Online Mortgage Forum Guidance and Advice
The UK Online Mortgage Forum Guide
The UK mortgage industry is a very competitive, there are some great deals to be had, some huge savings to be made, simply by shopping around and choosing the right deal. However, for the inexperienced borrower, the jargon can seem complicated, there are also many pitfalls to look out for, with thousands of mortgage products available, all with different terms, features and benefits, making the right choice can be a nightmare.
Our website mortgage guide is designed with you in mind, we hope that you find it useful and that it makes finding the right mortgage much easier for you.
Mortgage Guide Index – Scroll down to read more…
- Finding The Right Mortgage
- Choosing the most suitable interest rate structure
- Help finding a fixed rate mortgage
- Help finding a capped rate mortgage
- Help finding a discounted rate mortgage
- Help finding a stepped rate mortgage
- Standard Variable Rates Explained
- Cashback Mortgage Deals Explained
- Choosing the most suitable repayment method – guide to mortgage repayments
- Repayment Mortgages Explained
- Interest Only Mortgage Loans Explained
- What can you expect to pay for a new Mortgage?
- Mortgage Lenders Arrangement Fees Explained
- Mortgage Indemnity Premiums Explained
- Brokers Fees Explained
- Mortgage Survey/Valuation Fees Explained
- Mortgage Redemption penalties – What to look for and how to avoid them
- Flexible current account/lifestyle mortgages
- Key questions about mortgages that you should consider
- Mortgages for Self Employed people – Mortgage advice for the self employed
Our detailed UK online mortgage forum guide was published to provide helpful mortgage information online and to make as much useful information available to you.
We want to help you to understand mortgages, explaining the process of mortgage decision making by lenders and we hope you will find the information below useful. Making the right mortgage choice decisions, can only happen if you are guided with sound advice or you do it yourself with the benefit of good knowledge. We aim to assist you in selecting the best UK mortgage to suit your requirements and circumstances.
We are independent, so have no interest in favoring one product or mortgage lender over another. We simply provide you with mortgage information to help you to make an informed choice in finding the best mortgage for you. Our web site mortgage guide service will assist you in making the right choice from thousands of mortgage products, all a bit different and all tailored to suit a clients specific needs.
Take your time to follow our UK mortgage guide through step by step and we hope that we can help to unravel some of the mysteries of the mortgage industry for you. Given the intentions of our website, we hope that you not only find what you are looking for, but when you do it leads to substantial savings for you over the years. Every effort has been made to make sure that the information in this guide are accurate, no liability is accepted for any errors or any loss resulting from actions taken as a result of information. In no way is the information published in this guide intended as advice under the Financial Services and Markets Act and where individual advice is required it should be sought from a properly FCA authorised adviser, contact us and speak to one of our experienced mortgage adviser.
The first question that most people ask when considering a new UK mortgage is ‘What type of interest rate structure is best for me? – Should I take a fixed rate, a capped rate, a discounted rate, a stepped rate, a standard variable rate or a cashback deal?’ This is a very important point that needs very careful consideration. Our mortgage guide was intended to assist you to find the answers for yourself, so let’s look at each of these options in turn and attempt to simplify the choices available.
Fixed rate mortgages are available on a variety of terms and for most periods. At one end of the scale there are some very short term deals fixed for say 6 months, and at the other end of the scale there are offers that will fix the rate for the entire term of the mortgage.
So should you opt for a fixed rate and if so what are the catches to watch out for? The decision you make here will normally depend on two factors. The first is what you feel will happen to interest rates over the coming months/years and secondly your approach to risk. Let me explain in more detail – If you feel that interest rates are likely to fall then it is unlikely that you will want to tie yourself in to a fixed rate for any period, particularly if you feel that the normal variable rate is likely to fall below the fixed rate. You will probably feel more inclined to take a discounted rate in these circumstances as you can then benefit from any fall in interest rates with a reduction in your mortgage repayments.
