Mortgage Pro

What is a mortgage?

A mortgage is a loan taken out from a mortgage lender to pay for a property. The loan is divided into capital, i.e. the amount of money you borrow to purchase the property, and a mortgage interest rate, i.e. the amount the lender charges for lending you the money.

Who is a mortgage broker?

That is a mortgage broker qualified to give you advice on buying a mortgage. Many operate as part of a one or two man band operation, or are tied to estate agent. Some mortgage brokers work from home and rely on referrals from intermediaries such as accountants and solicitors for business, while others work online, using the Internet to generate business.

There are around 10,000 mortgage products on the market, so it' a very good idea to consult a mortgage broker for help in finding the right product. They will be able to tell you about the best deals currently available, including some that are exclusive to advisers. They will also be able to offer advice about how to repay your mortgage, home insurance and other financial matters.

How much mortgage can I get

The amount of money depends on the amount you can comfortably afford to repay each month. It will also depend on the mortgage lender you choose as each has its own guidelines. Some mortgage lenders may only lend you a multiple of three times your income while others may stretch to four, five or even six times.

If you are buying as a couple the mortgage calculation multiples will be different. Some mortgage lenders will lend you two and a half times both annual incomes while others will offer three to three and a half times the greater income plus one times the second income.

Somehow the major factor getting your mortgage is determined by the amount you earn. Lenders generally apply multiples to your income to calculate your maximum loan. Lenders may be prepared to offer high mortgage multiples if you are putting down a large deposit: because you are committing more of your money to the property it represents stronger security, and they may therefore be prepared to lend you more.

Your credit history is also important in determining which lenders will be prepared to lend to you, or whether they will offer you their most favorable rates. If you have consistently met your payments under current and previous credit agreements you will be entitled to the more competitive mortgages on the market. If, however, you have failed to keep up your payments, the mortgage rates available are likely to reflect this.

Finally, the third important factor in determining a lender's decision is the property itself; the value and general condition of the property will always need to be assessed to ensure that it represents adequate security. Also some lenders have criteria which may rule out certain property types.

How do I prove my income?

If you are employed, the mortgage lender will request written evidence from your employer such as pay slips or other documents proving that you are working and get the salary.

If you are self-employed you may need to show a mortgage company three years' audited accounts or a letter of confirmation from an accountant if you have not been in business long enough to prove that you can afford the mortgage repayments.

Many mortgage companies have a variety of criteria, some willing to be more flexible than others. It is a good idea to speak to an independent mortgage broker for getting an impartial advice.

Mortgage repayment options…

There are three types of mortgage repayment options to consider when you are choosing your mortgage:

Capital repayment mortgages allow you to repay the loan throughout the term. Your monthly payment is made up of both interest and capital repayment so that at the end of the term the whole mortgage is repaid. The advantage of this repayment method is that, as long as you make all your payments, the mortgage is guaranteed to be repaid by the end of the term.

If, on the other hand, you opt for interest only mortgage payment, your monthly payment will be made up solely of interest, so that your borrowing will remain the same throughout the term. At the end of the mortgage term, assuming you have not made any lump sum repayments, you will still owe the same amount that you borrowed in the first place. In this scenario it is your responsibility to ensure that either a suitable repayment vehicle (such as an endowment or pension plan) is in place, or that the loan is repaid by means of lump sum repayments or sale of the property. So, while this option does mean lower monthly payments, it also places added responsibility on you, and potentially greater risk.

The final option, so-called ‘part and part’, is to combine the two methods so that you pay interest only on part of the loan and capital repayment on the rest. This might be suitable if you have, for example, an endowment that is not likely to cover the whole of your debt at the end of the term, or where you have increased your borrowing and want the certainty that the additional borrowing will be repaid by the end of the mortgage term.

Advantages and disadvantages of different mortgage products…

Different mortgage products have specific advantages and disadvantages; your choice of mortgage will depend on your specific situation and your attitude to both risk and cost.

If your priority is security then the logical decision may be to fix your mortgage rate, so that your payments will stay the same for an initial period, so that during the initial period your payments can drop but not increase. The main disadvantage of most fixed and capped rates is that if you choose to switch to another mortgage lender, and often if you choose to pay your mortgage off early, you may have to pay large early repayment charge; if you wish to keep your options open, and safeguard future flexibility, this can be a major factor in deciding not to choose fixed or capped mortgage payment.

Early repayment charges...

In many cases lenders will protect their interests by attaching early repayment charges to the initial period of a mortgage, either in line with an initial fixed or discounted rate, for example, or beyond the initial rate (known as overhang): these may be charged in a number of different situations. The lender would almost always set an early repayment charge if you change to a different lender within the early repayment period set within the mortgage offer. They might also charge you if you move house or pay the mortgage off in full.

