Mortgages & Re-Mortgages
How Much Can I Borrow?
Two main factors influence the amount you are able to borrow. The first relates to the current market value of the property to which the mortgage relates. Each lender will have a maximum percentage of the value that they will be willing to lend in each individual circumstances, more commonly known as the maximum loan to value (LTV). Lenders have an array of different criterion on which they will base the maximum LTV and we will be able to provide you with advice regarding different lenders attitudes in this area. The second influence on the amount you can borrow is your current level of income. All lenders will have a set formula that they use to calculate the amount they will be willing to lend which is usually expressed as a multiple of your income.
What Are My Various Mortgage Payment Options
There are basically two methods of repaying your mortgage: -
Repayment Mortgage – with this type of arrangements your monthly payments to the lender consist of a combination of interest and repayment of capital. In the early years your outstanding mortgage balance decreases slowly since the majority of the monthly payments consist of interest, however as the term progresses an increasing amount of your payments are used to repay the loan.
Interest Only – with this type of arrangement your monthly payments to the lender consist of interest only meaning your outstanding loan does not decrease over the term of the mortgage unless you choose to make ad hoc capital repayments. It is usual for such loans for the borrower to arrange for a savings policy targeted at repaying the loan at the end of the term. There are a variety of different types of savings plans which may be appropriate for this purpose the most common being Low Cost Endowments, Personal Pensions and Individual Savings Accounts.
What are the different types of Products Available?
Discounted Rates – Standard Variable Rate (SVR) of the lender less a specified discount (i.e. 1% off the current 5.95% SVR) usually for a specified time period (i.e. 2 or 3 year term).
Fixed Rates – The rate payable is fixed at a certain rate usually for a fixed term of years or until a given date (i.e. 5.75% until 31.05.2005). There is sometimes a Booking or Arrangement Fee payable on fixed rates for the ‘privilege’ of having one and in addition to any other fees such as Valuation Fees.
Capped & Collared Rates – The rate payable cannot go above a certain level (CAP), but equally cannot go below a certain level (COLLAR). I.e. Rate Capped at 7.5%, collared at 4.5%. NOTE that it is possible to obtain a Capped only rate at certain times dependent on market conditions. As with fixed rates there can again be an Arrangement Fee for this type of product.
Cashbacks – Usually the Standard Variable Rate only is charged and instead of having one of the above ‘deals’, a cashback is available. This could be for example 2% of the loan amount paid as a cashback after completion. It is possible to obtain higher cashbacks in exchange for a ‘loaded’ Standard Variable Rate which works like the discount but in reverse, (i.e. 1% on top of the current 5.95% SVR)
Flexible Mortgages – are becoming more and more popular. The flexible mortgage forms the basis for funding a wide range of personal financial objectives with the flexibility to adapt to your changing requirements at different stages of life. This facility will allow you the potential to repay the debt ahead of time by making increased payments or occasional lump sum payments, thus making substantial interest savings over a more traditional inflexible mortgage facility. The flexible mortgage also allows you to draw money down to be used for any number of credit needs subject to there being equity in your property. There is also a facility within the flexible mortgage that allows you the freedom to reduce or suspend payments – within limits – to reflect changes in your circumstances. Flexible mortgages can be combined with any one of the above products already mentioned above.
Redemption Penalties – Although penalties have in some cases been reduced significantly following adverse publicity, lenders still make charges for most products, in particular cashbacks, fixed and capped rates. In respect of the fixed and capped rates the penalties tend to be for the term of the special rate itself rather than ‘overhangs’ which are less common now and bore the brunt of the adversity.
Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.
Written quotations available on request.
What Types of Surveys Can Be Completed?
There are mainly three types of surveys or valuations that you can have when taking out a mortgage. In most cases the lender will require at least a ‘Basic Valuation for mortgage purposes’ whether you are taking out a mortgage to purchase a property or re-mortgaging an existing property: -
1. Basic Valuation. This is really just for the lender’s use giving an idea of the market value of the property, reinsurance value for buildings insurance and any major defects to the property that the surveyor may have spotted.
2. Homebuyers Report. This report gives an appraisal of the property’s general state of repair. It is more detailed than a Basic Valuation but less comprehensive compared to the Structural Survey. A member of the Royal Institution of Chartered Surveyors (RICS) can carry out the report.
3. Structural Survey. This is usually a very detailed report and as you would expect the most expensive. The surveyor will basically look at the property with a ‘fine tooth comb’ from top to bottom, covering all accessible parts. It will report about the construction of the property, any defects (minor and major) and what repairs are needed to rectify.
In respect of newly built homes they should have a National House Building Council (NHBC) Certificate. This is a warranty covering major defects in new properties which result from failure by the builder to comply with NHBC’s technical requirements. It could cover problems such as collapse or serious movement.
What About a Solicitor?
The legal term for purchasing a property is conveyancing and most people appoint either a solicitor or licensed conveyancer to do this work for them.
There is also the lender’s legal work to be done in relation to the property you are buying or re-mortgaging. Most lenders will ask the solicitor you appoint to act also for them which can save you money.
Firstly, your solicitor will carry out a local authority search, asking questions about plans for new roads, planning consents and other things that could affect the value of the property in the future.
Next your solicitor will ask the seller questions about the property. This usually covers things like whether any alterations have been made, what fixtures and fittings are included in the price, responsibility for boundaries and so on.
Once the contract terms are agreed and your solicitor is satisfied with replies to all questions and queries, the contracts can be exchanged. This is your absolute commitment to proceed. Once each party has a contract signed by the other, the contracts are binding.
On exchange, you are now obliged to go ahead in respect of any purchase, so it is important that you arrange buildings insurance from the point that contracts are exchanged.
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Mortgage 