The second consideration that will influence your decision is your attitude to risk. If you like to budget with certainty then you will probably want to fix your repayments for a reasonable length of time. Equally important is the amount of leeway you have with your budget and whether you can afford to meet any increase in repayments. If you are a first time buyer and have borrowed to your maximum limit then it is probably sensible to fix your repayments at a level which you can comfortably afford. If there is little ‘slack’ in your budget then you must consider ‘can I really afford to take a chance on interest rates rising?’
So, if you decide to opt for a fixed rate what are the catches and what points should you particularly watch out for? First let’s look at the disadvantages of taking a fixed rate. Clearly the most obvious disadvantage is if interest rates fall – in this case you could find yourself paying more than you would have had to with a variable or discounted rate. If you have opted for a long term fixed rate then this decision could cost you dearly over the period of the fixed rate. You will also find that, with most fixed rates, you will be charged a penalty (called a redemption penalty) if you wish to change your mortgage or pay it off completely or in part in the first few years. With most fixed rate mortgages this penalty will certainly last for the term of the fixed rate and it is quite common for these penalties to extend beyond the fixed rate term, thereby tying you into that mortgage for a number of years after the fixed rate has finished. These redemption penalties are usually imposed at a level that would make it uneconomic to change the mortgage or transfer to another lender whilst the penalty is in place.
There are many lenders who offer fixed rates without redemption penalties or with penalties that only last during the fixed rate period. These products are certainly worth considering although you will usually find that, as a result of this, the rate offered is not the most competitive in the market. However, you do then have additional alternatives if interest rates work against you and you could be free to negotiate an alternative rate with the lender or, if the worst comes to the worst, move to a different lender.
A capped rate will give you the best of both worlds between a fixed rate and a variable rate. The cap is basically a ceiling on the interest rate above which it will not rise. On the other hand, if the normal variable rate falls below the capped rate then the variable rate will be charged. So, you have a guaranteed maximum rate with the benefit of a reduction in interest rate if this happens – sounds too good to be true? Well there are some catches – first you will usually find that the cap is set at a higher rate than the best fixed rates for a similar period. So, for example, if a capped rate is offered for 5 years capped at 8% you may find the best five year fixed rate is being offered at 7%. Secondly, you also need to watch out for redemption penalties as with fixed rates. The third point to watch out for is that sometimes these products are sold as ‘cap and collar’ products. This basically means that, as well as a ceiling on the interest rate above which it cannot rise there is also a collar on the rate which is a level below which the rate cannot fall. For example a product may be sold with a cap of 8% and a collar of 5% for 5 years. This means that within that 5 year period the interest rate is guaranteed not to rise above 8% but it will also not fall below 5% within that time either. This means that if the normal variable rate falls below the collared rate you will be paying ‘over the odds’.
Discounted rates are usually linked to the normal variable mortgage rate but with a discount for a set period of time. This means that the interest rate you are paying will fluctuate up and down in line with base rates but you will be guaranteed to receive the discount for a set period of time.
Most of the discounted rates on offer at the present time will give the discount over the first one, two three, four or five years. The total amount of discount on offer tends to work out approximately the same over the period of the discount so, in broad terms, you are making a choice between a large discount for a short period of time, a small discount over a long period of time or something in between. For example one product may offer a 3% discount over 2 years and another a 2% discount over 3 years. The total discount you receive in either case is 6% so the choice you are faced with is what period to take the discount over. There are a few products that will offer the discount over a shorter period than one year and a few that will offer the discount spread over a longer period. There are even some lenders who will guarantee you a discount for the life of the mortgage and these products are certainly worth considering if you are not looking for a substantial reduction in your repayments over the short term.
So, what are the disadvantages of discounted rates and what are the catches to watch out for? Broadly speaking, you have the same catches to watch for as for fixed rates. Look out for the early redemption penalties imposed on you by the lender. In particular watch out for products that have redemption penalties which extend beyond the period of the discount. If this applies to the deal you have taken then you will be tied to the lenders normal variable rate at the end of the discounted period and you will be denied the opportunity to rearrange your mortgage or negotiate better terms with your current lender without paying the redemption penalty. Also consider what the lenders normal variable rate is and has been in the past. Does the lender have a track record of charging a competitive rate or does their normal variable rate tend to be on the high side.
