Introduction

Purchasing a home for the first time or moving from one property to another can be one of the most stressful events in life. Buying a home is the biggest investment most people will make in their lifetime and the value of independent mortgage advice can be priceless when it comes to finding the right type of mortgage for you.

Today’s mortgage environment is more complex than in the past, so choosing from the different types of interest rates and repayment methods available can seem like an obstacle course.

As with most things in life, knowing what to expect and what to do makes life much easier. Our guide will highlight the main areas to be considered, when taking on any mortgage commitment.

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By Amar Dhanota
Senior Mortgage Consultant
Mortgages For Professionals
T: 020 7553 3251
E: ad@mortgagesforprofessionals.com
W: www.mortgagesforprofessionals.com

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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice, the precise amount of the fee will depend upon your circumstances but we estimate that it will be 1% of the loan amount.

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Mortgages for Professionals is a trading style of Expertinfo Ltd, which is an Appointed Representative of Bond Finance Ltd.

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Repayment mortgages

• Also known as a ‘Capital and interest repayment mortgage’.
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• Your monthly mortgage payment covers cost of the interest, plus the repayment of some of the capital borrowed.
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• In the early years, a greater proportion of the payment is used to pay the interest.
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• Whilst the capital is gradually repaid, the interest portion decreases and an increasing percentage of the monthly payment reduces the amount of outstanding loan until it is fully repaid by the end of the term.
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• The interest you pay will be dependent on whether it is charged on a daily, monthly or annual basis.
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• Repayment mortgages guarantee the loan will be repaid at the end of the term, providing that you maintain your monthly payments.
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• If you or the lender requires life cover, this will need to be arranged separately.
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Interest only mortgages

• The monthly mortgage payments will only cover the interest due and the original capital amount remains outstanding throughout the term of the loan.
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• You are responsible for making arrangements to repay the capital at the end of the mortgage term.
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• You can save money in to some form of savings vehicle (such as an ISA, pension or endowment) and use this to repay the mortgage in one lump sum at the end of the term.
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• These savings vehicles are run entirely independently from your mortgage.
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• Interest only mortgages with separate repayment vehicles are inherently more risky than repayment mortgages, because there is the possibility you won’t have saved enough money to pay off the mortgage at the end of the term.
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• If you fail to make suitable arrangements to repay your mortgage you may not be able to pay off your mortgage at the end of the term and your home may be at risk.

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By Amar Dhanota
Senior Mortgage Consultant
Mortgages For Professionals
T: 020 7553 3251
E: ad@mortgagesforprofessionals.com
W: www.mortgagesforprofessionals.com

.

Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice, the precise amount of the fee will depend upon your circumstances but we estimate that it will be 1% of the loan amount.

Mortgages for Professionals is a trading style of Expertinfo Ltd, which is an Appointed Representative of Bond Finance Ltd.

When choosing the right type of rate you need to think of future interest rates and long term financial issues which may arise. To ensure you get the right product package it is vital to pay great attention to detail and the advice of a mortgage specialist can be invaluable.

Standard Variable Mortgage Rate (SVR)

• Lenders set the SVR which will vary depending on the economic conditions.

• The SVR does not tend to carry restrictive clauses.

• Maybe a suitable option for those whose immediate future is uncertain.

• For those who may not wish to commit to a product which includes a period of early repayment charges.

Fixed Rate Mortgage

• The interest rate remains fixed for a certain period.

• Guarantees the amount of your monthly repayment for a defined period.

• Fixed rate mortgages will protect you against possible rises in variable rates, but, if general interest rates fall below the level of the fixed rate, they could work out as a more expensive option.

Discounted Rate Mortgage

• Discount from the lender SVR for a set period.

• May attract penalties for early repayment.

Capped Rate Mortgage

• You pay a base rate tracker or discount rate with a defined upper limit in the form of the cap for a defined period

• Your interest rate is guaranteed not to rise above this level for the period the cap is in place.

• Some mortgages will have a cap and a collar, which means that your interest rate will not rise above the cap but cannot fall below the collar.

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By Amar Dhanota
Senior Mortgage Consultant
Mortgages For Professionals
T: 020 7553 3251
E: ad@mortgagesforprofessionals.com
W: www.mortgagesforprofessionals.com

.

Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice, the precise amount of the fee will depend upon your circumstances but we estimate that it will be 1% of the loan amount.

Mortgages for Professionals is a trading style of Expertinfo Ltd, which is an Appointed Representative of Bond Finance Ltd.

A mortgage is a loan, which is secured on the property you wish to buy. The mortgage deed is a legal contract between the Mortgagee (the borrower) and the Mortgagor (the lender). Like any other contract, if any terms of the mortgage are broken, the lender is legally allowed to apply to the courts and could take possession of the property to recover the debt. However, such action is only taken as a last resort and any genuine financial problems will be dealt with by alternative solutions. Indeed lenders are now under obligation to seek all reasonable alternatives before applying for re-possession of your property.

