Mortgages | LR

Buying a home is one of the most stressful times of anyone’s life as it’s probably the largest purchase you’re likely to make. We always recommend making sure you know what you can afford to borrow as this will have a huge impact on your finances until the loan is repaid.

Not all mortgage providers are created equally. There are many different providers out there such as banks, building societies and centralised lenders, and then many types of mortgage, then main two being Capital and Interest repayment or Interest Only mortgages. It can take months for a mortgage to be processed, agreed and completed, so make sure you leave plenty of time for the prosses.

Obviously, the most common reason for a mortgage is to ultimately own property or land. Most mortgages run for a term of 25 years but the term can be tweaked to be shorter or longer, depending on your circumstances and your provider. The loan is ‘secured’ against your home until it’s paid off, meaning that if you can’t keep up with the repayments the lender can repossess take back your home and sell it, so they recover their money. We always advise to speak to a financial adviser to make sure you have a clear understanding of the process and your eligibility to take out a mortgage.

Once you have settled on what you can afford and what type of mortgage is most suitable, you’ll need a deposit, a percentage of the value of the property you planning to buy. The deposit goes towards the cost of the property you are buying. The more deposit you have, the lower your interest rate could be and ultimately, the amount you are borrowing will be less — this is referred to as the ‘loan to value’ or LTV.

The LTV is the amount you are looking to borrow compared to the value of the property. For example, a 10% deposit of £30,000 on a £300,000 property leaves a remaining LTV 90%, and the mortgage is secured against the property. The lower the LTV (or higher your deposit), the lower your interest rate is likely to be, this is because the lender is exercising less risk with a smaller loan. Ergo, the cheapest lending rates are typically offered for people with a deposit greater than 30%.

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FAQs

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

A house comes with other costs such as Council Tax, utilities, water rates, broadband etc. Interest rates can also go up, and your lender will 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 poor credit rating but a good, evidenced, explanation it does not necessarily affect your application to the detriment, but without evidence it may result in a higher interest rate or at worst, a declined application.

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

Just like repeatedly applying for credit cards, the more times you apply for a mortgage and get rejected, the more it negatively affects your credit rating. It’s a good idea to request a copy of your credit file, find out what information is recorded and that will explain the reason for rejection. You can then work to rectify this and apply again.

What’s the difference between fixed and variable?

These terms apply to the interest rate charged by the lender. A fixed interest rate means that interest rate is held for a defined number of years, so regardless of rate rises or falls, your monthly mortgage repayments will remain the same until the end of the fixed period after which your mortgage repayment amount could be higher or lower depending on the interest rate movements. A variable interest rate means that your monthly mortgage repayments fluctuate whenever the lender changes their interest rate, this can often be because the Bank of England has changed base lending rates.

How much deposit do I need?

Different lenders have different lending criteria, but as a general rule, you will need to have a deposit of at least 5% of the value of the property available as a lump sum towards the purchase. For example, if your lender requires a 5% deposit and you are looking to buy a house valued at £350,000, then the deposit you’d have to find would need to be at least £17,500.

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

Most lenders will be able to give you an idea of how much you could borrow before fully committing. This is known as an agreement/decision in principle and it is usually valid for 60 days and free of charge. You can discuss what type of mortgage suits your circumstances and how much it’s likely to cost you, with no obligation to continue. A formal mortgage offer would normally be made once you’ve gone through a full mortgage application and the lender has carried out an independent valuation on the property you want to buy.

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

Most mainstream lenders and banks are part of the following schemes:

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

What paperwork will speed up my 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 the ‘SA302’ page from your last three Self Assessment tax returns, or an accountant’s certificate. 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 statement 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 provide 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 valid ID.

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.

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. These must be different firms to avoid any conflict of interest.

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 assessor 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. As a standard, this will show ‘the overall cost for comparison’ and ‘annual percentage rate charged’  in for the purpose of comparison.

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