The other advantages and disadvantages depend on what happens to interest rates over the period of the discount – if interest rates fall then you will take advantage of any reduction and see your monthly repayments fall. On the other hand if rates rise then your repayments will increase to reflect the change.
In summary, therefore, you should probably avoid discounted rates if you are on a very tight budget unless you feel absolutely certain that interest rates will fall and remain low for the foreseeable future. However, if you are budgeting with a reasonable amount of leeway and you feel it is likely that rates will fall then a discounted rate could be just the thing for you and may save you a considerable amount of money over the early years of the mortgage.
A stepped rate may be either fixed or discounted. The term ‘stepped’ simply means that the rate will change in steps at certain fixed intervals. For example a stepped fixed rate may offer a rate of 3% in year 1, 4% in year two and 6% in year three – in this example therefore you have a fixed rate for three years which increases in these three stages. An alternative to this may be stepped fixed rate where the interest rate decreases over the term of the fix. For example the rate may be 7% in year one, 5% in year 2 and 4% in year three. In this case the interest rate is again fixed for three years but at the three different steps.
A stepped discounted rate will work in a similar fashion to the above but instead of the interest rate itself being fixed, the amount of the discount will be set. Again the size of the discount may step up or down over the period according to how the lender has chosen to structure the product. For example you may be offered a discount of 3% in year 1, 2% in year 2 and 1% in year three. Alternatively the step may be set in reverse with 1% off in year one, 2% in year two and 3% in year 3. Stepped rates have the same disadvantages and advantages of the fixed and discounted rate products and are simply a variation on the same theme. Again you should watch out for early redemption penalties.
The stepped rate market is smaller than the conventional discounted or fixed rate market and fewer products are launched in this format. However, it is one that you should be aware of and one that will suit some people. Obviously individual circumstances and requirements vary considerably and these products will appeal to some people, particularly if they can see the stepped rate fitting in with planned changes in income.
The mortgage market has become increasingly competitive over the last few years and you could be forgiven for thinking that straight variable rate mortgages no longer existed or were not worth considering. However, over the last couple of years standard variable rate mortgage products have started to make a come-back particularly with the direct lending operations. Rather than simply being rate driven these products can be attractive for a number of other reasons. We have already discussed early redemption penalties in the previous sections. These penalties can be extremely onerous and will normally be applied even on partial redemption. If you envisage that you may be in a position to pay off lump sums then the penalties that you may incur will detract from the value of the fixed or discounted rate.
In addition many of these direct lenders are able to offer extremely competitive variable rates which will undercut the more traditional lenders. If this is maintained over a period of years then you could find yourself benefiting from a very competitive rate without all the restrictions of an actual discounted rate. In addition to this benefit you will also find that many of the lenders who offer these products will also charge interest daily rather than annually which will give a great interest saving on a repayment mortgage over the entire period of the mortgage. These products are explained in more detail under section five which deals with flexible ‘current account’ mortgages.
There are so many cashback deals currently available and these range from products that offer a few hundred pounds back on completion, to schemes which will offer you a percentage of the mortgage amount. Cashback mortgages are ideal if you are happy to sit with a normal variable rate but wish to raise some extra capital without increasing the mortgage debt. Many of the deals available will offer a percentage of the mortgage amount as a cash sum on the basis that the interest rate charged by the lender will be the normal variable rate with no discounts. All that the lenders are doing here is to give the offer of cash up front as an alternative to a discounted rate.
An alternative to the very large cashback offers are products that offer a discounted or fixed rate with a smaller cashback. This may be a few hundred pounds and these cashback offers are really designed to cover the costs of arranging the mortgage. In addition some lenders will refund costs such as the arrangement fee and valuation fee once the mortgage completes.
