Mortgages

Time to invest in some expert advice

Choice is good.

When buying a property, whether for yourself or as an investment, choice ensures you get the best deal. But when financing your property adventure, does it make your life easier? It can if you shortcut the hassle of shopping around for the right mortgage, which will be as unique to you as the property you select.

Sections on this page :
Types of Mortgage
Know your rates
Associated Costs

More choices made simple

Needless to say, we canít stop mortgages eating up a big chunk of your income. But we can make the process of borrowing money seem far less complicated. Browse our website for information or call us to arrange a review of your mortgage needs if you are:

  • Moving home or starting out on the property market;
  • Staying put, but looking around for a better deal;
  • Considering refinancing to extend or make improvements;
  • Thinking about venturing into the buy-to-let market.

With our support, you can take your time, compare and discuss different mortgage combinations, generating a shortlist from literally hundreds of mortgage products on the market.

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

We do not charge you a fee for our mortgage services. We may however receive a commission from a lender should we place business with them. Contact us to discuss further.

Types of Mortgage

Taking out a mortgage is a pretty big step, whether itís your first or youíre moving up the property ladder. As the most sizeable loan youíll ever take out, choosing the right type is essential. The choice, whilst at first glance may seem bewildering, is not as complex as it appears. Essentially, there are two key types of mortgages Ė repayment and interest only. Once youíve identified the way in which you want to repay the money lent to you, narrowing down the choice becomes easier. It is simply the case of finding the best deal.

How is mortgage money repaid?

You will pay your mortgage in monthly instalments, but first you need to decide which option will suit your needs, and what you can realistically afford.

  Repayment Interest Only
How it works You pay some interest and capital off each month, and the capital reduces over time. The loan duration is usually 25 years. All you pay the lender each month is the interest on the amount borrowed. At the end of the term you will need enough funds to pay back the amount borrowed. It is usually recommended that you make a separate payment each month on top of your mortgage repayments into a savings scheme to build up the sum needed to pay off the mortgage at the end of the term.
Benefits There are no hidden surprises. At the end of the term, providing you've kept up with repayments, you're guaranteed to pay off your mortgage. You can choose how the interest is added to your loan, see know your rates. Your monthly payment is lower than repayment mortgages. Your investments may perform well, giving you surplus cash after paying off your mortgage. You can choose how the interest is added to your loan, see know your rates.
Drawbacks Your monthly payment will generally be higher than interest only. There's no potential investment windfall at the end. You are relying on your investments to perform well. It is up to you to check whether there is going to be enough to pay off the capital amount at the end. There are no guarantees that you will have enough to pay off your mortgage at the end of the term.

Flexible mortgage - a repayment mortgage with a difference!

Flexible mortgages allow you to increase, decrease or take a temporary payment holiday if financial difficulties arise.

Essentially, flexible mortgages fall under the repayment umbrella. If you were rewarded with a bonus, had a share scheme windfall or had fewer financial outgoings in some months, you could pay off lump sums, gradually chipping away at your mortgage. If disciplined, you could shave years off the length of your mortgage term and save a small fortune in interest payments. Even an extra £50 a month soon adds up.

But if money gets tight, for instance due to loss of earnings, you can reduce, or temporarily stop payments. To do this, you will usually need to have made some overpayments.

Offset Mortgages

An offset mortgage is another way to reduce the overall cost of your mortgage.

With an offset mortgage you take out both your mortgage and a savings account, or even your current account, from the same company. Instead of paying you interest on your savings the amount is used to offset your mortgage loan each time the interest is calculated.

This can significantly reduce the amount you pay over the term of your mortgage; however, as with a flexible mortgage discipline is needed to keep saving.

Know your rates

Once you are clear about the type of mortgage you want - repayment or interest only, choosing how you want to be charged interest is next. The options are:

Variable rate

This is the one that moves up and down, mirroring the base interest rates set by the Bank of England. Lenders arenít tied to these rates, so can vary them. Your lender will set their variable interest rate higher than the base rate, usually 1% or 2% above it. If the base rate is 4.5% and your mortgage lendersí variable rate is 1.5% above it, you will pay 6% interest. Be watchful, as variable interest rates vary widely between lenders and they are not as competitive as other mortgage deals on the market.

Fixed rate

This rate gives greater certainty, as your interest payments are guaranteed not to change for the duration of the fixed term, typically between one and five years. Occasionally you can find longer terms. At the end of your fixed rate term, the interest rate will usually revert to the lenders standard variable rate.

