – your circumstances now dictate how much you can borrow.
Factors that could affect your borrowings are:
The further from retirement age you are, the longer the mortgage term you can choose, this means that your payments can be spread over a longer period meaning you can probably borrow a bit more as the monthly repayments will be lower.
The more dependents you have, whether this be a child or someone you care for, the less you can borrow. Even though having more children may mean you have more income from benefits, many lenders won’t take these benefits into account.
Loans, credit cards, store cards, school fees and maintenance payments are all commitments. Even if you plan to repay a credit card on completion of the mortgage, some lenders will reduce your borrowing potential in case you borrow again after the mortgage has completed.
If you are considering a new mortgage and are unsure about how much you can borrow speak to our expert Mortgage Advisers for advice. You can also try out our budget planner calculator on our website to see how much disposable income you have every month.
L is for Loan-to-Value
Loan-to-value ratio (LTV) simply means the percentage ratio between the value of a property and the mortgage secured on it. For example, a property worth £200,000 with a mortgage of £100,000 would have an LTV ratio of 50% – it’s all about how much you owe in relation to how much your property is worth.
The difference between the two figures is known as the equity, in this example, the equity is £100,000.
The LTV is known as a lending risk assessment which lenders use when calculating how risky a loan is to them. Typically, the higher the LTV, the riskier the lending, whereas the lower the LTV, the safer the lending.
Lenders use this ratio when setting interest rates and creating mortgage products. Generally speaking, the lower the LTV, the lower the rates and the better the deals available.
If you are considering a new mortgage and are looking for the best mortgage deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
M is for Mortgage Market Review
What is the Mortgage Market Review (MMR)?
The MMR was introduced to reform the mortgage market to protect borrowers from reckless mortgage lending which may leave them unable to meet their repayments. Previous bad lending practice led to some people being granted mortgages they simply couldn’t afford which led to high levels of mortgage arrears and repossessions.
The new MMR rules, introduced on 26 April 2014, were focused on making sure that when you take out a new mortgage you can afford it and it suits your needs and circumstances. Mortgage providers apply these rules to their lending criteria, checking that mortgage repayments are affordable not just now, but in the future too. To do this they assess applications on many different factors.
Here are some key things for you to consider when thinking of applying for a mortgage:
Debts don’t help
Before applying for a mortgage, try and reduce your debts, this helps demonstrate how you manage your finances responsibly.
Your credit report matters
Before applying for a mortgage, obtain a copy of your credit report from a credit reference agency. It will show you what a lender will see when they review your application. If your credit rating isn’t great, try to improve it.
Prove your address history
To get a mortgage, you have to be registered on the electoral roll. Often people assume they’re automatically registered but if you’re not this can have major implications on your credit worthiness. Credit reference agencies use this information to confirm identity which is passed onto lenders when you apply for credit to help prevent fraud.
The bigger the deposit the bigger the choice of mortgages available to you. Lenders reserve their best rates for those with larger deposits, so you’ll also benefit from lower monthly payments. Although there have been some signs of life in the market for 95% mortgages, most of the competition is at lower loan to values ratios.
Save, save, save
If you are not saving each month, try to, even it is just a small but regular amount. Draw up a budget planner and work out if there are any non-essential spends you can reduce or eliminate. Show lenders you are responsible enough to save an amount on a regular basis.
If you are considering a new mortgage and are want the best mortgage deal available then let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
N is for New Builds or Self Builds
Most mortgage lenders will consider lending on self build properties and the process can often be cheaper than buying a residential property.
In order to secure a mortgage for your self build property you need to prepare yourself by planning out a budget. Lenders will want to know how much the whole project is going to cost, including the cost of the land, materials, labour, etc. You will also need a very detailed report along with planning permission details. It is important to be very clear on everything to do with your build from who is going to do what, to the materials that are being used.
Factors such as location, build type, property type, construction methods, materials, schedules etc. all have a massive impact on how much a lender will give you. Funds tend to be released in stages from the purchase of a piece of land, to completion of the property. This means that you need to be sure that you have enough money available to get you through each stage of development.