Another use for cashback products that is sometimes overlooked is to fund part of the deposit that the lender will usually require you to put down from your own resources. For example, if you are buying a property for the first time you may be considering a 100% mortgage. There are a number of lenders that will offer the facility of 100% mortgages but in general terms you will not find the products to be the most attractive available in the market as a whole. However, if you can find a lender who will offer you a 95% mortgage with a 5% cashback then you may find the interest rate on offer to be more attractive. You will still need to fund the deposit of 5% from your own resources in the short term but then once you have completed your purchase the lender will give you the 5% back. This approach is worthy of consideration if you are considering a 100% mortgage.
Once you have decided on the best interest rate structure you will need to think about the type of mortgage repayment structure to pay back the capital debt. Do you wish to take out a conventional repayment mortgage, or back your mortgage with an ISA or endowment policy or pension plan? You may wish to simply pay the lender the interest on the loan with a view to repaying the debt at some time in the future either from your own resources or maybe from the sale of the property.
Let’s look at the various repayment options and what each one means in detail with our guides to mortgage repayment.
A repayment mortgage is a straightforward capital and interest mortgage where each month you pay the agreed interest in addition to a portion of the capital that you have borrowed. Mortgages of this type are arranged over a set number of years (normally up to 25, but can be up to 40 years) and at the end of the mortgage term, all the interest and the capital has been repaid. The advantage of this type of mortgage is that it is simple and guarantees that, providing all the repayments are made on time, the mortgage will be paid off, in full, at the end of the agreed mortgage term.
The main disadvantage is in the way that the interest is calculated and collected. In the early years the majority of your monthly payment will be for the interest being charged with only a small part going towards reducing the outstanding debt. This means that the amount you owe reduces very slowly in the early years and the majority of the capital will be repaid in the latter years. With a 25 years mortgage, it would not be uncommon to still owe over 50% of the original debt after the first 15 years. The disadvantage of this is simple and obvious, if you wish to repay the mortgage early, the amount by which you have reduced the debt will be significantly less in the early years than the later years.
This type of mortgage is however very flexible and does allow you to increase your repayments at any time with a view to shortening your mortgage term (this may not apply if you are restrained by a fixed or discounted rate as the lender may then impose penalties. If you think you may wish to do this at some stage then you should check out your particular lenders policy on this before committing yourself). Mortgage life assurance is not included with this kind of mortgage and will have to be taken out separately if required.
Mortgage Interest only mortgages are becoming increasingly popular as people wish to take more control over their financial affairs and have more flexibility.
An interest only mortgage is exactly what it says. You will pay to the lender only the interest on the loan for a set period of time (again normally up to 25 years). At the end of this period of time the lender has the right to call in the loan and you will be expected to be able to repay the capital borrowed. To do this it is usually necessary to run some kind of investment plan alongside the mortgage with a view to building a cash lump sum which is sufficient to repay the mortgage debt at the end of the term. There are a number of ways in which people do this and these include endowment policies, ISA’s and pension plans.
If you are considering an interest only mortgage then it is important that you take the right professional advice and we would strongly recommend that you talk with an Independent Financial Adviser who can examine all the options with you and explain any pitfalls.
Arranging a new mortgage or re-arranging an existing one can be an expensive business. There are a whole range of costs to be taken into account and these can sometimes mean that an otherwise attractive deal becomes much less competitive when the overall package is considered. So, what should you watch out for and how do you avoid some of these charges?
Let’s look at the various fees you can expect to encounter in more detail;
The charging of arrangement fees by lenders has become increasingly common over recent years. Most lenders will now charge an arrangement fee, particularly if you are looking for a fixed or discounted mortgage. These can vary from a few hundred pounds up to a full 1% of the mortgage amount (occasionally even more). Some lenders will ask you to pay this fee up front when you submit the application, others will add the fee to the loan. You should always find out at the outset what terms apply to the arrangement fee and ask if the fee will be refunded if your application does not proceed for some reason (some lenders will wish to hold onto the arrangement fee even if they decline your application). If the fee is to be added to the mortgage then remember that you will be charged interest on this for the term of the mortgage – you may prefer to pay the fee on completion so ask if this is possible.
