Although there is plenty of mention of mortgages in the media, to the uninitiated it’s a minefield of terminology and numbers that feel almost too big to be real. The prospect of getting a home loan has changed radically over the past few years.
A mortgage is a secured loan, against the asset which is the property.
Currently Help to Buy is there to help purchasers of any property up to £600,000 (not buy-to-let or second property) who have a deposit of 5% of the property price. The ‘Mortgage Guarantee’ is an agreement between the government and the lender, the application process is similar to applying for a regular mortgage and this is available on new and pre-owned homes.
The ‘Equity Loan’ part of Help to Buy is eligible on registered newly built properties and involves a 5 year interest free loan to the buyer who must have a 5% deposit.
Regular mortgages usually look for a minimum deposit of at least 10%
Preparation for the application is key, in reality preparation starts 3 or more years before your applications as applicants need to keep a record of address history amongst other ways you can put yourself in the best position.
- Make sure you are on the Electoral Role at current address
- Build credit score by making sure any credit card payments, phone bills etc are paid in full on time consistently
- Don’t apply for any new credit within 6 months of applying for a mortgage as this could adversely affect your application
- Make sure you have a record of your address history over the last 3 years (minimum)
- Provide a minimum of 3 months most recent payslips and most recent P60 (or three years of accounts if self employed)
- Provide full details of any loans or credit cards (including student loans)
Before you seriously start looking you should have a ‘Mortgage in principle’ to confirm you will be able to borrow what you need. This also shows that you are a serious buyer who has the ability to make the purchase when booking viewings or making an offer. This involves a full credit check by the lender, and confirmation in writing of how much they are prepared to lend.
Mortgage Types and Terminology
- Fixed: The rate of interest on the mortgage loan is fixed for a set period of time, usually, 2 – 5 years. Pay off capital and interest
- Variable: The rate of interest on the mortgage loan varies, either a tracker or discount Mortgage. Pay off capital and interest
- Tracker: The rate of interest is variable and follows the movements of another rate, usually the Bank of England Base Rate. Pay off capital and interest.
- Discount: The rate of interest is discounted from the lenders own Standard Variable Rate (set by the lender) not the Bank of England Base Rate. Pay off capital and interest.
- Flexible: Flexible mortgages afford the opportunity to may extra payments or even reduce payments or take payment holidays if you have overpaid in the past. Pay off capital and interest.
- Interest-only: Monthly mortgage payments only pay off interest on the loan and not the capital balance. These mortgages are usually only issued under exceptional circumstances.
More terms and phrases you will need to know:
If buying with other parties:
- Tenants in Common: Each party owns a percentage of the property, you can pass on your portion of ownership on death
- Joint tenants: The property is owned equally with another person or people, if one owner dies the property automatically reverts fully to the surviving owner(s), superseding any Will
- Mortgage valuation: This most basic form of survey is required by the lender to confirm the property value and uncover any glaringly obvious defects.
- Homebuyers survey: More in depth than a mortgage valuation, this survey should uncover any problems with the property that are visible to the surveyor, although there is no detailed investigation to uncover any hidden problems.
- Full structural survey: The most in depth and expensive form of property survey which should be thorough enough to identify any structural problems
Other terms and points to consider:
- Stamp duty: Stamp Duty Land Tax is a payment required by the Government and is variable depending on the price of the property. Click here for details. http://www.hmrc.gov.uk/sdlt/rates-tables.htm
- Overpayment: There are usually limitations on if you are able to make any over payments and what % you are allowed to make
- Early Repayment Charges: If you repay or redeem a mortgage before the full term of the mortgage you may have to pay fees and charges, usually a percentage of the remaining debt owed.
- LTV: Loan in relation to value of home i.e. home worth £200,000 brought with a loan worth £160,000 = 80% LTV
- Insurances: It is advisable to investigate a number of insurances that will be beneficial when taking out a mortgage to buy a property: Life, Buildings and contents and Mortgage Payment Protection Insurance are all to be considered.
There is a lot to learn and consider and this brief introduction won’t answer all the questions. When thinking of taking out a mortgage for the first time so please speak to Financial Advisor Andrew Fagg who will be happy to discuss mortgage products and how you can prepare. Call 07720 353866 or email firstname.lastname@example.org.
Visit our mortgages page to see some of the latest deals on offer through Davenport Financial Management.