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Mortgages Types

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There are many different types of mortgages on offer. The one that is right for you will depend on a variety of things, including your current financial situation. Here are some of the most common types of mortgage.

Family

First Time Buyers

Buying your first home can be both an exciting and nerve-racking experience. The exciting bit is having your own front door and space to call your own; the nerve-racking part can be finding somewhere you can afford, saving enough for the deposit and getting a mortgage product that’s right for your financial circumstances.


We know what’s happening in the market, so we can help you make your mortgage application to the most appropriate lender when the time is right.


As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.

 
 

Moving Home

Moving house is an exciting time, and we're here to make sure you find the right mortgage. Whether this is your first move or you’ve moved house before, we can take the hassle out of finding the right mortgage for you. 

 

Buy to Let Mortgages

Rising property values and a booming lettings market has meant that many lenders have developed mortgage deals tailored to the needs of would-be landlords.

A Buy-to-Let mortgage is a loan for purchasing a residential property that is let to tenants rather than lived in by the borrower. The typical deposit required is likely to be around 25%, although better deals will be available to those who can put down as much as 40% of the purchase price. Most buy-to-let mortgages are available on an interest only basis. Lenders will consider the potential rental income the property will generate when deciding whether to grant the loan.

A Buy-to-Let mortgage will be secured against your property.

The Financial Conduct Authority does not regulate some forms of Buy-to-Let mortgages.

There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.

Your property may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

 

Re-mortgage

There are numerous reasons why someone would want to do a re-mortgage. Searching lenders and available deals could save a considerable amount of money. Here are few reasons why you would want to use a broker:

  • Find a lower interest rate could save you money each month whether with current lender or changing to a more competitive option elsewhere

  • Raise capital or release some funds for one-off purchases such as a home improvement project

  • Reduce your monthly outgoings by Consolidating your debts such as credit cards and personal loans. With this option you should always be aware that this may also extend the repayment term and possibly increase overall costs

  • You could consider re-mortgaging to invest in buy to let properties

 

You may have to pay an early repayment charge to your existing lender if you remortgage.

 

Help to Buy

First Home Fund

 

The Scottish Government has made this available to all first time buyers in Scotland, up to £25,000 is offered in the form of a shared ownership arrangement. As part of the scheme, you will still need to provide a minimum deposit of 5% of the property value and thereafter your mortgage must be at least 25% of the purchase price.

 

The great thing about the scheme is that there are no monthly repayments to the Scottish Government for their contribution and no interest will be charged . The percentage of equity stake the Scottish Government has within your home will be paid back to them either gradually, at any point throughout the mortgage or at the end of the mortgage term.

In simple terms this means, if the Scottish Government give you £25,000 towards a £100,000 purchase, they will hold a 25% share. Therefore when you pay back the Scottish Government you will pay back 25% of the final valuation/sale price to them.

All first-time buyers including couples, whereby one of them are first time buyers, in Scotland are eligible for the scheme, and there are no restrictions based on earnings or the value of the property – so long as the government’s contribution doesn’t make up more than 49% of the property value. If utilising as a joint application, no applicant can own a property at the time of utilising the scheme.

Despite the Scottish Government owning an equity share of the property the homeowners will own the property outright.

Although the Help to Buy: Mortgage Guarantee Scheme closed in December 2016, the Equity Loan scheme and the Shared Ownership scheme are still in operation.

Government-backed mortgage schemes

Help to Buy: Equity Loan scheme

This scheme, which is currently set to operate until March 2021, is designed to help those who only have a small amount available as a deposit and who want to buy a ‘new build’ property from a registered Help to Buy builder.

In England, the government will lend you up to 20% of the purchase price interest-free for the first five years, providing you can put down a deposit of at least 5%. In year six, you will be charged 1.75%, which climbs at a rate of 1% of that figure, plus any increase in inflation (measured by the Retail Prices Index), every year thereafter. In London, you can borrow up to 40% of the purchase price.

This means you will need a mortgage for 75% of the purchase price (or 55% if you’re buying in London) and this must be a repayment mortgage to qualify. The scheme is available on properties with a purchase price of up to £600,000.

The scheme operates slightly differently in Scotland, where the government takes a 15% stake and the property purchase price cannot be more than the threshold price, which for the tax years 2019/20 and 2020/21 is £200,000.