It is of the greatest importance to consider what the early repayment charges may be when deciding which mortgage product suits your situation: if you need to keep your options open with regard to moving house, or shopping around for better deals, then a product with no early repayment charges would be advantageous. On the other hand, if you have no plans to change lender in the immediate future, and wish, for example, to fix your monthly payment, then an early repayment charge may not matter to you at all.

Early repayment charges are generally worked out as a percentage of the outstanding balance, and will vary widely from lender to lender. One of our responsibilities is to ensure that you are fully aware of all penalties that you may be charged before you make any final decision as to what product best suits your needs.

Do I need a deposit for a mortgage?

Not necessarily, as some mortgage companies try to be as helpful as they can particularly to first time buyers. Generally speaking however, it does make life easier if you can find a deposit and the more you can put down the better, as you will be able to enjoy a cheaper and better interest rate.

To whom will most lenders give mortgages?

You must be over 18 to have a mortgage and most lenders generally recommend the mortgage term does not extend beyond your retirement age. You will not be discriminated against because of your colour, race, ethnic or national origin, your sex or if you are disabled. However, you will need to have the right to reside and work in the UK for at least the duration of the mortgage.

Up to four people can be joined in an application. At least one applicant is required to have an acceptable form of income and all should have a good credit history. Your application will be subject to a credit check and you will need to prove your income.

How long can the term of the mortgage be?

The usual term is 25 years but your loan can be for any term from five to 30 years. It should ideally end on or before your normal retirement age.

Higher Lending Charges...

Some lenders charge a one off insurance premium, known as the higher lending charge, to cover themselves in any case of high risk lending, which is generally (but not always) defined as lending above 90% of the property value. This insurance does not benefit the borrower in any way, but covers the lender if, in the event of repossession, there is a shortfall in repayment of the outstanding debt. Were this situation to arise, the insurance company that provided the policy will often pursue the borrower for the equivalent of the money claimed by the lender.

The one off premium is usually added to the loan, rather than being paid upfront at the outset, and the borrower will therefore also be paying interest on this additional borrowing for the life of the mortgage, unless it is paid off with a lump sum or regular overpayments.

More and more deals are now being offered without an early repayment charge; in our experience many people (particularly first time buyers) are needlessly paying it. Occasionally, however, a situation could arise where the advantages of a particular deal outweigh the disadvantage of having to pay the premium. In this case we would clearly include the fee, along with all other fees, in our illustrations, and its significance would be explained to you in full at the outset.

What is the valuation?

The mortgage valuation is solely for the purposes of a mortgage lender to satisfy itself property provides sufficient security for company to lend on it. The mortgage valuation does not give any indication whether the property is worth what you are paying, nor does it provide a comprehensive list of any repairs required.

What is a valuation fee?

Lenders need expert guidance on what the property in question is worth as security for them to lend on it. They instruct a value to assess the property for this purpose.

Portable mortgages...

If you decide to move home it is important to know from the outset whether you have early repayment charges as lenders will only charge penalties if you change lender, or reduce the loan size, and not (with portable mortgages) if you are actually moving to a new home. This can be an important factor to take into consideration if, for example, you are considering whether or not to go for a long term fixed rate: you may not be sure whether you wish to move or not during the initial fixed period, but as long as you have a portable mortgage you will be keeping this option open.

Portability can still be an advantage even when your mortgage product has no redemption penalties at all. For example, you could have secured a particularly favorable deal originally and the market could subsequently have changed, leaving no comparable deals: it would obviously make sense in this situation to keep the product that you have, rather than switching when you move house.

What happens if I can't afford to make my monthly mortgage payments?

Always call your lender straight away. They will do all they can to help you overcome your difficulties and work with you to find a solution. With your co-operation they can develop a plan for dealing with your financial difficulties and clearing any arrears.

Must I clear my mortgage by a certain age?

Mortgages are usually designed to be repaid no later than the borrower's normal retirement age, usually 65 for employed people (male and female) and 70 for self-employed. Most mortgage companies will consider a longer term providing the borrower has enough income after retirement.

What happens if I lose my job?

If you lose your job and cannot make your mortgage payments your house could be at risk. It is strongly recommended you take out a mortgage accident sickness and redundancy policy in connection with your mortgage, which will pay your loan repayments for up 12 months, while you get back on your feet.

Is it safe to transmit my mortgage application over the Internet?

Security of your personal information is a prime concern to all mortgage lenders and intermediaries. Online mortgage application forms enable you to enter your application details and transmit them electronically to the lenders in a secure environment. Lenders use the most up-to-date security techniques to ensure the details of your online mortgage application are received securely.