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Getting a Mortgage: Our How-to Guide to Residential Mortgages

Are you looking for a mortgage? We know that it can be a minefield of information with hundreds of products and options to choose from.

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

This is where getting a mortgage can be a real minefield. There are numerous different types of mortgages to choose from.
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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.

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Repayment Mortgages

Every month you repay capital and interest. So when your mortgage term comes to an end, you will have paid all of the interest on your loan, and the capital will have been paid off as well.
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Standard Variable Rate

This is the standard mortgage for most lenders. They will have a standard rate of interest that fluctuates depending on the Bank of England Base Rate. You aren’t tied into a mortgage like this so can change lenders or products when you like, but your payments will go up and down depending on what the lender sets their standard variable rate at. Typically this rate is a little higher than secured deals, but the benefit is that your payments can go down. But remember they can go up too.
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Fixed Rate

This type of mortgage fixes your interest rate for a set period of time. Typically 2,3 or 5 years but there are other options. So you know exactly what your monthly payments will be for your chosen term. This option gives you the security of knowing that your payments won’t rise which is good for your household cashflow, but if interest rates fall your payments won’t. There will be fees to pay for moving lenders or products during the fixed term.
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Tracker Mortgages

This type of mortgage tracks the Bank of England Base Rate. The bank will add it’s own interest rate on top of the BofE rate. The interest rate will fluctuate according to interest rates so your mortgage payments could go up and down. Typically higher interest rates than fixed rate mortgages, but lower than Standard Variable Rate. Sometimes a ‘collar’ is set on tracker mortgages so your interest rate wouldn’t fall below a set level. If your collar is set at your introductory rate you wouldn’t benefit from a drop in interest rates, but would still pay any increases.
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Joint Mortgages

This is a home loan that is shared between multiple people. Usually, two people, but can be up to four. This is the usual type of mortgage for a couple to take out but could also be a mortgage between friends buying a home together, or even a parent or family member buying a home with someone. It’s important with this type of mortgage that you are certain that the other parties will pay their share because you are all liable if you do not keep up your payments.
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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

There are a number of factors to consider here. But there are some things that you can do to get the best offers.
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Do your research.

Take a look at the affordability calculators and mortgage calculators and work out what you can realistically afford. Remember that you still want to have a life! And when you move into your new home or have completed your extension you will want to spend some money on furnishings, the garden, and the things that make a house a home. In the case of an extension, it’s a good idea to have around 15% extra in case you encounter any problems or change something.
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Keep the Loan to Value down.

Loan to Value (LTV) is the ration of your home loan compared to the value of your property. So if your home is worth £200,000 and you want to borrow £100,000 your LTV would be 50%. The lower the LTV, the lower your lender will consider the risk to be. So you’ll get a better rate than a mortgage with an 80% or 90% LTV. You can do this by borrowing less or saving a larger deposit. If you need to have a high LTV be aware that lenders will consider this to be a higher risk and increase interest rates.
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Make sure that your credit file is in good order.

We’ve mentioned checking your credit file if you’re a first-time buyer, but it applies to all borrowers. There’s nothing worse than applying for a mortgage only to be rejected because your credit file shows something that you didn’t know about. Or even worse, is a mistake and nothing to do with you in the first place. It happens.
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Get your paperwork in order.

There’s nothing worse than playing paperwork ping pong! Make sure that you’ve completed all the paperwork, have taken hi-resolution copies of any documents that you need-like your identification. And send everything recorded delivery if you can’t drop it into a bank branch or send it by email.
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Speak to a professional mortgage adviser.

Of course, we would say that right? But a good mortgage adviser will have extensive knowledge of the mortgage market and have access to products that aren’t available directly to borrowers. And your mortgage adviser can help you with all of your paperwork, talk through all of your options, and answer any questions you have. And they can speak directly to lenders to answer any queries on your behalf in the right language. Not only does that simplify your application process, but saves you time and stress too.

Getting a Mortgage if you don’t fit the Model

Everyone is different. And no one mortgage application will be the same. That’s why there can sometimes be challenges to securing the best mortgage deal if you don’t fit lenders’ criteria. But that doesn’t mean that you can’t get a mortgage.

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

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Take advice and guidance from a mortgage adviser
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Be honest and open. Tell them the whole story of why you have adverse credit in your history and complete your paperwork correctly.
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Expect your mortgage to be more expensive. It’s likely that the interest rate will be higher because you will be considered to be a higher risk.
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Remember that you will be able to remortgage in the future when your credit file has cleared itself and reduce your payments.
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But if you don’t absolutely have to take out a mortgage then delay until your credit file improves.

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

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Take advice from a mortgage adviser and speak to your accountant about proving your income.
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There is no such thing as a ‘self-employed mortgage’ but there are products that are more suitable for self-employed people.
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Getting a mortgage on the high street might not be as easy as if you are employed, but there are products that only a mortgage adviser can access. Don’t just settle for a high street deal.

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.

Our Top Tip

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Take professional advice from a mortgage adviser that understands this area and has the experience to help you at your most vulnerable time.
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If there is a will in place any provisions in this must be considered, and if not we suggest taking legal advice.

A Final Word on Getting a Mortgage

We’ve written about some of the key areas of the mortgage market and some of the critical issues that you should consider when applying for a mortgage, but the market is complex. If you have any concerns about your mortgage it’s always best to speak to a mortgage adviser first to get the very best advice on your particular circumstances.
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