What type of mortgage should I get?
If you are wondering ‘What type of mortgage should I get?’, you need to understand what is available. There are three main types of mortgage: interest-only, capital repayment and ‘part and part’ or ‘split’.
A capital repayment mortgage is calculated to pay the debt and interest over an agreed period of time.
An interest-only mortgage means you only pay interest on the amount you borrowed and pay the full amount back when the mortgage term has ended.
A ‘part and part’ or split mortgage is a mix of them both.
Which mortgage you should choose will depend on your individual circumstances. If you are confused by ‘what type of mortgage should I get?’, a mortgage broker will be able to help you choose the right option for you.
Why do you need a mortgage broker?
Why do you need a mortgage broker? Well, they take the back-breaking work out of finding the right deal for you, and will save you a lot of time.
They are able to access rates and products that aren’t available to the general public.
A mortgage broker will also help you through your application process and this will give you a much better chance of being approved for the mortgage. This is because they know each of the lender’s criteria and how it will apply to your circumstances. To have the best chance of getting an mortgage offer it is a good idea to take expert advice.
What are the costs of buying a home?
What are the costs of buying a home? This depends on whether you are selling a home or a first-time buyer. If you are a first-time buyer, you will only pay Stamp Duty if the property you are buying costs more than £425,000 (as long as the purchase price doesn’t exceed £625,000). However, if not, you will pay 5% on the value of a property above £250,000 which incrementally increases to 12% on the remaining amount over £1.5 million. An additional levy of 3% is charged if the property is a second one. These figures are correct at time of writing in December 2022 but subject to change.
In addition to stamp duty fees, if you are taking a mortgage, you will have to pay for a survey/valuation of your new home. On top of that there are mortgage product/arrangement fees, land registry and legal fees/searches and several other miscellaneous disbursements. If you are selling a home at the same time, you will incur estate agent fees, removal costs and maybe redirection of post. So, the costs of buying a home will depend on whether you also have one to sell, the price you are buying and selling at and several other aspects.
What are the different types of mortgages?
What are the different types of mortgage available? Knowing which one you need to apply for is crucial if you want to get the right deal. Depending on your requirements i.e. whether it is a residential purchase, a buy to let or a commercial loan there could be a choice of fixed rate, capped rate, discounted rate , flexible, variable, tracker, cashback and offset.
Additionally, there can sometimes be niche products like equity release and first-time-buyer mortgages. With so many different mortgage types, deciding which one is right for you can be difficult, so give us a call to discuss your options.
What is a Buy-to-Let mortgage?
Buy-to-let mortgages are offered for landlords who want to buy property to rent or let out. The rules around buy-to-let mortgages are different from those around ordinary mortgages. The maximum you can borrow depends on the amount of rental income you expect to receive as well as other factors.
Your lender will want to ensure your rental income will cover the mortgage payments and usually need to be 25–45% higher than your mortgage payment, often calculated at a stress rate that is higher than the rate you might initially pay.
Often buy to let mortgages are available up to 75% of the property value but sometimes these will be restricted to a lower percentage due to the rent to be achieved, we can guide you on this if you contact us.
What is insurance protection or income protection?
Income protection his type of insurance protection that aims to reduce the level of financial insecurity. If you were to lose your income, say due to sickness or disability, you would potentially struggle to pay essential outgoings, such as your mortgage and other living expenses. Income protection ensures you get a regular income until you either retire or are able to return to work. Statistics show that 98% of protection claims are paid out, and the high success rate of these claims has resulted in many receiving needed financial assistance during crucial periods.
There are other types of insurance protection that should also be considered including life cover and critical illness cover, as well as unemployment protection. We can talk you through the different options to help you prioritise your needs and help provide a solution that fits within your budget.
What are the stages of buying a house?
So, what are the stages of buying a house? What would we recommend as the first step before you find a property?
It is essential that you consider your budget and other aspects e.g. deposit and costs. A competent mortgage adviser can guide you and make sure that you are looking in the correct price bracket. They will talk to you about how much you can borrow, the term, the interest rate that you are likely to pay, where it is best to apply and how much it will cost per month. They can also obtain an agreement in principle from a lender ahead of you finding a property so that you can prove to the estate agent that you are in a good position to proceed.
When you make an offer, and it is subsequently accepted, there will be no estate agent fees, but arranging a solicitor and surveyor to assess the property will incur fees.
For example, a solicitor typically costs £500-£1,500 + VAT, and a surveyor will cost £250-£1,500, depending on the value of the property and type of survey carried out. Some lenders will provide a free mortgage valuation but you should still consider a more detailed report for your own peace of mind too.
Once you have had an offer accepted your mortgage broker will finalise the mortgage application, submitting it to the chosen lender and provide them with evidence of income etc. The lender will value the property and once this is done, and they have satisfied themselves as to your status and income, they would normally produce a mortgage offer (considering any problems the surveyor may have discovered). It would then be down to your solicitor to undertake enquiries and searches and liaise ultimately to exchange contracts and complete the process.
How does the mortgage application process work?
When applying for a mortgage, the first thing to consider is your budget. Also the amount you need to save for the deposit and how much you need to borrow. You should normally aim to have a deposit equal to at least 10% of the value of the property, however, some schemes allow just a 5% deposit. Periodically there are some government schemes that run in special ways to help with the deposit too.
It is a good idea to get a Mortgage In Principle, sometimes referred to as an Agreement in Principle (AIP) or a Decision in Principle (DIP) to show how much you could borrow. Multiple agreements are not a good idea due to the credit footprints left however.
All lenders will undertake their own affordability assessment based on your income and other commitments, sometimes people refer to a maximum of x times your annual income. This can also be an element of how a lender will calculate what they may lend and may range between 4.0 and as much as 5.5 times income in some circumstances.
The lender will evaluate your credit score and undertake a credit search to check your credit history. It is a misconception that each of us has a single ‘credit score’, in fact each application is scored using the lender’s own scoring system.
Once you have found a property, make an offer and instructed a solicitor (who will check the legal aspects of the property in due course) you will need to make a formal application via your mortgage broker.
You will need to have three months of payslips ready, as well as a P60, an outline of your outgoings, and have all official documents, including ID, proof of address, income, and bank statements prepared. Lenders will want to see these things.
Consulting a mortgage broker can help you to perfect your application when the time comes, ensuring an application is only submitted where you have the best chance of success and where you will get the best rate.
Obviously contacting us as early as possible will mean we can guide you better during the whole process.
What does it mean to remortgage?
You may be wondering, “What does it mean to remortgage?” To remortgage means to move your mortgage on your existing property from one lender, to another. Homeowners usually do this because their existing mortgage rate is ending and they want to shop around for the best deal.
Some think remortgaging is defined as borrowing more money from their current lender, but this isn’t necessarily the case. Remortgaging can help to reduce monthly payments, secure a better interest rate and potentially shorten the time it will take to repay the mortgage also.
A good mortgage broker can help guide you through the markets to obtain the best, and most suitable, rates for your needs. They will consider what your existing lender will offer as well as the rest of the market too.