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david@ashcroftmortgages.co.uk

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Mortgages – A Beginners Guide

Buying a home is the largest purchase you’re likely to make so receiving good easy to understand financial advice from an experienced adviser makes sense it could save your both time and money. We have been helping people get on the property ladder for over 20 years, that ladder may have changed a lot over the years, but buying a house can still be just as complicated and time consuming so having someone like us with you every step of the way can make the first step onto the property ownership ladder seem not quite as daunting. Before you arrange your Mortgage there are many things to consider such as making sure you know what you can afford to borrow, finding out where to get a Mortgage product that is suitable to your own personal circumstances and how the process works.

So what we are saying is… talk to an experienced Mortgage Adviser before you start to look to purchase a property. We will be only too happy to help and explain everything you need to know, but in the meantime here are some basics that are good to know.

 

Understanding the Basics

There are lots of different words and phrases that are mentioned when you’re buying a home, so to help make sense of it all we’ve outlined the basics:

 

What is a mortgage:
A loan from a mortgage provider such as a bank or building Society.The loan is secured against the property so if you do not keep up the repayments on the mortgage or any other borrowing secured against the property the lender could repossess the property(take it back and sell it to get back the secured borrowing plus costs from the sale).

Vendor:
Another word for the person selling their property.

Intermediary:
An adviser such as myself who can help arrange a mortgage for clients. I work for my clients not the Bank or Building Societies so will always recommend what I think is best for you.

Affordability Calculator:
These are the calculations carried out by lenders to check you can afford the mortgage payments both now and in the future.
These calculators take into account your income, your financial commitments, general living and property ownership costs and then stress test the interest rate to check you could afford the mortgage payments if or when interest rates increase. Each lender have their own individual lending criteria and affordability calculators, therefore some may offer more to borrow than others, a mortgage intermediary such as myself would check different lenders during research before making a recommendation to you.

Agreement in Principle (AIP):
This is a statement or certificate issued from a lender to confirm they may be willing to lend the required borrowing amount. These are usually produced after the lender have some basic information about such as your income and outgoings and have carried out and you have passed their initial credit score. An AIP once issued will be subject to underwriting and a satisfactory property valuation report.

Property Valuation:
A survey on the property you are purchasing that your lender will arrange to check the value of the property and make sure the property is suitable security for a mortgage.

Deposit:
The amount of money that you will pay towards the cost of the house purchase. The minimum deposit some lenders will accept is 5% of the property purchase price, but normally the larger the deposit the lower the initial interest rate a lender may be prepared to offer you.

Loan-To-Value (LTV):
LTV is the amount you want to borrow in relation to the value of the property you wish to buy. This is expressed as a percentage figure,an example so if you 5% deposit the LTV would be 95% and the lender would offer you a product up to 95% Loan to Value of the property.

Stamp Duty:
Stamp Duty land tax is a tax charged by the government on land transactions over a certain price, which your mortgage adviser and solicitor would advise you about. Currently the threshold for Nil band Stamp Duty for First Time Buyers is up £300,000 property purchase price. >

Working out what you can afford

Don’t stretch yourself if you think you’ll struggle to keep up repayments. Also, think about the running costs of owning a home such as household bills, council tax, insurance and maintenance.

Lenders will want to see proof of your income and certain expenditure, and if you have any debts. They may ask for information about household bills, child maintenance and personal expenses.

Lenders want proof that you will be able to keep up repayments if interest rates rise. They may refuse to offer you a Mortgage if they don’t think you’ll be able to afford it.

Your Deposit – Size Matters

When buying a property, you will need to pay a deposit. This is a chunk of money that goes towards the cost of the property you’re buying.


The more deposit you have, the lower your interest rate could be. When talking about Mortgages, you might hear people mentioning “Loan to Value” or LTV. This may sound complicated, but it’s simply the amount of your home you own outright, compared to the amount that is secured against a Mortgage.


For example, with a £20,000 deposit on a £200,000 property, the deposit is 10% of the price of the property, and the LTV is the remaining 90%. The Mortgage is secured against this 90% portion.


The lower the LTV, the lower your interest rate is likely to be. This is because the lender takes less risk with a smaller loan. The cheapest rates are typically available for people with a 40% deposit.

Where to get a Mortgage

You can apply for a Mortgage directly from a bank or building society, but this would restrict you from choosing from their product range only.


You can also use a Mortgage intermediary/Independent financial adviser (IFA) such as? You guessed it ME, who can compare different Mortgages on the market, as well as Mortgages many exclusive products.


We as Independent advisers look at Mortgages from the ‘whole of the market’ while others may look at products from a panel of lenders.


Taking advice will almost certainly be best option unless you are very experienced in financial matters in general, and Mortgages in particular.

