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Coundon
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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.

 
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Remortgage

 
Re-mortgaging has become very popular in recent years. Competition from Lenders has increased, leading to a wide range of competitive UK re-mortgage products.

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 every month."

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.

 
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*Buy to Let

 
There are 3 main differences in buy to let mortgages:

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 considered.

Interest Rate - buy to let mortgages have slightly higher interest rates.

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 time.


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 go wrong.

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 your tax.

You can visit the ARLA website at www.arla.co.uk for further information on becoming a private landlord.

 
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*Commercial Mortgages

 

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 any complications.

How Commercial Mortgages Work
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 are

  • 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 lender.

    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 Rate:
    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 rate mortgage.

    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 above.

Advantages and Disadvantages of Commercial Mortgages

  • Advantages:
    Retain Ownership:
    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.

    Tax advantage
    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.


Disadvantages:

  • Collateral
    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.

    Defaults
    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.

    Risk
    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.
  • Prepayment
    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 legal documents.
*Not all products are regulated by the Financial Conduct Authority
 
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Your home may be repossessed if you do not keep up repayments on your mortgage.     Copyright Jigsaw Mortgages All Rights Reserved
   
 

Jigsaw Independent Mortgage Specialists LTD is Authorized and Regulated by the Financial Conduct Authority. Registration No 449134.