With a fixed rate mortgage, the interest rate stays the same for a set period of time. This means that for every month during this set period, your mortgage repayments will remain the same, even if there are changes with changes to the Bank of England base rate, or your lenders’ standard variable rate (SVR).The term of a fixed rate mortgage usually lasts between two to five years, but can be much longer. When this period comes to an end, your lender will typically transfer you automatically onto its SVR.
For more information on the pros and cons of fixed rate mortgages give one of our advisors a call and they can advise on the best option for your circumstance.
A tracker mortgage is a type of variable rate mortgage. The interest rate usually tracks the Bank of England base rate at a set margin (for example, 1%) above or below it. Tracker mortgage deals can last for as little as one year, or as long as the total life of the loan. Once your tracker deal comes to an end, you’re likely to be automatically transferred on your lender’s standard variable rate (SVR). Typically, this will have a higher rate of interest.
For more information on the pros and cons of tracker mortgages give one of our advisors a call and they can advise on the best option for your circumstance.
A discount mortgage is a type of variable rate mortgage. The term ‘discount’ is used because the interest rate is set at a certain ‘discount’ below the lender’s standard variable rate (SVR) for a set period of time. For example, if a lender has an SVR of 5% and the discount is 1%, the rate you’ll pay will be 4%. And if the SVR is raised to 6%, your discount rate will also rise – in this case to 5%.Discount mortgage deals typically last between two and five years. When your discount mortgage deal comes to an end, your lender will typically transfer you automatically onto its SVR.
For more information on the pros and cons of discount mortgages give one of our advisors a call and they can advise on the best option for your circumstance.
A standard variable rate mortgage (also known as an SVR or reversion rate mortgage) is a type of variable rate mortgage. The SVR is a lender’s ‘default’ rate – without any limited-term deals or discounts attached.
When a fixed, tracker or discount mortgage deal comes to an end, you will usually be transferred automatically onto your lender’s SVR. It can be risky to stay on your lender’s standard variable rate mortgage. A lender can raise or lower its SVR at any time – and as a borrower you have no control over what happens to it. Standard variable rates tend to be influenced by changes in the level of the Bank of England’s base rate. However, a lender may also decide to change its SVR while the base rate remains unchanged.
If you are on a tight budget and relying on your SVR to remain low, you’re in a very vulnerable position. In this case, it is very important you try to remortgage onto a fixed rate deal (which offers rate stability) before it’s too late.
For more information on the pros and cons of standard variable rate mortgages give one of our advisors a call and they can advise on the best option for your circumstance.
It’s impossible to predict with any certainty when interest rates will rise again – there are no hard or fast rules about when exactly it will happen.
The most important thing for borrowers is to be sure that if you’re on a tracker, discount or other variable rate mortgage – you could still afford your repayments if rates went up by 2%. Although it’s unlikely that rates would rise by 2% in a short period, it’s not impossible.
On Black Wednesday back in 1992, the Chancellor raised interest rates by 2% in one day, and a further 3% shortly thereafter. Although this was an extreme event, it goes to show that movements in interest rates can be unpredictable.
For more information about how interest rate changes could affect your mortgage give one of our advisors a call and they can advise on the best option for your circumstance.
Each person’s let to buy arrangement will work slightly differently but broadly it works like this:
Stage 1: Remortgage your current property onto a new mortgage deal. You could do this with your existing lender or a new lender. If you own enough equity in the property remortgaging will allow you to release some money.
Stage 2: The new mortgage will either need to be a buy to let mortgage or you will need to agree consent to let with the lender, which allows you to rent your property out but not to remortgage. Be aware that some lenders will increase their interest rate or charge an admin fee in order to grant consent. You would then let out your existing property to cover your mortgage repayments.
Stage 3: Use the equity you have released or existing savings as a deposit to take out a new mortgage and move into a new home.
Stage 4: Keep letting your existing property until you would like to sell it.
There are lots of reasons why you may decide to buy property at an auction – including the chance to buy at a good price. Property at auction can be up to 30% cheaper than that bought through a regular sale. And at a property auction, as soon as the hammer comes down the home is yours. Whilst this makes the buying process much quicker, it means you need to have everything in place beforehand.
Property auctions are most popular with professional property dealers and traders, but that doesn’t mean the ordinary house buyer can’t buy at auction too. However, if you are thinking of buying at auction, you should make sure you know what you’re doing before you arrive.
