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Learn More about Mortgages
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First Time Buyers
|Buying a house is one of the most important purchases
you will make, buying a house for the first time
will be an even more daunting prospect.
Over the following few pages, we have a range
of first time home buying tips and advice on
finding the right mortgage.
Getting Mortgage Advice
Terms such as "loan to value ratio", "income multiples" and "discounted
mortgages" may all sound very confusing when someone explains things
for the first time and it is important to get as much advice as possible.
Our mortgage advisors can explain any of these terms to you, and offer
a free, no obligation mortgage quotation service.
Please please fill in our quick
enquiry form, or call us on 0800 781 4819
for a free, no obligation, consultation.
Will I get accepted?
Buying a house may involve substantial amounts of money, but the key thing
is to remember that you are buying an asset, which should go up in value,
as opposed to a car, which will almost certainly decrease in value.
Always remember that it is in the lenders' best
interest to provide you with a mortgage, as long
as they do not feel you are stretching yourself.
A mortgage is generally a lower risk to them,
compared to a personal loan, or a credit card,
as they always have the house to "secure" the
loan if you are unable to make your payments.
|Re-mortgaging has become very popular in recent
years. Competition from Lenders has increased,
leading to a wide range of competitive UK re-mortgage
You will notice that a number of the best
re-mortgage products offer a free legal service
and even a free valuation on your property.
This means you can now transfer mortgage
with no cost.
We offer all of our customers a FREE 'Mortgage
Management Service'. It all begins when your
details are entered on our sophisticated
database. We will contact you on an annual
basis from the date you have arranged your
1st mortgage. We will then review your mortgage,
any insurances you have and take account
of any changes to your personal circumstances
allowing you to re-negotiate other competitive
products and saving you £££ at
the same time.
By constantly taking advantage of this service
you can greatly reduce the overall interest
you pay out during the term of your mortgage
and put more money back into your own pocket
It is our opinion that upto 1 in 4 people
are overpaying on their mortgage.
If you already have a mortgage you could
consider releasing part or all of the equity
in your property, this is the difference
in value between your mortgage and the property's
current market value.
The biggest advantage of remortgage is the
lower rate interest mortgages.
It is always important to remember that
each individual’s and circumstances
are different, so your decision should be
based on these factors as well as the benefits
of each financial product.
*Buy to Let
|There are 3 main differences in buy to
Rent Potential - the
decision as to whether or not a mortgage
will be offered is usually based on the
rent you will earn as well as your income.
In some cases your income is not even
Interest Rate - buy
to let mortgages have slightly higher
Larger Deposit - typically
a minimum of 20% or 25% of the property's
value is required as a deposit.
Becoming a private landlord should not
be seen as an easy way of making easy
money. It can be riskier and more complicated.
It can also be very time consuming, more
than most forms of investment, and there
is no guarantee that house prices will
continue to rise. That said, having a
second property to let to tenants could
reap considerable financial rewards over
When buying a second property to let you will need to decide whether
your primary objective is income or capital growth. In other words,
are you looking to make a profit month on month or are you looking
to make a profit through increased equity from the second property
as it increases in value over time? The decision may affect the type
of property you purchase, and the location.
When you manage a property there are
many costs involved in addition to the
monthly mortgage repayments. As a guide,
you should be aiming to achieve a gross
rent of about 135% of the rental property's
interest only mortgage repayments in
order to cover your costs should anything
These additional costs include:
- Property upkeep - maintenance costs
for the property.
- Letting agent’s fees - letting
agents charge around 10% of the monthly
rent for finding and vetting tenants
with an additional cost of around 5%
if you require a full management service.
- Ground rent / service charges - applicable
to leasehold properties.
- Legal insurance - to cover costs
from evicting tenants in the event
of non-payment, very important, as
this can be very expensive.
- Insurance - building insurance and
contents insurance for the items provided
as part of the rental agreement.
- Furnishings - the purchase of any
furniture. If the property is to be
let furnished, make sure you are covered
for this by your home insurance.
- Gas / electrical appliances - cost
of maintaining appliances and ensuring
they comply with any regulations such
as safety tests.
- Decorating costs - the property may
require work ranging from painting,
to a new bathroom suite before it is
suitable for letting to tenants.
When choosing a property to let it is
wise to take advice from local letting
agents to determine what type of properties
are in need and in which parts of the
town is best or most wanted, they can
tell you if there is a university in
the town and if students are looking
for somewhere to live. The Association
of Residential Letting Agents (ARLA)
state that a property needs to be in
the right area, close to transport and
other facilities, and in good condition.
When choosing a letting agent to act
on your behalf it is very sensible to
choose one that is a member of the ARLA.
The reason being all members of the ARLA
must join in a bonding scheme to protect
rent and tenant's deposits. The bond
provides total compensation of up to £2
million a year.
There are a number of tax issues that
need to be looked at in order to maximise
your tax position, such as being able
to offset your maintenance costs, letting
agent fees etc as well as any interest
paid on a buy to let mortgage against
You can visit the ARLA website at www.arla.co.uk for
further information on becoming a private
A commercial mortgage is probably
the best way to finance the purchase
of buildings and land for business
purposes, it provides the most flexible
and affordable finance solution. Commercial
mortgages are specialised due to the
fact that the lender has a legal claim
over the property until the loan has
been repaid in full.