If interest rates fall below your fixed rate during the duration of the loan, you end up paying more than if youíd chosen the lenders variable rate. You may have to pay a reservation fee for the fixed rate, called an Arrangement Fee. If you change your mortgage during the fixed rate period, and sometimes for a period after it ends, you will usually have to pay the lender an early repayment charge.

Capped rate

These interest payments have a fixed maximum Ė a cap Ė that you will pay for a fixed term. If interest rates rise, yours will not exceed above this ceiling rate. You get a certain degree of protection if rates rise significantly, and if they fall, you pay less. The interest rate set for capped deals is often slightly higher than fixed rates.

This security can make it easier to budget for your monthly mortgage payment. At the end of your capped rate term, the interest rate will revert to the lenders standard variable rate. If you change your mortgage during the capped rate period, and sometimes for a period after it ends, you will usually have to pay the lender an early repayment charge.

Discounted rate

You will receive a guaranteed discount on the lenders standard variable rate for a fixed term. So, if the lenders standard variable rate is 5.5%, with a guaranteed discount of 1%, you will pay 4.5% interest for a set period. Remember though that only the amount of the discount is fixed. The rate will still be variable so the amount you pay can still go up.

You may have to pay an Arrangement Fee to reserve the lendersí deal. If you change your mortgage during the discounted rate period, and sometimes for a period after it ends, you will usually have to pay the lender an early repayment charge.

Tracker rate

Lenders will set their tracker rate at a certain margin above or below the Bank of England base rate, and move in line with it. If the base rate falls you will benefit financially, paying less in interest. But equally, you will feel the pain of rate rises. The base rate is currently at an historical low, and any future changes will almost certainly be upwards. This should be taken into consideration when comparing tracker rates against other products on the market. You can find tracker rates for a set number of years or for the life of a loan.

Cash back

These arenít rates, but an incentive used by mortgage lenders to entice borrowers to specific mortgage products. On completion of your mortgage loan, the lender will give you an agreed sum, which could be as little as £100, up to £7,500, which you can use for any purpose. Lenders arenít in the habit of giving customers something for nothing. Rest assured, they will claw the cash back over your mortgage lifetime. If you switch in the early years this could be through an early repayment charge.

What to watch for

  • Any lender offering any special offer rates will do it for a reason. They are hoping that when the term ends, youíll stay with them out of loyalty, or simply forget to move mortgages.
  • Watch out for deals that lock you into a mortgage contract for a set time, applying an early repayment charge if you want to switch mortgages. Some will apply a charge even after the introductory rate has ended. Look for deals with no extended early repayment charge.
  • Also, make sure you factor any administration charges or reservation fees into your cost calculations, especially when remortgaging. These may offset any savings benefits you think you may get from a fixed term deal.

Mortgage interest rates change regularly, and so do the offers. For the fuller picture and to get a true idea of what your mortgage will cost in the long-term, get some advice from a qualified mortgage specialist. We can help make buying your property a more agreeable experience.

Associated costs: Read the fine print!

Itís easy to get carried away when youíve spotted a great rate. But be cautious. The devil is always in the detail. A headline rate will not necessarily reflect the true cost to you. Before signing on the dotted line, do your sums. Remember to consider all of the associated costs when buying a property, such as advice, arrangement fees, legal costs and stamp duty. Together, these can amount to a fairly sizeable chunk.

The last thing you need when signing up to the largest financial commitment youíre likely to make, is a costly surprise further down the line. Once weíve sourced the most suitable mortgage for you, we can help with all the application paperwork and will give you a clear breakdown of costs.

Some lenders will dangle carrots, such as free valuations; free legal costs or they may waive arrangement fees. If these incentives are important to you, we can factor them into our search to find your ideal mortgage partner.

Costs associated with mortgages

The excitement of buying a home should not divert your attention from the costs involved. On top of your monthly mortgage commitment, you may encounter some or all of these costs, depending on the route you choose to take:

Fee for mortgage advice

High-street lenders will tend to only advise on their own mortgage deals and explain the options. However, there are many advantages to be gained by seeking specialist advice from a financial adviser. Financial advisers can trawl the market and often access the best deals too. The cost of this service is covered in various ways. An adviser may charge you a fee as a percentage of your mortgage value, or as a set fee amount. Alternatively, commission is paid by the lender directly to the mortgage adviser. Often, an adviser is paid by a combination of the two.

Lenders arrangement fee

Lenders will usually charge an administration fee to cover the cost of setting up your mortgage or to reserve a fixed rate or fixed term deal. The amount will vary between lenders. If money is tight, you may be able to add this fee to your mortgage. Do bear in mind, however, that you will be charged interest on this fee amount for the entire term of the loan.

