Mortgages | LR

The first thing to do, is make sure we are clear on what a mortgage is and when you will need one. Here at LR we understand that buying a home is one of the most stressful times of anyone’s life as it is often the largest purchase you’re likely to make. So, we always recommend before you arrange your mortgage, make sure you know what you can afford to borrow as this will have a huge impact on your finances until the loan is repaid.

Find out where the best place is to get your mortgage, as there are many different providers out there such as banks, building society’s and centralised lenders. Decide what types of mortgage you want, Capital and Interest repayment or Interest Only. It can be a real head arche working out what the best option is for you and have a clear understanding of how the process works. As it often takes months for a mortgage to be processed, agreed and completed, so make sure you leave your self-plenty of time for the prosses to go through.

The most common reason people to get a mortgage is when taking out a loan to buy a property or land. Most mortgages run for a term of 25 years but the term can be shorter or longer, depending on your circumstances and your provider. The loan is ‘secured’ by way of a first charge against your home until it’s paid off. This means if you can’t keep up with the repayments the lender can repossess (take back) your home, sell it, so they get their money back. This is why we always advise that you talk to a financial adviser to make sure you have a clear understanding of what your finances look like.

Once you have worked out what you can afford and what type of mortgage you feel best suits you, you are going to need a deposit, a percentage of the value of the property you are looking to buy. A deposit is an amount of money that goes towards the cost of the property you’re buying. The more deposit you have, the lower your interest rate could be. This is because your putting more money into the purchase of the property and therefor you are looking to borrow less. When talking about mortgages, you might hear people mentioning “Loan to Value” or LTV.

This isn’t as scary or as complicated as it sounds, but to put it simply, it is the amount of mortgage, as a percentage, you are looking to borrow compared to the value of your home. For example, with a £30,000 deposit on a £300,000 property, the deposit is 10% of the price of the property, and the LTV is the remaining 90%, the mortgage is secured against the property. The lower you make the LTV, the lower your interest rate is likely to be. This is because the lender takes less risk with a smaller loan. We have found that often, the cheapest rates are typically available for people with a 40% deposit.

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FAQs

How much of my monthly income should I spend on mortgage repayments?

Remember that your mortgage repayments are not the only amount you need to be aware of, there is also the running costs of owning your own home, like Council Tax, gas and electric, water rates etc.  Also, interest rates can go up so your lender should discuss these with you and “Stress Test” your affordability.

I have a bad credit rating; will this affect me when applying for my mortgage?

Your credit rating is used by lenders to assess what risk they could be taking when lending to you. Having a bad credit rating but a good, evidenced, explanation for why does not mean it will affect your application, but without the evidence, it may mean a higher interest rate or a declined application.

How many times can I apply for a mortgage if my application has been rejected?

No one can stop you from applying for a mortgage, however, the more times you apply and get rejected, normally, the more it will affect your credit rating. We would recommend that you apply for a copy of your credit file, find out what information is contained in your file that may explain why you were rejected, you can then try to put it right and then re-apply.

What’s the difference between fixed and variable?

These terms usually apply to the interest rate charged by the lender. A fixed rate is where the interest rate is “Fixed” for a period of time – normally 1,2 3,5 or even 10 years, so regardless of rate rises or falls, your monthly mortgage repayments will remain the same until the end of the Fixed period. Thereafter your monthly mortgage amount could be higher or lower depending on the interest rate movements. A Variable interest rate means that your monthly mortgage repayments will go up or down whenever the lender changes their interest rate, this could be because the Bank of England has changed lending rates.

How much deposit do I need?

When you’re buying a home, different lenders will have different lending criteria, but as a general rule, you will need to have a deposit of at least 5% of the value of your property.

 This means that, generally, you will need to find a lump sum to help towards the purchase. For example, if your lender requires a 5% deposit and you are looking to buy a home valued at £150,000, then the deposit you’d have to find a £7,500 before you could consider buying.

I have not found a property I want to buy yet can I still get a mortgage offer?

Yes, most lenders will be able to give you an idea of how much you could borrow before actually, applying for your mortgage (this is sometimes known as a decision in principle). You can discuss what type of mortgage suits your circumstances and how much it’s likely to cost you. A formal mortgage offer would normally be made once you’ve gone through a full mortgage application and the lender has carried out a valuation on the property you want to buy.

What is a decision in principle and do I need one?

If you’re attempting to buy a home, it’s a good idea to get a decision in principle before making an offer. A decision in principle, also called an agreement in principle, confirms if a lender is willing to lend you the amount you need. You’ll need to get a decision in principle before applying online for a mortgage. The decision in principle is usually free and valid for 60 days. The lender will do a soft credit check on you, which doesn’t affect your credit rating. There’s no obligation to then apply for a mortgage with the lender who issued your decision in principle. However, if you want to apply for a mortgage, you can apply online without receiving advice from the lender or you can get advice over the phone.

Can I get help from the Government to buy a property?

Yes, most high street lenders would be part of the following schemes:

  • Help to Buy: ISA,
  • Shared Ownership,
  • Help to Buy: equity loan,
  • London Help to Buy,
  • Forces Help to Buy.

How long will take to complete a mortgage application?

When you apply for a mortgage with your chosen lender, you can expect to take around an hour. However, everyone’s circumstances are different and therefore it could take longer. Having everything to hand before you start will make applying quicker and you can save and come back to your application.

What paperwork will I need to provide to speed up my mortgage application?

The following documentation will help, but different lenders may have different

             requirements:

  1. Proof of your Income, this could be your last three months’ payslips (or four weeks if paid weekly). If you’re self-employed you can use SA302s plus Tax Year Overviews (TYOs) covering three years, or an accountant’s certificate or three years’ accounts. If you want to use other income to support your application there may be other documents you need, for example your P60 if you want to use annual bonus or your most recent HMRC letter if you want to include child benefit. 
  2. Your last three months’ bank statements, this will show your outgoings, such as food and household bills. Alternatively, you could use a budget planner, which will help you work out what you spend each month. 
  3. You will also need details of any outstanding financial commitments such as loans and credit cards. In addition, details of insurance policies e.g. home insurance, mortgage payment protection, life or critical illness cover, and any investment/endowment policies you may wish the lender to consider to support your mortgage application. 
  4. You’ll need to prove where you have lived (proof of address) for the last three years, details about the property you wish to purchase and finally, if you’re applying in a branch of the lender, you’ll also need ID such as your driving licence or passport.

Do I need a solicitor or conveyancer?

When you purchase your property, it is normal to use the services of a solicitor or licensed conveyancer to represent you, your lender will also use the services of a solicitor or conveyancer to act on its behalf.

If the lender wants a valuation, can I use my own valuer?

When the lender values the property, it is to ensure that the property they are lending against provides suitable security.

They will need to conduct a valuation if your application is for a purchase, a re-mortgage or a homeowner loan. The valuer they use may be able to carry out a property inspection on your behalf. You would normally conduct your own valuation on the property and there are two types of valuations to choose from, a Homebuyers Report or a Building Survey (also known as a full structural survey).

How do I know if I have a competitive mortgage rate?

All lenders will charge a fee for arranging your mortgage, to see if the mortgage rate they offering is competitive they will provide you with an illustration, this will show “The overall cost for comparison”/” Annual Percentage Rate Charged” this shown so you can easily compare loan offers.

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