If you are considering building your own home and are looking for the best mortgage deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
O is for Offset Mortgages
An offset mortgage is definitely worth considering if you have a good amount of savings put aside. This type of mortgage works by counterweighing, or offsetting, your savings against what you owe on your mortgage, therefore reducing the overall amount of interest that you pay.
So for example, if you have a £100,000 mortgage and £20,000 in savings (which must be linked with the same provider) you would only pay interest on £80,000. As your savings go up or down, so does their effect on the mortgage.
Family offset mortgages are becoming more popular whereby parents link their savings to one of their children’s mortgages. The savings still belong to the parents but they provide additional security for their child’s mortgage.
If you are considering an offset mortgage and are looking for the best deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
P is for Products
Choosing which mortgage product is right for you can be a tough decision as there are a vast array of mortgage products available on the market. Here is simple guide to some of the most common products available:
Standard variable rate
A standard variable rate mortgage will have an interest rate that will go up and down in line with general interest rates. This means that your payments will be variable in accordance with any change in the standard variable rate.
The rate on this type of mortgage is set at a certain percentage below the lender’s standard variable rate for a specified period. The interest rate charged is always variable so even during the period of the discount, your mortgage repayment may go up or down.
A fixed rate mortgage provides an interest rate that remains the same for a specified period. This means that regardless of what happens to general interest rates, your monthly mortgage repayment during the fixed rate period will not change. A fixed rate mortgage can be a gamble in that if interest rates fall, you could find yourself paying more than the standard variable rate.
This does however work both ways because if interest rates rise you could find yourself much better off. It is an ideal product for budgeting purposes as you can plan ahead knowing that during the fixed rate period you mortgage repayments will remain the same.
A tracker rate mortgage is always variable as the interest rate charged tracks the Bank of England base rate at a set margin above or below it for a specified period. The period could be from as little as one year up to the total life of the mortgage.
A capped rate mortgage guarantees that the interest rate charged will not rise above a certain rate (the cap) during the capped rate period. Should the standard variable rate drop below the capped rate of interest then the interest rate that you pay will also drop. However, if interest rates rise above the cap your mortgage repayments will stay at the lower capped rate.
A cashback mortgage simply provides you with a one-off cash lump sum on completion of your mortgage which can be set at a fixed amount or is sometimes a percentage of the loan amount.
If you are considering a new mortgage and are unsure which type of mortgage is right for you, let our expert Mortgage Advisers find you the best deal. Contact us today on 01228 711881.
Q is for Quotes
When a mortgage adviser recommends a mortgage to you, they are obliged to provide you with a Key Features Illustration (KFI).
A KFI is a document tailored for you and explains fully the key features of the mortgage product being recommended to you as a quote. The information that is in this document is based on the information you provide during the initial mortgage enquiry process.
It will show you:
- the name of the person advising you to take the mortgage if applicable
- the loan amount
- the type of mortgage
- the term of the loan
- the purchase price of valuation amount of the property
- the product details and interest rate payable
- overall costs of the mortgage
- the monthly repayment amount
- the risks involved
- any fees payable by you
- insurance requirements if applicable
- early repayment and redemption charges
- overpayment rules if applicable
- any relevant additional information
- commission or procuration fees payable by the lender
- contact details in case you have any queries
A KFI is one of the most important documents you will receive and a copy will also be contained within your mortgage offer from the lender.
If you are considering a new mortgage and are looking for the best mortgage deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
R is for Remortgages
A remortgage is simply replacing your existing mortgage with a new one, either as it stands or by changing it, by either reducing or increasing the mortgage term or by reducing or increasing the amount of the borrowing. There are many good reasons for remortgaging, saving money being the obvious one.
When you take any new mortgage out, you normally start off with an introductory deal such as a fixed rate, a discount or a cashback incentive and you are usually tied in during this initial period with redemption penalties to pay if you leave the deal early. Once the deal ends, you are usually transferred over to your lender’s standard variable rate which, more often than not, will be higher than the new introductory deals that are available elsewhere. This is often the best time to start shopping around for a new deal.