You can find when there are going to be auctions by reading specialist property magazines and newspapers, as well as asking local estate agents – or looking on the websites of some of the big auction houses. Before every auction, a catalogue of the properties up for sale will be published. You will usually have between two and four weeks between the publication of an auction catalogue and the sale.
You should treat buying a property at auction the same as any other property purchase – make sure you do all the same checks and preparations. Arrange viewings and, if possible, take a builder or architect with you. Auction properties often need a lot of work doing to them and it’s important you get an idea of how much it’s going to cost.
Compare them with other properties on sale at a local estate agent and make a judgement about what its market value might be once it’s been renovated. And if you’re serious about buying, consult a surveyor or valuer.
You should also get a conveyancer on board to help with the legal process. They will be able to scrutinise the legal information provided by the auction house and spot any conditions of sale that could cost you a lot of money – eg that you have pay the seller’s legal fees. Although conveyancing is much more straightforward with auction properties it’s still a good idea to have professional help.
Although you may be reluctant to pay for a survey or legal help on a property you’re not certain you’ll get, it’s far better to be aware of any problems before you buy.
On the day of the auction will have to put down a 10% deposit as soon as the hammer comes down, so you need to have instant access to money. You will have a set period of time to pay for the rest of the house – usually 28 days – otherwise you will lose it and your full deposit.
So, if you will need a mortgage to pay for the rest of the property it is a good idea to have a mortgage agreement in principle arranged first. Our mortgage advisors will be able to help you find a mortgage suited to your circumstances.
If you’re worried about getting the finance in time, it may be worth thinking about taking out a bridging loan to tie you over until you get the mortgage. A bridging loan normally only takes about 10 days to arrange, quicker than a typical residential mortgage.
There’s all sorts of jargon to get to grips with when considering mortgages, but one of the most crucial matters to grasp is the difference between an interest-only and a repayment mortgage.
Interest-only mortgages only require you to pay the lender interest charges each month – the money you originally borrowed is then repayable in one lump sum at the end of the term of the loan. You are expected to have some sort of savings vehicle in place to produce the funds to make this repayment.
With a repayment mortgage, on the other hand, you pay interest charges each month but also make a small repayment of the original advance. At the end of the term of the mortgage – usually 25 years – you’re debt-free with no more to pay.
So which type of deal is best? Well, there’s no right answer to that question – it really depends on your attitude to risk.
With an interest-only loan, the additional savings you make are invested in order to get you to the final total required. The returns on these investments plus, very often some tax breaks, may mean repaying the capital borrowed costs you less in total monthly contributions. And on the day the mortgage finally falls due, you may even find you have additional cash left over – a lump sum to spend as you see fit.
Interest-only mortgages got a bad name during the endowment scandal.
Many borrowers were sold endowment funds they thought were guaranteed to repay their mortgages, only to find many years down the line that they actually faced a shortfall.
That is the risk of an interest-only mortgage. If the investments you make disappoint, you may not have enough money to cover your debt. In which case you’ll have to make additional payments you weren’t expecting.
In practice, such a shortfall should not come as a horrid last-minute surprise. If you do opt for the interest-only route, your mortgage lender will expect to see evidence that you are making provisions to repay the capital. And the provider of the savings vehicle you are using should provide you with regular updates on your progress – including warnings if it thinks you are in danger of falling short of the sums required (and advice on what to do to make up the ground).
Even so, interest-only products are not for the faint-hearted. Where interest-only mortgages sold with an endowment policy were once the most common type of home loan, the majority of people these days prefer the security of a repayment mortgage.
Many lenders have also decided to stop offering interest-only mortgages or will only offer them to certain customers. So the range of mortgage deals available to you may be more limited if you opt for an interest only mortgage. Our mortgage advisors will be able to advise you on whether an interest only mortgage is the right option for you.
There are other things to consider too when you’re looking to get the best mortgage deal. You should also think about whether you would like a fixed rate mortgage or a variable rate mortgage.
Also known as a ‘Decision in Principle’ (DIP), ‘Mortgage Promise’ or an ‘Agreement in Principle’ (AIP), a mortgage in principle is a certificate or statement from a lender to say that ‘in principle’ they would lend a certain amount to a particular prospective borrower or borrowers based on some basic information.
In almost all cases a Decision in Principle will be undertaken by a lender prior to any application being made. The information that you provide will allow the lender to check your credit file helping them establish whether you are mortgageable and if they are happy to lend the amount you require.