Valuation fee

Lenders also need some degree of security when putting up large sums of money. To check the property you are buying is worth what you say it is, they will insist upon a basic independent valuation of the property. This is known as a mortgage valuation. Expect to pay for the cost of this valuation at the very beginning of the mortgage application process.

Higher lending charge

Rising house prices means that borrowers increasingly need to stretch their finances even more, often with little equity to put down as a deposit. If you wish to borrow more than 70% to 75% of the property value, the lender usually applies an additional charge above the advertised rate.

Early repayment charge

Mortgage lenders would ideally like you to stick with them for the long haul. If you manage to repay your mortgage early, or want to switch mortgages before the end of a special rate term, such as five year fixed rate, they will be losing out on forecast revenue. Consequently, they will apply an early repayment charge.

Early repayment charges are common with mortgages that offer a special rate or deal, such as fixed rates, capped rates or discounted rates. The early repayment charge usually applies during the set special rate or deal term. But be careful. Some lenders may lock you in, even after the deal has expired. The small print could tie you to a lenders standard variable rate for a specific period of time. A switch could result in a hefty early repayment charge.

Costs associated with the property

Properties are money pits. Before you even start throwing money into decorating and furnishings, and prior to getting the keys, there are some extra costs to budget for:

Youíll need to feel confident that the property you are buying hasnít got any nasty surprises lurking in the brickwork, foundations or woodwork. The compulsory mortgage valuation report wonít go into details. It will simply tell the lender that if you default on payments, they will be able to get their money back. So, for peace of mind, itís advisable to appoint a professionally qualified surveyor to conduct a more detailed survey. There are two types to choose from - a Homebuyers Report or a Full Structural Survey.

Homebuyers report

Costing from about £250, depending on the size of your property, a homebuyers report will give you a good indication of the state of the property and its level of repair and maintenance. It will encompass all visible parts of the property, such as the condition of the roof. The report will also advise whether the surveyor recommends any further specialist surveys. If you uncover major faults, the survey will enable you to negotiate with the seller for a reduction in price or for them to carry out the repairs before you move in.

Full structural survey

Costing between £300 and £1,000, depending on the size of the property, the Full Structural Survey is the most comprehensive Ė and the most expensive. The surveyor will check the property thoroughly, looking at everything that is visible or easily accessible to examine the soundness of structure, its general condition and all major or minor faults.

If you would like this sort of detailed inspection, the surveyor carrying out the mortgage valuation for the lender can usually conduct a homebuyers report or full structural survey at the same time. Combining the two could save you money.

Legal Costs

When buying or selling a property, you will need to appoint a solicitor to carry out all the legal work, known as conveyancing. Conveyancing is the legal process of transferring ownership of a property from the seller to the buyer.

Solicitors costs will usually be based on the price of the property you wish to buy or sell.

Your money will pay for your solicitor to:

  • Carry out a Land Registry search for English and Welsh buyers or a Registers of Scotland search, and Register of Sasines search for Scottish buyers;
  • Carry out a Local Land Charges Registry search;
  • Liaise with the sellers solicitor;
  • Draw up contracts ready to exchange;
  • Make sure the mortgage deed is ready for signing on the completion date;
  • Arrange all the financial aspects of the transaction, such as having your mortgage and deposit in place by the completion date and organising the payment of any Stamp Duty.

Stamp Duty

Stamp duty land tax is an unavoidable tax you must pay when purchasing property, where the purchase price is £125,000 or more. The rates charged increase at fixed property value points:

Residential Non-residential Rate
£125,000 or less £150,000 or less Nil
£125,001 - £250,000 £150,001 - £250,000 1% *
£250,001 - £500,000 £250,001 - 500,000 3%
over £500,000 over £500,000 4%
* 0% for first time buyers of residential property.

For instance, you are buying a house with a purchase price of £200,000, so you fall into the lowest rate bracket.

There are some exceptions. If you are buying a property in a disadvantaged area, you will not pay any Stamp Duty on a property priced at £150,000 or less. If you are a first time buyer you do not pay any stamp duty unless the property value exceeds £250,000.

Mandatory Insurances

Many lenders will require you to take out building insurance as a condition of giving you a mortgage. Some lenders will also stipulate that this must be arranged through them. Being tied to a mortgage that stimulates this may not be in your interest. Although their mortgage may be very competitive, their own insurance products may not when compared to the wider insurance market. Any savings youíre making could reduce significantly. So do your homework and shop around for the best Ďall-encompassingí deal.

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

We do not charge you a fee for our mortgage services. We may however receive a commission from a lender should we place business with them. . Contact us to discuss further.

 


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