Before you remortgage, there are many things to consider such as the costs involved. You need to remember that free valuation fees, legal fees and admin fees are often included within lender’s introductory offers, but if they don’t, you will have to cover these costs yourself, so what might look like a great deal in terms of reduced monthly repayments could end up costing you more. You need to weigh up the initial costs against the savings you may make via your monthly mortgage repayments.
If you are considering remortgaging and are looking for the best deal available, let our expert Mortgage Adviser do the hard work for you, contact us today on 01228 711881.
S is for Support Mortgages
Family support mortgages are becoming more popular and widely available. They are designed to allow parents to help their children get on the property ladder.
This type of mortgage makes it easier for young adults to secure mortgages with as little as a 5% deposit. Parents then use their savings to help secure and guarantee their children’s mortgage without actually handing over any money.
Each lender offering this type of mortgage will have their own unique product but they all work in a fairly similar way. Parents place their savings into an account which is linked to their child’s mortgage. The child has no access to the money, but the money effectively serves as additional security for the mortgage on the property they want to buy. By doing this the parents are simply using their savings as security without actually giving their money away and still earning interest on their savings at the same time. After a specified period, typically three years (providing repayments have been kept up-to-date on the mortgage), the savings fund is released back to the parents as the mortgage repayments will have reduced the debt by enough to mean the additional security is no longer required.
However, there is a risk to the parents – the savings can be retained by the lender in the event of missed repayments and in the event of the property being repossessed or sold with a shortfall between the sale price and the amount of the mortgage debt, the savings could be retained in full by the lender.
If you are considering a family support mortgage and are looking for the best deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
T is for Term
Traditionally, most mortgages were repaid over a 25 year term, so mortgage repayments were calculated over this period. This meant you could either afford these repayments or you couldn’t, take it or leave it! However, things have changed in recent years, now mortgage terms are based on affordability and personal circumstances.
In terms of the total amount you have to repay in interest, the shorter the term the better, meaning the less interest you will have to pay. However by having a shorter term you have less time to repay the amount borrowed meaning the monthly repayments will be higher and you will therefore not be able to afford the same size mortgage.
Longer term mortgages seem attractive, the monthly repayments are lower as you have more time to repay the amount borrowed meaning you could possibly be able to borrow more. However, the total amount of interest you will pay will be much higher.
Personal circumstances also need to be considered when choosing a mortgage term, for example, unless you have a very good pension to rely on in retirement you will need your mortgage to be repaid before you retire. This would mean that a 25 year term wouldn’t necessarily be suitable for a 50 year old planning to retire at 65. However, a 20 year old looking for an affordable mortgage could take a loan over 30 or 35 years without the worry of having to cover the repayments with a pension.
There are no right or wrong answers to the question of what mortgage term is best – every individual’s circumstances are different meaning it is simply a question of affordability and sensibility.
If you are considering a new mortgage and need help choosing a mortgage term, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
U is for Underwriter
The Mortgage Underwriter is the most important person in the mortgage application process, however, you will never get to meet or speak to them.
Mortgage underwriting is the process a lender uses to determine risk. Lenders must review whether the mortgage is suitable for the particular borrower. They must also assess the likelihood of the borrower defaulting on their mortgage re-payment before offering them the loan.
Mortgage lenders do not hand over money to anyone without the approval of an underwriter. Their job is to ensure that all the necessary information is present, clear, and accurate, and only then will they make a lending decision. Decisions are made based on the underwriter’s experience and judgement and whether the application is in line with their company’s lending policy – basically this is the person you need to impress.
You may at times feel like your mortgage adviser is invading your financial privacy or has you jumping through hoops to provide more information than you feel is necessary. However, your adviser knows only too well what the underwriter requires in order to make a lending decision. Every question asked of you and every piece of information requested, whether it be a three month old bank statement or last year’s tax return, is necessary to enable the underwriter to review, and hopefully approve, your mortgage application.