A Decision in Principle can be submitted at any point in your journey in obtaining a mortgage.
If you are looking to purchase a house then an estate agent will often want to ensure that when you are making your offer that you will be able to obtain a mortgage and for the amount you require, on top of your deposit, in order to proceed to completion. It is important that you have taken advice on products and lenders that you might proceed with as a DIP can leave a soft or hard footprint on your credit file.
In terms of remortgaging there is less external requirement to have this information so a DIP would be submitted once the right lender and product has been recommended to you.
DIPs can be confusing, but our mortgage advisors can provide you with completely independent and impartial advice, tailored to your individual circumstances, about when and who you should look to be completing a DIP with. As completely independent mortgage brokers, if you decide you’d like to take out a DIP we can also arrange one for you.
In general terms, there are a few pros and cons to taking out a mortgage/decision/agreement in principle:The pros of getting a Decision in Principle
Having a Mortgage in Principle to show that you can in theory afford to buy a property could make you a more attractive buyer and stand you apart from other prospective buyers
If you have had credit problems in the past, or if you have a limited credit history and aren’t sure what a bank or building society might lend to you, a DIP could give you added reassurance around your borrowing prospects
The cons of getting a Decision in Principle
A DIP is not a guarantee, and when you go through the full application process and the lender looks at your earnings and credit history in more detail they may decide not to lend to you
Some lenders can offer DIPs that only leave a soft imprint on your credit file, which does not have an impact on your credit rating. But most credit application searches will leave a hard footprint, and although one or two may not impact your score too much, if you have several credit application searches over a short time period this could be detrimental to your credit score and negatively impact your chance of getting a mortgage.
You might secure a mortgage in principle from a particular lender as they have a good deal on offer, but then not be at the point of taking out a mortgage until 2-3 months later when their rates could have changed or a different lender is offering a better deal
Your Estate Agent might encourage you to get one so that they can be sure that they are prioritising prospective buyers who have the best chance of being secured a mortgage
Conveyancing is the legal process behind every house sale and purchase. Although you can manage the legal side of a property transaction yourself, for convenience and peace of mind, most people choose to use a solicitor or specialist conveyancing firm.
Every house purchase and sale is different but in general a conveyancer will manage things like:
Dealing with the Land Registry
Stamp duty charges and payments
Collecting and transferring funds
Providing legal advice and recommendations
Drawing up and assessing contracts
Conducting local searches
We will be more than happy to recommend a good solicitor or conveyancing firm from companies we have used in the past and who have proved to offer a good service at a competitive price.
Getting a mortgage agreement in principle before you begin the conveyancing process is a good idea. Having a lender who has already agreed to lend you a certain amount will avoid hold-ups later on in the process. One of our advisers can help you to get a mortgage agreement in principle.
A mortgage is the biggest financial commitment most of us will ever take on and if for whatever reason you’re unable to work you will still be expected to make your repayments.
Although if the worst were to happen the state will provide a very basic safety net – such as jobseekers allowance – benefits will not give you anywhere near enough money to pay for your mortgage and other living costs. So it makes sense to take out some form of mortgage protection insurance.
There are a range of products on the market you can take out to give yourself peace of mind that you will be able to meet your mortgage repayments. Income protection insurance is the best option for most people as it provides the most comprehensive protection. But if you’re on a tight budget, income protection can be expensive, so it may be worth considering mortgage payment protection insurance.
Our mortgage advisors can help you to decide what’s best for your circumstances.
Income protection insurance will pay out if you’re unable to work due to an accident or ill health. This type of insurance provides a long term safety net as it’s possible to get insurance that will cover you from when you’re off work until you can go back. Even if it’s unlikely that you will ever be able to return to work, the cover should keep up your payments until your pension kicks in.
The monthly pay out will be a proportion of your income, normally 50% – 70%, this should be enough to not only comfortably pay your mortgage but also to help with other living costs like bills and groceries. And because you are not taxed on income protection payouts, it should replace most of your take home pay.
If you are on a tight budget and can’t afford income protection, then having MPPI is certainly better than having no cover at all.
MPPI will provide cover you in the event of an accident, sickness or unemployment – which is why it’s sometimes called ASU insurance. Unlike income protection, MPPI will normally only pay out for one or two years after you stop working, so although it will give you breathing space to make new arrangements, it is not a solution if you are likely to be out of work for a long time.