If the arrangement fee is particularly large then ask the lender to justify it. It may be that the interest rate is particularly competitive or that the redemption penalties are especially low. However, don’t forget to take the fee into account when assessing the attractiveness of the deal.
These are known under a variety of different terms such as Higher Lending Charge, Guarantee Premiums, Mortgage Indemnity Guarantees and a whole host of other names. Whatever the lender calls them they all have the same effect and that is to protect the lender if you are unable to pay the mortgage. The lender will use these premiums to purchase insurance that covers them in the event that they have to repossess the property and sell it. If they are in a loss making situation after the sale of the property then the Mortgage Indemnity Insurance will pay out and cover any loss they have made.
The important point to note here is that this insurance offers you, the purchaser, no protection at all – indeed you are still ultimately responsible for any loss that is incurred and in these circumstances you may even find that the insurance company that has provided the Guarantee will pursue you for the amount of the claim. Unfortunately, in most cases it is you, the borrower, who is required to pay this premium.
So, how much is this likely to cost and how can you avoid this charge?
The cost of the premium will depend largely on the size of the mortgage requested in relation to the property value. On a 100% mortgage the charge will be particularly onerous and may amount to several thousand pounds. Conversely, if you are only looking to borrow, say 80%, of the property value then the charge may only be a couple of hundred pounds.
How do you avoid this charge altogether?
Well, first these premiums normally only apply if you wish to borrow more than 75% of the property value so if you have a large deposit they shouldn’t concern you. However, there are an increasing number of lenders who either pay this premium themselves or do not charge the premium at all ( you will find this particularly common if you need to borrow less than 90% of the value of the property) – look out for these lenders as the saving that can be made could significantly reduce your costs. Bear in mind, though, the lenders who do not charge for Mortgage Indemnity will have to recoup this money elsewhere so the interest rates on offer may not be so competitive.
If you do find yourself burdened with this charge you may be able to have the premium added to your mortgage. In this way it is not an additional burden on your capital although you will obviously be charged interest on the premium along with the rest of your mortgage.
One final point to remember – if you are re-mortgaging your property and previously paid an indemnity premium with your original lender they may be prepared to refund some of the premium charged, particularly in the early years of the mortgage. Whilst most lenders will not do this it is always worth asking the question of your existing lender as some will.
If you have decided to use a broker you will often find that the broker will be charging a fee for his work. This is fair , but you should always make sure that you understand the terms of this arrangement and how much will be charged. Most reputable brokers will only charge a fee once your mortgage has completed and there is usually no charge if they are unable to arrange the mortgage or if the purchase does not proceed. Always be wary of paying fees up front, apart from maybe the property survey fee.
If you require life insurance then ask our consultant to arrange a quotation for you. We are now required by law to show you all commission we will earn from the sale of such a policy. We will detail any payment that we receive from the lender who is providing the mortgage. Many lenders now pay fees to brokers (these are called Procuration Fees). It is now a requirement under Financial Services Act Regulations that brokers disclose any fees they are receiving.
If you have particular requirements or circumstances that make your application especially difficult to arrange then you can expect to pay more than if you have a simple, straightforward proposition. In general terms, expect to pay an arrangement fee of between 1- 4 % of the mortgage.
The other time when you may feel it is worth paying a large broker fee is if the broker has access to an exclusive product that you cannot obtain elsewhere. In this case, if the product is the best in the market, it may be worth paying a larger fee. However, take the fee into account when doing your sums.
Any mortgage lender will require a valuation of the property before they will make a mortgage offer. This is to protect them and to ensure that the property forms adequate security for their mortgage. The valuation fee will normally be paid by the borrower and will be required up front with the application. The fees themselves do not vary considerably between lenders but it is becoming increasingly common for lenders to offer to pay the valuation fee or to refund it to the borrower when the mortgage completes. This applies particularly with re-mortgages where the lender agrees to pick up all the costs.