1 The amount you can borrow
In order to avoid disappointment, you should find out how much you can borrow before you make an offer for a property. The amount you can borrow is based on your income, your status, and your existing commitments and affordability. Your mortgage adviser will be able to go through this with you.

2 The deposit
You will need to provide a deposit for the purchase of the property. The deposit does not need to be paid until the contracts are exchanged; you may however need to prove that you have the funds at the outset. When considering the amount of deposit you have available, you should bear in mind additional costs associated with buying a property. It is also worth mentioning that the bigger the deposit you provide the better the deal you are likely to get.

3 Making the offer
Prepared with the knowledge of how much you can borrow, it will be easier for you to choose a property in your price range. When you have chosen a property,(usually through the estate agent), a formal offer needs to be made to the vendor confirming the price you are willing to pay. Once the vendor accepts your offer, you can move on to the next stage.

4 Which mortgage?
Return to your mortgage adviser to talk more in depth about the mortgage repayment type and the products you wish to go with. Your financial circumstances, objectives and your ability to pay the loan are discussed with your adviser and you will be presented with recommendations.

Once a suitable product has been selected and the repayment options have been discussed, you are now able to proceed with your application.

5 The valuation
A valuation must be carried out by a qualified surveyor who acts on behalf of the lender and will normally take place once the application has been accepted by the lender.

6 Conveyancing
This is the legal process that transfers the property from the existing owner to you. On acceptance of the offer, the conveyancing work will begin. You will need to appoint a solicitor or a licensed conveyancer to carry out the legal procedure on your behalf.

It is the role of the solicitor or conveyancer to ensure that all the legal aspects of the transaction – including the title deeds, which are proof of ownership – are in order.

We would advise that you speak with your solicitor to find out exactly what they will be doing for you and how the process will take place.

7 The mortgage offer
Once your application has been underwritten, and agreed, the valuation has shown the property to be acceptable security for mortgage purposes and the lender has received all of the documentation it requires, a formal mortgage offer will be issued.

You need to make sure that you read and understand the mortgage offer and that the terms and conditions are acceptable to you. Your solicitor will also receive a copy of the mortgage offer and will be able to explain anything detailed on the offer which is unclear. You will need to tell your adviser if there are any mistakes or you want to change any of the details on the offer. Your adviser will organise an amended offer as necessary.

8 Exchanging Contracts
This is where the deposit will be paid to the vendor’s solicitor and you are legally committed to purchasing the property. After this point, if you wish to withdraw your offer, you could forfeit your deposit and you will incur major costs. You should never commit financially until a formal mortgage offer has been offered in writing and you are happy with it.

We also advise that all relevant insurances are put in place at this point, because if anything happens to your property after this date, it will be your responsibility. For example you ought to have placed on risk buildings insurance and life insurance.

9 Completion
This is the point where the property finally changes ownership. An agreed date is decided by you and the vendor at the exchange of contracts. Your solicitor will have contacted your mortgage lender to request that the mortgage be “drawn down” (transferred from the mortgage company to the solicitor’s client bank account). On the same day your solicitor will arrange for the mortgage and deposit monies to be paid to the vendor and complete the legal documentation. You will need to collect the keys, in most situations these will be held by the estate agent.

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By Amar Dhanota
Senior Mortgage Consultant
Mortgages For Professionals
T: 020 7553 3251
E: ad@mortgagesforprofessionals.com
W: www.mortgagesforprofessionals.com

.

Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice, the precise amount of the fee will depend upon your circumstances but we estimate that it will be 1% of the loan amount.

Mortgages for Professionals is a trading style of Expertinfo Ltd, which is an Appointed Representative of Bond Finance Ltd.

You may wish to take a more detailed survey of the property such as a Homebuyers report or a full structural survey report. The surveyor will produce a more detailed report on the condition of the property, highlighting problem areas such as damp and structural movement.

The cost for a valuation depends on the value of the property and the lender you choose; they may include a processing charge to cover the administration work involved.

Homebuyers and full structural reports cost more than a standard mortgage valuation report, but they offer you some protection.

Lenders’ Fee
Most mortgage products are priced using interest rates and product fees. Depending on the lender and the product these are referred to as: booking fee, product fee, application fee, completion fee etc

Some lenders allow borrowers to add these fees to the loan amount on completion.

Mortgage Consultation Fee
You may be charged a fee by your mortgage adviser and this varies for each adviser. All fees will be disclosed to you at your initial contact with the adviser. Most initial advice is free and fees are only payable when you apply for a mortgage.

Higher lending charges (HLC)
Many lenders will require extra security if the level of borrowing compared to the value of the property exceeds what they deem to be an acceptable risk. In a situation like this the lender can use an insurance policy to cover the  additional risk, or it can create a separate pool of money. If you pay for this it is called the Higher Lending Charge.