Two other products to consider are critical illness cover and life insurance which both pay out a lump sum that could be used to pay off your mortgage. Critical illness cover is designed to ease financial hardship if you become seriously ill or disabled. It will pay out a one-off cash sum if you’re diagnosed with one of a number of listed critical illnesses, including some types of cancer, a heart attack or stroke, multiple sclerosis or the loss of limbs.
Life insurance will pay out a lump sum if you die during the policy term. This kind of cover is especially important if you have dependents, and want to make sure the mortgage would be paid off after your death.
Depending on your circumstances there may also be other protection insurance products you could consider. It’s really important to take advice before buying any form of protection insurance as the last thing you want when you’re in a difficult situation is to find that your insurance won’t pay out. You need to make sure you’re clear what will and won’t be covered so speak to one of our mortgage advisors.
Most people will need to pay stamp duty land tax – stamp duty for short – when buying property. Stamp duty is a tax on land and property transactions – if you buy house or flat worth over £125,000 you will need to pay it.
How much Stamp Duty Land Tax (SDLT) you pay when you buy a property depends on:
whether the property is residential
how much of the property price price falls within each tax threshold
You can see current stamp duty rates below:
0% stamp duty for a property valued between £0 – £125,000
2% stamp duty on the next £125,000 (the portion from £125,001 to £250,000)
5% stamp duty on the next £675,000 (the portion from £250,001 to £925,000)
10% stamp duty on the next £575,000 (the portion from £925,001 to £1.5 million)
12% stamp duty on the remaining amount (the portion above £1.5 million)
You will usually have 30 days from ‘completion’ of a purchase to pay stamp duty – although if you move into your new home or pay for it before completion the 30 days starts from then.
If you use a solicitor during your house purchase they will probably sort out the stamp duty payment for you. But it is legally your responsibility, so it doesn’t hurt to double check you have paid the right amount.
First time buyers pay the same amount of stamp duty as all others buyers. Between 2010 and 2012 there was a temporary stamp duty holiday for first time buyers purchasing property worth less than £250,000. But this ended in March 2012 and there are currently no plans to introduce another stamp duty holiday. So, if you are a first time buyer looking for a home worth over £125,000 you should budget for stamp duty when saving for a deposit.
There are very few occasions where people purchasing property worth over £125,000 are exempt from stamp duty.
Even if two people engaged in a property swap they would have to pay stamp duty on the market values of the homes they were taking on.
The only situations where you may be exempt are where a share of a property is being transferred between two people. For example this would include a transfer of a share from one partner to another after a divorce or if someone has left their share of property to someone in their will. But this is something you should check with a solicitor or the tax authorities.
Whatever you’re hoping will happen to property values, it is a key issue when deciding whether now is the right time for you to buy or move house.
No-one can predict with any certainty what will happen to house prices. For a start there are big regional variations and house prices can struggle in some areas while they increase month on month in others.
If you’re considering buying a house it’s really important to get to grips with the property market in your local area – speaking to an estate agent can help with this.
The most important thing to consider when you buy a property is whether you can afford the mortgage now – and would still be able to afford it if you were to take a cut in income, were unable to work or interest rates went up.
Although house price growth is an added benefit, there continues to be a risk that house prices may fall – but as long as you can meet your mortgage payments, this doesn’t need to be a concern to you in the short run.
In a relatively slow housing market it’s really important to be realistic about how much you’re going to get. Looking at local property listings should give you an idea of how much other houses in your area are selling for. A good estate agent, with experience of selling homes like yours in a slow market, will be able to offer advice about what a sensible selling price is.
However, be aware that advertised property prices are not the same as sale prices. To find out what properties have actually sold for, you can look on websites such as the government’s land registry. The latest data may be a few months out of date.
You may not be able to sell your house for as much as you would like – but, remember, you may also be able to buy your next property for a lower price than what the seller wants.
If you’re really worried about the selling price then one option worth considering is let to buy. With a let to buy arrangement you let out your current property until you’re ready to sell – and take out a new mortgage to purchase another property.
For many buyers high house prices can make saving for deposit feel like a struggle. But, there are options available to you which may bring the size of the deposit you need down.
Shared equity and shared ownership schemes can allow you to purchase a home without saving up a large deposit. There are also a growing number of mortgages where parents can help first time buyers such as guarantor mortgages and family offset mortgages.