Applying for a Mortgage

Applying for a Mortgage is often a two-stage process. The first stage usually involves completing a mortgage fact find with a mortgage adviser who works for the lender or a intermediary who works for you, these help you and the adviser/intermediary work out how much you can afford, and which type of Mortgage(s) you may need. The second stage is where the Mortgage lender or mortgage broker will conduct a more detailed affordability check, request evidence of income and ask more detailed questions regarding your outgoings and current financial commitments.


Stage 1 meeting for advice and fact finding:
Generally, the lender or a mortgage intermediary will ask you a series of questions to work out what kind of Mortgage you want and what may be best for you and help them work out mortgage affordability based on your income (so you will have provide proof of your income) and your outgoings will be taken into account such as existing and future financial commitments, general and property ownership costs, they will look into what mortgage term would be best for you to help you with the long term affordability of your mortgage repayments. They’ll also work out your financial situation. This is generally used to provide an indication of how much a lender may be prepared to lend you.


They will also give you key information about any product’s they think may be suitable for you, and tell you about their service and any fees or charges if applicable.


Stage 2 recommendation to me made:
The lender’s adviser or your Intermediary will finish completing a full ‘fact find’ and a detailed affordability assessment, for which you will need to provide evidence of your income if not already provided and specific expenditure, and ‘stress tests’ of your finances. Once the research has been carried out to find the best product to suit your needs and personal circumstances then a recommendation can be made to you, once you accept this and wish to proceed a mortgage application can be started


Once an application is submitted and been underwritten by he lender’s underwriters and a satisfactory property valuation report is received, your application will be accepted by the lender and they will then provide you with a ‘binding morgage offer’ and a Mortgage documents explaining terms of your Mortgage.


This will come along with a ‘reflection period’ of at least 7 days, which will give you the opportunity to make comparisons and assess the implications of accepting your lender’s offer. Some lenders may give you more than 7 days to do this.


You have the right to waive this reflection period to speed up your home purchase if you need to.


During this reflection period, the lender usually can’t change or withdraw their offer except in some limited circumstances. For example if the information you’ve provided was found to be false.

Your Credit Score – A Good One Matters

Part of the process of applying for a Mortgage will involve a Mortgage lender carrying out a credit score on you.


One of the main problems seems to be that many people falsely believe that they have a decent credit history. According to research by Experian, 75% of would-be buyers surveyed said that they believed their credit rating was either ‘good’ or ‘excellent’, but when investigated more closely the picture was less rosy.


The research found that a quarter (27%) of those questioned had one or more missed payments on their credit report, while another 9% had defaults. A further 5% even had court judgements or insolvencies listed. Such things are likely to ring alarm bells with lenders.


As a rule of thumb the Mortgage products that require smaller deposits such as 5% to 10% deposits you would require a good to excellent credit score.


As all lenders are different and have their own credit score cards, affordability calculations and lending criteria it once again makes good financial sense to get advice from a Mortgage adviser who has access to the whole of the market and the experience and knowledge to know what different lenders are looking for.

How does a Mortgage work?

The money you borrow is called the capital and the lender then charges you interest on it till it is repaid. The type of Mortgage you are able to apply for will depend on whether you want to repay interest only or interest and capital.


Repayment mortgage
With repayment mortgages you pay the interest and part of the capital off every month. At the end of the term, typically 25 years, you should manage to have paid it all off and own your home.

 

Interest-only mortgage
With Interest-Only Mortgages, you pay only the interest on the loan and nothing off the capital (the amount you borrowed).


These Mortgages are becoming much harder to get agreed by as lenders and regulators are worried about homeowners being left with a huge debt and no way of repaying it.


You will have to have a separate plan for how you will repay the original loan at the end of the Mortgage term.


Combination of Repayment and Interest-Only Mortgages
You can ask your lender if you can combine both options, splitting your mortgage loan between a repayment and Interest-Only Mortgage.

Once you’ve decided how to pay back the capital and interest, you need to think about the Mortgage type. Mortgages come with fixed or variable interest rates.


With a Fixed-Rate Mortgage your repayments will be the same for a certain period of time – typically two to five years – regardless of what interest rates are doing in the wider market.


If you have a variable rate mortgage, the rate you pay could move up or down, in line with the Bank of England base rate. There are various types of variable rate mortgages.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Testimonials

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Exceeded All Expectations

D&D Wigglesworth

Dave had exceeded all expectations in every aspect. The service was always honest, friendly and explained in a manner that made the process very easy. Any questions which we had and continued to ask Dave, was never too much trouble for ...

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Excellent Service

Karen Gascoigne

I could not have asked for a better service. Everything was explained to me by Dave Clark, and never rushed me in any way, and if i didn’t understand, time was not a problem, Dave would stay ’till I did. ...

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Extremely Responsive

Clare Carrol

Dave was extremely responsive and there to help from the initial phone call. Communication was quick and easy and it was never a problem to answer the many questions I had. Dave was very easy to get hold of via ...

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