If you are considering a new mortgage and are looking for the best deal available, let our expert Mortgage Advisers do the hard work for you, contact us today on 01228 711881.
V is for Variable Vs Fixed Rate
When applying for a mortgage the mortgage types and products available are endless which can make it difficult to narrow them down to enable you to make the right decision. It can also make it hard to know which type of mortgage is right for you leading to the question – to fix or not to fix?
A variable rate mortgage simply means that the rate of interest you pay is variable. It may go up or down depending on interest rates, this results in there being little security with regards knowing how much your mortgage repayment will be each month. Variable rates do generally stay close to the base rate so you shouldn’t feel like you’re getting a bad deal, however in times where interest rates are volatile, variable rates can make budgeting difficult.
A fixed rate mortgage is ideal for budgeting purposes as your mortgage repayment stays exactly the same for the fixed rate period, typically, two, three or five years with some even longer, regardless of what happens to interest rates. Fixed rates in this current financial climate tend to be good deals as rates are very low, if rates start to rise, your fixed rate payment wont.
When making your choice it’s a question of preference, do you want to take a bit of a gamble or go for the security of clear budgeting?
If you are considering a new mortgage and can’t decide whether a fixed or variable rate mortgage is right for you, speak to our expert Mortgage Advisers on 01228 711881 for all the advice you need.
W is for Where Should You Go for Your Mortgage?
Why should you use a mortgage adviser when there are banks and building societies on every high street tempting you in with promises of their best deals? What can a mortgage adviser do you for that you can’t do for yourself?
Letting a mortgage adviser do the hard work for you can be invaluable.
For starters, you’re protected. When you receive mortgage advice your adviser has a duty of care, a legal obligation to you. They can only recommend a mortgage that is suitable to you and they also have to justify why their recommendation is right for you. If they get it wrong, you have the right to complain and be compensated. However, if you walk through the doors of a high street lender or apply via their website and choose your own mortgage deal which you later feel is wrong or unaffordable, there is nobody to complain to.
A mortgage adviser is on your side and not that of the lenders. They know the market and the lenders as they deal with them every day – they can bring this experience to you, cutting out the admin process. They also have the skills and facilities to search the whole market, looking for the best deal to meet your individual needs and requirements. Mortgages are complex and finding a lender that can give you the right rate, product, term, features and fees can be extremely time consuming if you’re having to do all this yourself.
If you are considering a new mortgage and are looking for the best mortgage deal available, let our expert Mortgage Advisers do all the hard work for you, contact us today on 01228 711881.
X is for X-ray Your Finances
The Financial Conduct Authority (FCA) brought in new rules on 26 April 2014 following the Mortgage Market Review (MMR). These new rules are designed to protect borrowers from borrowing money they can’t afford to repay and to prevent risky lending by mortgage providers.
Affordability has become a primary concern when assessing a mortgage application. The key question being; can the applicant afford the mortgage now, and will they continue to be able to afford it in the future?
Affordability checks have increased and you now need to be more prepared than ever to answer questions and provide evidence about your income, outgoings, savings and financial history. A budget planner is now a requirement for every lender when assessing a mortgage application. This is a table detailing all of your outgoings and will include the costs of travelling to and from work, how much you spend on things such as clothes, socialising, holidays and gym membership as well as all of your general bills such as energy, Council Tax and your TV license, the total is then assessed against your income.
Also considered are your credit card balances and personal loans, if they are to continue on through the completion of the mortgage. The budget planner will then be cross referenced by the lender against your bank statements, so if you say you spend £200 a month on food, they’ll be looking for evidence of your supermarket spending and if it’s nearer £300, that’s the amount the lender will use.
These new rules may mean that borrowers find that they can’t borrow as much as they were expecting, the old style income multiples of four times your annual salary for an individual, or two and a half times joint salaries are long gone.
Stress testing has also been introduced as an affordability tool, for example on paper a borrower may seem they can afford the mortgage repayment now, but how would they cope if interest rates were to rise? Lenders now check that you will be able to afford the payments at higher interest rates.
