Mortgages

 


How To Get A Mortgage

Firstly, shop around. Don't take the first, apparently best, option you find on a comparison site, or one you find on the internet. Instead, seek out an unbiased, independent mortgage from a qualified specialist, based on your specific requirements.

Take a look at Unbiased.co.uk, which is an online portal that helps you find local professional advice, 'The site has a find an IFA search category which allows you to select an IFA based on a number of criteria, to ensure you are matched with the best advisor for you and your financial goals.


Finding An IFA

• There are a number of factors you should consider when selecting an IFA, such as location, areas of expertise, qualifications, online presence and recommendations.

• It's a good idea to contact at least three IFAs before selecting one. Compare the services they offer and how much you are likely to be charged for the work.

• Most IFA firms will have a 'menu' they can show you which compares their services and costs to an average firm.

• Finally, understand what you're being told. Never be frightened to ask your advisor to clarify something if you're unsure. It is your responsibility to understand the choices presented to you by an advisor and to understand the terms under which you are agreeing to do business.

 

Provide Your IFA With The Right Information

Once you have selected an IFA you are happy with, the next step is to discuss what information you will need to provide. Lenders will want to see evidence that you can afford your mortgage. This will mean giving evidence of your income - usually the last three months wage slips, as well as the last three to six months bank statements. They will also want to see proof of ID and residency.

 

Work Out How Much You Can Borrow

Melanie Bien continues, You will need a bigger deposit than you would have done a couple of years ago. Lenders require a 25% deposit for the best rates; if you only have 10% to put down, you will have to pay a premium on the rate. There are fewer mortgages available to those with a 10% deposit and the credit scoring is higher so you must have a clean credit history to be in with a chance.

 

Wait For Your Application To Be Processed

Each application is subject to its own individual assessment. The general expectancy is from start to finish around eight to 10 weeks and goes as follows:

Each application is subject to its own individual assessment. The general expectancy is from start to finish around eight to 10 weeks and goes as follows:

Once the application passes this initial assessment the lender will instruct a valuation of the property you wish to buy. An inspection date will need to be made for the property and then the valuer will draw up a report for the lender. This whole process will generally take another two weeks.

If the lender is happy with the valuation they will issue you with a mortgage offer. You will get a copy of this and your solicitor will also get a copy. It will then generally take your solicitor another six to eight weeks to carry out the legal process of preparing to transfer the property into your name and drawing down your mortgage funds.

 

What Types Of Mortgages Are Available?

Generally there are two types - capital and interest known as repayment & interest only mortgages. And, then again broadly two types of interest - fixed (and capped) or variable (of which libor linked, tracker and discounted are all variants).

 

Interest Or Repayment?

To explain the difference, imagine you are borrowing £200,000. Interest Only If you took out a mortgage for 25 years on an interest only basis you would make mortgage payments to the lender and at the end of the 25 year term, you would still owe the mortgage company £200,000. This is because your mortgage payments would only have been equal to the interest that you owed the lender for borrowing the £200,000. Recently many lenders have stopped providing Interest only mortgages or require large deposits due to the many issues that arose out of the financial crash. You would need to seek advice for suitability.

Repayment If you took the same mortgage out for the same term but on a repayment basis, your mortgage payments would be higher than the interest only payments, as at the end of the 25 years you would own the property outright as you would have paid the interest for borrowing the money AND a further payment to pay off the capital - in other words, the £200,000 you borrowed.



What Will You Pay?

In today's market if you borrowed £200,000 at 6% interest, you would pay:

• Interest only: £1000 per month • Repayment: £1304 per month

 

What About Savings?

If you take out an interest only mortgage, then you can use other methods of savings or investments that will hopefully grow enough to pay off the £200,000 at the end of the term. You can save in all sorts of different ways, via ISAs, investing in stocks and shares or with profit funds.

 

How Do You Want To Be Charged?

How much you pay each month for your mortgage depends on the mortgage interest rate you pay and this is usually linked to the base rate which is set by the Bank of England.

There are several different ways that lenders charge for the cost of borrowing and it's important to know that even a small difference in the interest rates they charge, such as 0.25%, can mean you pay thousands of pounds more (or less) over the term of your mortgage. Standard Variable Rate.

This rate is charged by the lender and can increase or decrease depending on the lender's performance and the bank base rate. For example, when Northern Rock got into financial difficulties they increased their variable rate to try and encourage people to take their mortgage business elsewhere.

 

Fixed Rate

This is a popular rate and over 50% of mortgage borrowers choose to fix their rate for an agreed period of time. This might be six months to the lifetime of the mortgage (for example a 25-year term). This rate means that if your mortgage costs you £500 per month, whatever happens to bank base rates or the company, you pay £500 for as long as the interest rate is fixed.

 

Capped Rate

This rate is a half way house between fixed and variable. The rate can go down or up but it is guaranteed not to go any higher than the agreed capped rate. This means that if you are paying £500 now and the lender puts its rates up, then the company guarantees it won't go any higher than the capped rate, which in our case might mean you never pay more than £600, for example.

 

Discounted Rate

This rate is linked to the Standard Variable Rate (SVR) and is usually offered at percentage below the SVR. Your interest rate may move up and down but it will be lower than the SVR for the discounted period. As the Bank of England base rate changes, the lender is not obliged to pass on those changes via their SVR so the is no guarantee you will benefit from all or part of any interest rate drops.

 

Base Rate Tracker

This rate links the mortgage interest rate directly to the Bank of England base rate (unlike a discounted rate which is linked to the lender's SVR), so if the interest rates go down - as they did in 2008, then so does your rate and you end up paying a lot less money for your mortgage. Of course the opposite is true, if the rates go up, then so will your mortgage.

What Deposit Do You Need?

Since property prices have fallen and lenders have struggled to secure money from the financial markets, they have only wanted to lend money to people who have a big deposit. This way, if property prices fall further, the bank is more likely to be protected.

Since property prices have fallen and lenders have struggled to secure money from the financial markets, they have only wanted to lend money to people who have a big deposit. This way, if property prices fall further, the bank is more likely to be protected.

Some mortgage companies, particularly localised building societies that haven't been too affected by the recent banking disaster, are now offering mortgages and only requesting 5 to 10% deposits, but typically, the lower the deposit requirements the higher the interest rate.

 

What Charges Will You Pay?

Mortgage lenders and those that advise on mortgages are all finding it difficult to make ends meet at the moment, so it's essential to check how much you are getting charged to take out the mortgage. Fees that you are likely to incur include an administration or booking fee (or both); valuation fees and/or a percentage charge for taking out the mortgage which might be up to 3% of the amount you borrow.

You may also like to read about:
First Time Buyers
Buy to Let
Lease Extension

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