What is a mortgage?
A mortgage is the name given to a loan secured on property. It is usually used to buy the home although it is becoming more popular to consider a new mortgage, where the property is already owned, to access a more competitive mortgage product or to raise capital for other purposes, such as school fees or business investment. You may have to pay an early repayment charge to your existing lender if you remortgage.
A mortgage is a long-term loan and has traditionally run for a fixed period, typically 25 years. However, most mortgages are flexible enough to allow for early repayment or, if your circumstances dictate, the term can be extended beyond the original loan period.
Mortgages were once the preserve of building societies and the high street banks, however recently far more competition has entered the market and there is now a raft of lenders offering mortgage loans on residential property. This expansion in the number of lenders has led to a vast array of different loan packages.
Nowadays, there are loan deals to suit most people's needs. Whether you are buying your first home, moving to a retirement cottage, or even an investment property.
What different types of mortgages are there?
Also known as a Repayment or Capital & Interest mortgage. Your monthly repayment pays off the interest and part of the capital borrowed each month. There is a set term in which you will clear the entire mortgage amount.
Your monthly repayments only cover the cost of the interest incurred from your mortgage. You are responsible for the repayment of the capital when the mortgage reaches the end of the term. For example, using a repayment vehicle like an ISA, endowment policy or pension fund.
This type of loan is cheaper than the Standard Variable Rate at the start of your mortgage. This allows you to take advantage of the initial discount rate. An early repayment charge may apply if the mortgage is repaid during the discount period.
If interest rates do increase, the fixed rate will remain the same, leaving you safe in the knowledge that your repayments will not go up. This will be same for the whole of the fixed term you want to choose, either 2, 3, 5 or 7 years. An early repayment charge may apply if the mortgage is repaid during the fixed rate period.
This mortgage is linked to the Bank of England's base rate for a set period. If this base rate goes up or down, so will the rate of interest on this type of mortgage.
With a Flexible Offset mortgage your rate will track above the Bank of England base rate for the life of your mortgage term. As part of your Flexible Offset mortgage you will also get a linked savings pot. Any money you put into your savings pot is offset against your mortgage which lowers the amount of interest you pay so you could pay it off earlier.
How much can I borrow?
Your current income (which includes commission, bonuses, overtime, 2nd jobs- i.e. any additional money that is subject to tax) will determine how much you can borrow. Some lenders calculate borrowing ability by a straightforward multiple of your income while others will work out your net disposable income and then allow you borrow a percentage of that. We will help you calculate how much you can borrow.
Can I borrow money to build a house?
Yes, all lenders have different lending criteria, however you can borrow to fund the cost of building a property, subject to income. If you are looking to buy a site to build your dream home on then this could be the way to do it. The maximum loan for this is up to 90% of the valuation and the funds would be released in stages.
What fees are involved in getting a mortgage?
Fees & Charges
There are some standard fees and charges that you will come across, these will be explained fully to you by your Mortgage adviser before any decision is made to proceed with a mortgage.
All lenders require a valuation to be carried out on your property to confirm its market value (as opposed to its structural soundness).
This is done for the lender's benefit, to confirm that the property is adequate security for the loan. It should tell you if there's something seriously wrong with the property, but it doesn't involve a detailed inspection.
Please click link to our Initial Disclosure Document to see our fees
This would usually only apply to a second-hand house and consists of a complete and thorough inspection of the property by a qualified Surveyor or Engineer. It is not compulsory but recommended if the property has not been well maintained or if you have any doubts whatsoever about the soundness of the house you are thinking of buying.
The cost of this survey, which can range quite a bit in price, is borne by you and is non-refundable in the event you do not go ahead with an offer for the property. However, it may highlight expensive repairs that, if not turning you off the sale, could help with negotiations on the purchase price.
Higher Lending Charge
This is a lender insurance that protects the lender against loss in the event of repossession or a fall in property prices where the loan amount owed exceeds the sale price of your property. It is normally applied where the loan is in excess of 75% of the purchase price and is only applied to the loan amount over that threshold. Not all lenders charge this insurance.
(2) Legal Fees & Outlay Costs
Costs now vary as solicitors are becoming more aware of competition. On top of that, you will bear all outlay costs. These, again, will vary depending on whether your deeds are registered with the Land Registry or Registry of Deeds. Ask your solicitor to outline all costs to you at the outset. Your legal fees will amount to a substantial sum so it is well worth shopping around for a competitive solicitor. We can advise you of the solicitors in your area who will be competitive with fees, if you do not have a family solicitor. Please ask a member of our staff to advise you with regard to legal costs and they will be glad to help you.