In Wales, the scheme applies on homes costing up to £300,000.

Help to Buy: Shared Ownership

This scheme helps those on lower incomes and first-time buyers who might not otherwise be able to get onto the housing ladder to purchase a property and is a cross between buying and renting. Many of the major lenders will grant mortgages for a shared ownership home.

In England, under the scheme, you can buy between 25% and 75% of a property, with an option to purchase a bigger share of the property at a later date. You’ll need to take out a mortgage to pay for your share of the property’s purchase price and then pay rent on the remainder. So, for example, if a property within the scheme is worth £200,000 and you bought 50% of it, you will pay rent on £100,000. If the rent charged by the housing association share is charged at 3%, then you would pay £3,000 a year in rent, as well as repaying your mortgage.

Most of the properties available under the scheme are new build, but some are properties being resold by housing associations.

The rules of the scheme operate differently in Scotland, Wales and Northern Ireland.

As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.

 

Specialist Mortgages

Some borrowers have more complex borrowing needs. These are some of the more specialist mortgages that are available. 


Bad Credit Mortgages


All lenders will conduct a credit check on anyone applying for a mortgage. Many high-street banks may refuse to offer a mortgage if you have a bad credit history, but there are specialist bad-credit mortgage lenders who will be more flexible when assessing your mortgage application. However, the mortgage offered may mean you need to put down a larger deposit and be prepared to pay higher- than-average interest rates.


Alternatively, you may want to consider trying to improve your credit score before applying for a mortgage, in order to increase your chances of being accepted for a standard mortgage.


It pays to be cautious about applying for a mortgage if you think you might be rejected. This is because every time you apply for credit it is likely to be recorded on your credit history and unsuccessful applications can bring down your credit score.


An impartial mortgage adviser can make recommendations based on your own individual situation.


As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.


Ltd Company Buy-to-let


With a reduced range of products, you need to choose the mortgage that is best for you. This isn’t just a question of opting for the lowest interest rate and cheapest monthly repayments. Like residential mortgages, buy-to-let mortgages need to be compared in terms of any extra fees that may be applicable, as well as additional benefits they offer.
Consulting an experienced, impartial mortgage adviser is advisable as they can provide expert advice on which product is best for your needs.


A Buy-to-Let mortgage will be secured against the property. The Financial Conduct Authority does not regulate commercial Buy-to-Let mortgages.


Portfolio Buy-to-Let


New affordability rules were introduced in 2017, which mean that portfolio landlords need to meet specific affordability rules for all properties they own, rather than the overall affordability of their portfolio, when applying for new finance. 

However, some lenders use a method called ‘top-slicing’ when assessing your application. This allows the lender to take into account any additional income you have, apart from rental income, when they calculate what they are willing to lend you. Top-slicing is unlikely to be appropriate if you have little in the way of disposable income or savings and therefore do not have income to cover unforeseen events.


If you are already a portfolio landlord or you are aiming to grow your property portfolio, you could consider a portfolio mortgage which allows you to have the whole portfolio under one mortgage.


A Buy-to-Let mortgage will be secured against your property. The Financial Conduct Authority does not regulate some forms of Buy-to-Let mortgages.

 

Useful information

 

Having a survey carried out on a property before you commit to buying it makes financial sense, as it can save you thousands of pounds in repair bills. There are various options available, and we can offer help and advice on choosing the type that meets your needs.


Surveys – what you need to know


A mortgage valuation isn’t the same as a structural survey. A mortgage valuation is undertaken by your lender to assess whether the property you want to buy is sufficient security for your loan. It won’t tell you about the state of the property or show up any underlying faults in the way that a survey does.


There are two main accrediting bodies for surveyors – the Royal Institution of Chartered Surveyors (RICS) and the Residential Property Surveyors Association (RPSA) – and you should check that your surveyor is a member of one of them.
 

RICS surveyors offer three levels of survey:

 

RICS Condition report:

 

This is the most basic form of survey and is aimed at new build and conventional homes in good condition.


RICS Homebuyer Report:

 

The next level up, this will identify structural problems and common problems such as subsidence or damp


RICS Building Survey:

The most comprehensive survey, this covers a full inspection and give professional advice on any repairs that may be required and the likely costs involved.