It’s now all about transparency, honesty and evidence, and the penalties for lenders not following the rules are severe.
If you are considering a new mortgage and are unsure about how much you could borrow, speak to our expert Mortgage Advisers who will do the hard work for you – contact us today on 01228 711881 You can also see how much monthly disposable income you have using our budget planner calculator.
Y is for You
Applying for a new mortgage can be daunting, but knowing exactly what is going to happen and when can help. There are many steps that you will have to go through when applying for a mortgage, here is a summary of them:
During your first meeting, your mortgage adviser will complete a document called a fact find. The accuracy of the information recorded is critical, both from a compliance perspective but also when submitting mortgage applications to the lenders. The fact find is a central document to the mortgage process as it collates all your financial information, needs and requirements, and is used when assessing suitability for a mortgage lender as well as for making recommendations to you.
Your mortgage adviser will search the market for a suitable lender and a mortgage product that best suits your needs. A full written recommendation will be prepared and presented to you together with a Key Features Illustration (KFI) explaining the recommended mortgage product along with the monthly repayments and associated fees.
Once you are happy with the advice provided and wish to go ahead, the adviser will complete an online affordability calculator with the lender, ensuring the mortgage is affordable.
Decision in principle
Once you have passed the affordability calculator stage, your personal information will then be submitted to the lender for a decision in principle. A decision in principal is confirmation from the lender that providing you meet the relevant requirements, you will be eligible to receive the funds for your mortgage.
Once you have passed the decision in principle stage, a full mortgage application is then submitted to the lender.
Submission of documents
Each lender has its own criteria, but at this stage they will advise which documents are required, for example, address verification, identification, payslips, bank statements, proof of savings, etc. These documents are then certified by the mortgage adviser and forwarded to the lender.
Once the application is being processed, a mortgage valuation is instructed by the lender. This valuation is a check by the lender to ensure the property provides suitable security for the mortgage.
Once the mortgage application has been assessed and an acceptable mortgage valuation report is received, a mortgage offer is issued to the applicants with copies to the mortgage broker and your solicitor.
Your solicitor will act on the mortgage offer from the lender by dealing with the mortgage conditions applicable to the mortgage and drawing up the contracts. You will be asked at this stage for any necessary fees with regards to the deposit.
Once the legal work is complete, your solicitor will request the mortgage funds from the lender to complete the process.
Finally the transfer is arranged at the Land Registry and you get your keys.
If you are considering a new mortgage, let our expert Mortgage Advisers guide you through the process step-by-step, contact us today on 01228 711881.
Z is for Zone In On Your Finances
When you decide to apply for a new mortgage you need to do your homework first. Something as small as an unpaid bill could be enough for a lender to decline your application.
Here are some tips for ensuring a smooth mortgage application:
- If you are concerned that your credit report may be anything less than ‘perfect’, get a copy. Lenders check your credit history in conjunction with your mortgage application and any financial anomalies need to be explained. Sometimes credit reports contain mistakes, so make sure everything is in order, if there are errors, get them corrected.
- Try to clear existing debts before you apply, they will have a knock-on effect on how much you can borrow as they will be taken into consideration when assessing affordability. If paying them off in full isn’t possible, ensure the monthly payments on all of your debts are paid on time every month, lenders need to see that you take your financial responsibilities seriously.
- Don’t make any drastic financial changes immediately before a mortgage application. Lenders like to see a settled financial history so avoid taking more credit in the months before you try to get a mortgage.
- Make sure you are registered on the electoral roll. Lenders use this to verify your identity and not being registered will raise questions and cause problems and delays. Check with your local council if you are unsure.
- You will need to provide proof of residency for at least three years, using documents such as a council tax statement or bank statement, as well as acceptable identification, such as a passport or a driving licence. Ensure you have up–to-date documentation to hand, a driving licence with a previous address won’t be acceptable and often statements printed from the internet aren’t acceptable either.
- Try to avoid changes in your personal circumstances such as your job. Lenders need to see that you have a permanent and steady income stream so changing jobs just before applying for a mortgage could go against you.