When it comes to mortgages, knowledge is most definitely power but with so much information out there, it can be overwhelming to know where to begin.
Whether you’re buying a home or re-mortgaging, there are a lot of questions to ask (and potential money to save) before taking the plunge.
To help you get to grips with the process, we speak to mortgage advisor and expert Simon Field at Ashwell Mortgage Services, who has the answers to some of the most frequently asked questions about mortgages and the mortgage process:
Q. Should we use a mortgage broker or go direct to our bank?
Brokers usually get access to some mortgage deals that are not available on the high street. If they are fully independent, as Ashwell Mortgage Services are, they should be able to show you options from all mortgage lenders to ensure you are obtaining the best deal for your situation.
Q. How much can I borrow?
Historically, lenders simply multiplied your income or joint income by four times your salary. Today, lenders have moved away from this approach and now work on affordability, looking at your income compared to your outgoings. The outgoings they factor in are non-discretionary payments, such as loans, car finance, credit card payments and similar. Other direct debits such as gym membership, mobile bills and car insurance are viewed as discretionary.
Q. Do I need an agreement in principle?
An ‘agreement in principle’ is when you submit your basic information to a lender (basic personal details, income, outgoings etc) to gain an understanding as to whether they would be happy to consider your application. It will also demonstrate your commitment to buyers when making offers on properties. You need a property before making a formal mortgage application.
Q. I was furloughed for a period of time. Can I still obtain a mortgage?
Yes, provided you have returned to work and to your ‘normal’ salary. If you usually earn commission and / or bonuses, lenders will look for a 3-month track record that this has returned to ‘normal’ in order to be considered.
Q. How much of a deposit do I need?
You need a minimum of 5% deposit of the property value. The ‘loan to value’ is based upon the deposit against the property value and increases in increments of 5%. The general rule is the more deposit you have (10%, 15% etc) the lower the interest rate you will be offered. Once you reach 40% deposit, the lowest rates are available.
Q. What value property can I afford?
You can use the Ashwell Mortgage Calculator to see what the estimated monthly cost would be based on your deposit and the property value.
Q. Can I use my Lifetime ISAs towards my deposit?
Yes. Lenders are happy to accept these as long as you and the property meet the criteria of the ISA.
Q. How do shared ownership schemes work?
You own a share of the property, typically between 25% -75%, and pay rent of the remaining share to a housing association. You do have the option to increase your share in the property in the future, however, you are unable to fully buy any property under this scheme.
Q. How do ‘Help to buy shared equity’ schemes work?
‘Help to Buy’ schemes are available to first time buyers, on new build properties only. With the equity loan you need to provide a minimum of 5% deposit yourself, and the government will give you an interest-free loan for the first 5 years of 20% of the purchase price, and you would obtain a mortgage for the remaining 75% in order to purchase the property. After 5 years, you pay interest on the 20% equity loan to the government. You can repay the equity loan at any time or it becomes repayable when the property is sold, in which case you would repay 20% of the property value at the time of repaying the equity loan. Therefore, if the value of the property has gone up, the amount to repay will increase. Please note that ‘Help to Buy’ ceases for new applicants on 31stOctober 2022.
Q. Help, I’m worried about my credit score!
All lenders will factor in your credit score, as part of the underwriting decision to lend to you. The first step is to obtain a copy of your credit report from companies such as Experian and Equifax (these are the two main reports lenders use). By using the same reports, you will be able to see what they will see. Check the report to make sure all looks correct; address history, if you are on the electoral role (if not, get registered –this will boost your score) etc. Double check that nothing is alarming or a cause for concern. If you are still linked to any ex-partners, ask the credit agencies to delink you as this will stop you being associated with their credit. Make sure you don’t have any late or missed payments on any financial agreements as this may also impact the lenders decision.
Q. Should I have a repayment mortgage or interest only mortgage?
Repayment mortgages are generally recommended, as this is the only mortgage which guarantees you are actually paying off some of the debt each month, unless there is a compelling reason for an interest only mortgage. With an interest only mortgage, your payment only covers the cost of the borrowing the money (the interest); i.e., if you borrowed £100,000 today over 30 years, at the end of the 30 years you would still owe £100,000. It is also worth noting that there are criteria to be met to be eligible for an interest only mortgage.
Q. Do I have to have a bank account with the same mortgage provider?
No, you can repay your mortgage direct debit from the bank account of your choice.
Q. What mortgage term is available?
Most high street lenders will lend up until the age of 70 for the eldest applicant. Some lenders will look to lend over this age and may consider a term which takes you up to the age of 75.
Q. What mortgage products are available?
There are numerous on the market, such as:
Tracker: linked to interest rates such as Bank of England, these types of mortgages fluctuate in line with any interest rates changes.
Off-set: where you can link any savings you have against the mortgage.
Fixed: by far the most popular option, where your interest rate is fixed for a period of time, normally between 2 – 5 years. This protects you against any interest rate changes and enables you to plan and budget knowing your monthly payment will remain the same for this set period of time.
Q. Can my parents help me financially?
Yes. Your parents can help with any deposit you may need, and some lenders will offer a ‘guarantor mortgage’ where you can also use your parents’ income to boost your borrowing, provided they are happy to be part of the application. Lenders will factor in your parent(s) age, income, and financial commitments before going ahead. If considering this route, it is a good idea for parents to consider how this may affect their future income and tax liabilities going forward.
Q. What are costs involved?
Our service at Ashwell Mortgage Services is free, as we get paid commission from the mortgage lender on completion.
Other costs throughout the process include:
Mortgage Survey: all lenders will want to complete a survey on the property to ensure it is suitable for the mortgage purposes. Some lenders may offer a free survey as an incentive. Those who don’t typically charge around £250 - £300 dependent upon the property's value. You can also upgrade to a ‘home buyers survey’ or ‘full building report’ which is a greater in-depth survey on the property you are buying and will highlight any defaults within that property or areas of concern such as damp or cracks.
A ‘full building report’ is the most in depth report you can have completed on the property. The costing of these reports varies according to property prices.
You will also need to allow for solicitor fees and stamp duty.
Ashtons are proud to work with Ashwell Mortgage Services, who provide expert mortgage advice to our buyers and support them through their home buying journey.
Book an appointment to discuss your mortgage requirements with Simon or contact the team today.