Remember when arranging a mortgage;
always consider its effects on your
cash flow and assets. This section
will give you a general overview
about Commercial Mortgages but it
doesn’t replace professional
advice in any way. You should always
consult your accounting and financial
advisors before finalising a loan
to get the maximum benefits and avoid
How Commercial Mortgages
Mortgages are structured several different ways but the two important
aspects to consider are the interest rate and the repayment schedule
for the mortgage.
The two interest rate options
- Commercial Fixed Rate:
Features a set interest rate for a fixed period of time. Once this
period has ended the normal variable rate is paid. Arrangement fees
are normal when taking this type of mortgages.
With a commercial fixed rate you may incur an (ERC) early redemption
charge, this may extend beyond the fixed rate term. For example the
fixed rate may only apply for 3 years but the penalty period may be
an extra 5 years during which you must pay the variable rate of the
This practice is widely frowned upon and many providers now offer fixed
rate mortgages with no penalty for extra payments or amendments to
the agreement once the fixed rate period has ended.
People tend to choose a fixed rate mortgage when they expect interest
rates to rise or need to stabilise their monthly payment amount.
- Commercial Variable Interest
The variable interest rate is an interest rate that mirrors and changes
to the Bank of England’s Base Rate. The current market rate and
a set premium that remains uncharged throughout the mortgage constitute
the interest rate for each period. Remember that you can initially
get a lower interest rate on variable interest rate than on a fixed
The advantage of a variable interest rate mortgage is that you save
money when the market rate decreases. The flip side to this is that
you are not covered from an increase in the market rate. This simply
means the interest rate you pay will increase with the market rate.
- Mortgage Repayment Plans
When deciding on your repayment plan you should always remember the
longer you take to payback the principal the higher your total interest
payment will be.
- Commercial Equal Payments
Possibly the most common plan, this type of mortgage requires you to
make a set number of equal payments. Part of each payment covers
the interest and the rest reduces the principal.
- Commercial Equal Payment with
a Final Balloon Payment
Requires a set monthly payment of the principal and interest for a
relatively short period of time. After you make the last payment, you
have to pay the balance in one full payment, called a balloon payment.
Most lenders will give you the chance to refinance the mortgage to
help you stretch out the final balloon payment. This type of mortgage
has many benefits. Because of the lower monthly payments during the
course of the mortgage you can keep more cash available for other needs.
But don't forget the big balloon payment waiting around the corner.
- Commercial Interest-Only Payments
with a Final Balloon Payment. With
this type of mortgage, your regular
payments only cover the interest.
The principal stays the same as
Advantages and Disadvantages
of Commercial Mortgages
Instead of raising funds by selling a share in the property or the
business to an investor, you retain complete ownership. The lender
is only entitled to an interest return on its mortgage, not a percentage
of ownership that an investor would expect. Also they can only exercise
the right if you default on payment. You retain all the benefits of
ownership in an asset that has the potential to increase in value.
Interest payments on your mortgage are tax deductible and are made
with pre-tax money.
Better Cash Flow
A mortgage gives you access to capital that you would not normally
have access to with minimal up-front payments and the flexibility to
design a repayment plan that suits your needs.
Simplified cash flow management
Mortgage schedules are at preset, making cash management more predictable.
The nature of a mortgage requires you to pledge the purchased property
to the lender. If you default on the mortgage, the lender is able
to foreclose the property and sell it to repay the outstanding money
owed to them. Make sure when the mortgage is repaid; the lender is
obligated to release the mortgage and is required to make available
any government files acknowledging this release.
The lender may define a variety of events that will constitute a default
on the mortgage, including failure to make any payment on time, bankruptcy,
insolvency and breaches of any obligations in the mortgage agreement.
Try to negotiate an advanced written notice of any alleged default,
with a reasonable amount of time to cure the default.
Commercial Endowment that the pension product or Individual Savings
Account needs to receive enough funding and growth to pay off the mortgage
at the end of the term, this is a risk.
Read the Small Print
- Mortgage fees
The lender can charge up-front loan or processing fees. Check these
fees very carefully, and get an estimate as soon as possible to help
you evaluate the mortgage package.
Ideally you want to be free to pay off the mortgage at any time before
it’s final date. The majority of lenders are likely to charge
a redemption penalty in the first 3 to 5 years of the mortgage. After
that initial period, you should make sure that your mortgage agreement
gives you the right to avoid a prepayment penalty for paying off
the mortgage or part of the mortgage early.
- Grace period
Get a grace period for any payments. Say for example, the monthly payment
is due on the first day of each month, but it won't be deemed late
until the fifth day of the month.
- Legal and Professional Fees:
Before you finalise your purchase and ownership of the property passes
to you, you will incur a number of costs. Common expenses to be paid
are title insurance, survey fee and various fees for preparing any
|*Not all products are regulated
by the Financial Conduct Authority