This charge is usually levied when you borrow a very high percentage of the value of the property and the lender feels that if it needed to repossess the house from you at a future date it may not recover all of the mortgage and costs from the sale of your property.

This is a possible cost that needs to be taken into consideration when reviewing your options.

We would like to point out that this is security for the lender and not for you, and will allow the lender to reclaim some, or all, of its losses if you default on your repayments and they need to repossess your property. If any claim has been made by the lender, the insurance company has the right to pursue you for the claim. While you may think this is an unfair cost, it may allow you to borrow a higher percentage of the property value.

Legal Costs
These costs do vary and you should obtain quotations at the outset from your solicitors. Firms of solicitors usually charge more for higher value properties. They will charge more if the property is a leasehold rather than freehold because these cases are more complicated. You do not need to hire a solicitor, you can hire a licensed conveyancer and these people are usually cheaper. However if any complications arise during the buying process you may wish you had paid extra for a solicitor. The cost of your legal representative varies between £500 and £2000. For most transactions it should not be necessary to pay a solicitor more than £800-£1000.

Stamp Duty Land Tax
This is a tiered government tax based on the price of your property. Currently properties up to a purchase price of £175,000 are exempt. Up to £250,000 the tax is 1%. Up to £500,000 the tax is 3% and you pay a 4% tax on all properties that cost more than £500,000

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By Amar Dhanota
Senior Mortgage Consultant
Mortgages For Professionals
T: 020 7553 3251
E: ad@mortgagesforprofessionals.com
W: www.mortgagesforprofessionals.com

.

Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice, the precise amount of the fee will depend upon your circumstances but we estimate that it will be 1% of the loan amount.

Mortgages for Professionals is a trading style of Expertinfo Ltd, which is an Appointed Representative of Bond Finance Ltd.

The Steps Involved
Remortgaging is simpler than buying a new home because the deeds of the property are already registered in your name; but many of the stages are the same as a new purchase.

What Costs Are Involved?
Many of the costs of remortgaging are similar to those incurred when purchasing a property. These include; lender arrangement fees, booking fees, valuation fees, broker fees, legal fees, discharge fees and, potentially, a higher lending charge. You may also need to pay an early repayment charge if you are still within a ‘tie-in’ period with your current lender. Your adviser will be able to give you a more detailed breakdown of these costs as they vary from case to case.

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By Amar Dhanota
Senior Mortgage Consultant
Mortgages For Professionals
T: 020 7553 3251
E: ad@mortgagesforprofessionals.com
W: www.mortgagesforprofessionals.com

.

Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice, the precise amount of the fee will depend upon your circumstances but we estimate that it will be 1% of the loan amount.

Mortgages for Professionals is a trading style of Expertinfo Ltd, which is an Appointed Representative of Bond Finance Ltd.

• You might be required to pay a fee to the lender if you were to partially repay or repay the loan in full within a certain period of time (usually the period of the promotional rate).
• Lenders vary in how they calculate these charges so it is worth looking carefully at how any charges would be calculated when comparing mortgages.

Portability

• If you should decide to move home, the loan and its terms and conditions can be transferred from one property to another, subject to your current status and condition.

Annual Percentage Rates (APR)

• This is the true rate of interest charged over the whole period of the loan.
• Takes into account both the initial rate of interest and any higher rate payable when any initial discount ends.
• Includes the cost of any compulsory extras (including charges) that are added to the loan.
• APR is a reliable guide to the true cost of the loan and should always be considered when comparing mortgage offers from different lenders.

Flexible Features

• Many mortgages now allow you to make overpayments without paying an early repayment charge up to a certain level, normally between 5 and 10% pa.
• Some deals also allow you to take payment holidays or to save interest by linking your mortgage to your savings or current account.

How is interest calculated?

When comparing mortgages it is important to examine how the lender works out interest. Some lenders will calculate it on a daily basis, so that if you make a payment it has an immediate effect on the interest charged. Others calculate interest monthly or annually which means any repayment made throughout the month or year only impacts on the interest payable at the time of calculation.

This is a particularly important consideration if you plan to make lump sum reductions to the mortgage throughout the year or have a capital and interest repayment mortgage. You could find that there is a situation where two lenders appear to be offering the same amount of money, charging the same rate of interest, over the same term, but because of the way the interest is calculated, one lender proves to be cheaper than another.

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By Amar Dhanota
Senior Mortgage Consultant
Mortgages For Professionals
T: 020 7553 3251
E: ad@mortgagesforprofessionals.com
W: www.mortgagesforprofessionals.com

.

Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice, the precise amount of the fee will depend upon your circumstances but we estimate that it will be 1% of the loan amount.

.

Mortgages for Professionals is a trading style of Expertinfo Ltd, which is an Appointed Representative of Bond Finance Ltd.