 

If the surveyor reports problems that need to be remedied, you could still decide to go ahead, using the survey findings to renegotiate the purchase price.


In Scotland, sellers must have a Home Report available for would-be purchasers, carried out by an qualified surveyor. New build, converted homes, or properties purchased under Right to Buy don’t have to have a Home Report. However, purchasers should still consider having a survey carried out.


Why your credit score matters


Mortgage lenders look carefully at how you manage your finances when assessing your mortgage application. If you want to qualify for a competitive mortgage rate, then you need to have a good credit rating. When a potential lender reviews your application, they’ll look at your credit report at one or more of the main credit reference agencies like Experian or Equifax.


Generally, the higher your credit score, the better your chances of getting a good mortgage product at a lower interest rate.


Simple steps like paying your utility bills and making existing loan repayments on time, increasing your monthly credit card repayments, registering on the Electoral Roll and not taking on additional borrowing before you make your mortgage application, can help improve your chances of having a good credit score.


It pays to check your credit score. If it’s not as good as it could be, take steps to improve it before you make your mortgage application.


What are the main stages in buying a property?

 

  • Here are the major milestones in the house buying process:

  • Contact your adviser to discuss your plans

  • With your adviser, work out how much you can

  • Draw up a budget to cover legal costs, surveys and mortgage fees

  • Make your application and get a mortgage agreed in principle

  • Start looking for a property you can afford

  • Make an offer

  • Arrange the most suitable protection plans with your adviser

  • Expect your lender to arrange a mortgage valuation on the property

  • Appoint a solicitor or conveyancer who will start the searches and legal work

  • Arrange a survey, in Scotland review the Home Report and arrange a survey if necessary

  • Finalise your offer and agree your formal mortgage offer

  • Arrange to get your deposit to your solicitor

  • Exchange contracts (England and Wales) or agree the contract (Scotland)

  • Arrange buildings insurance to start from date of exchange of contracts

  • Arrange completion and pay Stamp Duty if applicable

  • Move in


As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.

 

Mortgage Types

Repayment


This is the most popular and widely-available option, where you make monthly repayments for an agreed period of time until you’ve paid back both the mortgage capital and the interest.


With a repayment mortgage, or capital repayment mortgage, to give it its full name, you pay back part of the mortgage capital and interest each month. At the outset, most of your monthly payments will comprise of interest; over time, more of your monthly payment will be repaying the capital.


With a repayment mortgage, you are guaranteed to repay the full mortgage by the end of your mortgage term, provided you make your repayments in full each month.


As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.


Tracker Mortgages


The actual mortgage rate you pay will be a set interest rate above or below the rate tracked. When the rate tracked goes up, your mortgage rate will go up by the same amount. And it will come down when the rate tracked comes down.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.


Variable Rate


With this type of product there isn’t usually an early repayment charge with your lender, so you can move to another type of mortgage at any time and can potentially overpay your mortgage to pay it off faster and shorten the term. However, variable rate mortgages can potentially change if the Bank of England base rate rises or falls, making it harder to budget for your repayments. There can often be better and more cost-effective deals available in the marketplace.


As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.

Discount Rate


A discount rate is a type of variable rate mortgage where the interest rate is set at a discount below a rate of interest, typically the lender’s Standard Variable Rate (SVR) for an initial period of time, typically two or three years.


The obvious benefit here is that the rate is lower, so your repayments will be cheaper. However, if interest rates rise, you can expect your repayments to increase too. You also need to be aware that lenders have differing SVRs, so you may need help in working out which discount deal is most suitable and most cost-effective option for you.


Capped Rate


The interest rate is often higher than that available on other variable and fixed rate mortgages and the cap can be set quite high. However, it provides the certainty that your payments will not rise above a certain level.
A capped rate is normally only available for an introductory period, which can typically be from two to five years.


This type of mortgage may also have a minimum rate of interest that the lender will charge for a specified period. This is referred to as a ‘collar’.


Cashback Mortgage


The amount you receive is normally expressed as a percentage of the amount you have borrowed, although it can be a fixed amount. It’s important to be aware that this type of mortgage may not be offered at a competitive rate and might mean that you’ll be paying higher monthly payments as a result.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.

 

Get in touch today

Get in touch with Derek McGill today to discuss all your mortgage requirements or just simple friendly advice.

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