Getting a Mortgage: Our How-to Guide to Residential Mortgages
But what’s the best option for you when you’re thinking of getting a mortgage?
We’ve included information here that answers some of the questions that we are regularly asked by our clients.
Who are You?
To consider the best mortgage for you, consider your most basic information. Where do you fit in the mortgage market.
First Time Buyer
You’ve never owned your own home, and you’re ready to buy. You may have been living at home and saving your deposit, or you’ve been renting and are now ready to take the leap onto the housing ladder. You’re likely to have some deposit but not a large one.
Our Top Tip
Register with one of the four credit referencing agencies. If you don’t have a mortgage or use credit very much your credit score may be quite low. And that will affect the mortgage products you can access and increase your cost of borrowing.
Moving Home
You’re on the housing ladder but want to move home. That might be for a growing family, for work or to move nearer to family. Whatever the reason, you’re likely to be increasing your borrowing and loan to value unless the value of your current home has increased and you’re moving to an area with lower house prices.
Our Top Tip
Research lending criteria against your income. Most high street lenders have mortgage and affordability calculators aligned to their own lending criteria.
Remortgaging
You don’t want to move home but are planning an extension to give you the space you need. Or you might be releasing equity for home improvements or another project that needs financing and you have identified that you have the equity in your home that you need. Or your current mortgage deal is coming to an end and you want to secure a new deal to save you some money.
Our Top Tip
Get your finances in order. Don’t apply for credit in the months before you apply for a mortgage, and stay out of your overdraft!
Equity Release for Investment
This is, in effect, a remortgage but its worth considering separately. You might want to invest in a business or raise capital to invest in a rental property. This could be tied in with an extension on your home, but there are considerations.
An equity release product will reduce the value of your estate, will not be suitable for everyone, and may affect your entitlement to state benefits. To understand the features and risks please ask for a personalised illustration.
Our Top Tip
Take professional advice and ensure that you are completely clear on what you are investing the money in.
Types of Mortgage
Interest Only Mortgages
You only pay interest back to the lender so by the end of the term you still have to repay the initial capital that you borrowed. You are required to take out a separate investment policy to save the money that you need to repay that capital. This type of mortgage caused problems for thousands of borrowers in the 1990s. When their mortgages became due for payment, their investment policies didn’t mature with enough cash to settle the mortgage. But the regulation for this type of mortgage has been tightened.
Repayment Mortgages
Standard Variable Rate
Fixed Rate
Tracker Mortgages
Joint Mortgages
Guarantor Mortgages
This is where a family member or parent acts as a guarantor. They will provide their home or savings as security against the loan and agree to cover payments if the homeowner defaults on their payments. This is not the same as a joint mortgage as the guarantor doesn’t have an interest in the property. The disadvantage of this type of loan is that the guarantor could be personally liable if there is a shortfall if your property has to be repossessed and sold. On the positive side, it may mean that you can get a better interest rate or borrow more than would have been able to otherwise.
Getting a Mortgage at a Competitive Interest Rate
Do your research.
Keep the Loan to Value down.
Make sure that your credit file is in good order.
Get your paperwork in order.
Speak to a professional mortgage adviser.
Getting a Mortgage if you don’t fit the Model
Adverse Credit
Adverse credit will stay on your credit file for 6 years. You might have previously missed payments on credit. Or you may have been made insolvent or bankrupt, or even had an association with someone who has. All of these things will be visible to potential lenders. If this is the case it’s best to go to a mortgage adviser. Getting a mortgage will be more difficult, and a mortgage adviser will have access to specialist lenders who might be able to help. The last thing you should do is make multiple applications and hope for the best. That will show up on your credit file, and alarm bells will sound with any potential lender.
Our Top Tip
Getting a Mortgage if you’re Self Employed
There are all kinds of stories around getting a mortgage if you’re self-employed. Most of them are nonsense. But your journey to getting a good mortgage might be a bit different, and using a professional is a good route to take. There are lenders out there that will deal with self-employed people with one years’ accounts, but typically they ask for three. But providing you can prove your income there are good deals out there that you can access.
Our Top Tip
Bereavement
You may have lost a loved one and need to remortgage to pay the bills or reduce mortgage payments. There are specialist products for retirees and people who wouldn’t otherwise meet the lending criteria because of their age or for other reasons. There are lenders that can help, but at a time when you are at your most vulnerable the most important thing is to have the right support and guidance.