One point to bear in mind here if you are purchasing a property is that the surveyor can usually carry out a more detailed inspection of the property for your own purposes at the same time as he carries out the lenders valuation – this can save you money overall.
Early redemption penalties have become an increasingly common feature of most mortgages over recent years. So, why are lenders imposing them and should you be worried about them?
The mortgage market in the UK has become very aggressive with every lender fighting to retain their market share and capture business from their competitors. In many ways this is good for the consumer but there are also some disadvantages. Whilst most lenders are happy to compete for new customers, much of the time this seems to be at the expense of their existing customers. This has lead to the crazy situation where you can usually get a better deal by re-mortgaging to a competitor than your existing lender will be prepared to offer. The mortgage market has become so competitive that many of the products on offer are put out as ‘loss-leaders’ to attract new business. As a result of this the lender needs to retain your business for a number of years to have any chance of making a profit from the transaction. The way that most lenders now do this is to impose heavy penalties if you wish to repay the mortgage within a certain number of years. These penalties can range from one month’s interest right up to 12 month’s interest in severe cases.
Should these penalties concern you then?
Well, yes they should. If you are tied to a particular lender for a period of time you have basically lost the right to shop around for the best deal. Particularly worrying are deals that will give you a fixed or discounted rate for a number of years but then tie you into the lender at the end of the initial fixed or discounted period. This is now becoming the norm rather than the exception but there are also a number of products that leave you free to move on at the end of the initial period.
What you should remember is that the best rates will almost invariably contain the harshest penalty terms. Whilst you will obtain a good saving during the initial fixed or discounted period you will then have a period of time when you will be tied to the lenders standard variable rate. It is sometimes more beneficial in the long term to accept an interest rate that is not quite as attractive as the best in the market but which allows you to re-mortgage again at the end of the initial period. In this way you can hopefully make a further saving at that point. It is also worth looking out for products that will guarantee to offer you another fixed rate at the end of the first fixed rate period. If you can find a product like this which has no redemption penalties at the end of the initial period then you should be reasonably safe in assuming that the subsequent fixed rate offer will be attractive as otherwise the lender would be in danger of losing your custom.
Are there any ways of avoiding these penalties altogether then?
There are now a number of lenders that specialise in offering straightforward variable rate mortgages with none of the catches associated with the more aggressive products. Many of these companies are the new breed of direct telephone style lenders and they try to offer a permanently competitive variable rate with none of the frills attached to some of the other products. These products are covered in more detail in the next chapter when we talk about the new Flexible Current Account/Lifestyle type of product.
There has been a lot of talk recently about this new breed of mortgage and they look set to become increasingly popular. A look at the ‘Useful Contacts’ section at the end of this book will tell you which lenders are offering these products currently. However, I would like to spend a little time here explaining how they work in general terms and the advantages of such products.
The first point to remember is that these products are not interest rate driven. They are generally designed to offer a competitive variable interest rate but with other facilities attached which in some cases are designed to give a one stop mortgage/savings account/bank account rolled into one. Below I explain the various different features that may be found in one of these mortgages but not all products will contain all the facilities listed below. However, most products will contain a mix of several of these features.
Many of these products will enable you to draw additional lump sums from your mortgage as and when you need them. These additional sums are then added to your mortgage debt and interest charged accordingly. The lender will usually set a predefined limit up to which you can borrow and they may in some cases give you a cheque book to use in order to draw down these funds.
Part Repayment Without Penalty
Most Flexible Mortgages will allow you to pay off lump sums at any time without penalty. Indeed some even include the facility to have your salary credited to the mortgage account each month. This, used in conjunction with the drawdown facility makes your mortgage account work in almost the same way as your bank account. In addition lump sums can be credited to the account at any time without penalty so that the mortgage can be paid off early if required.
Most mortgage lenders in the UK calculate the interest to be charged on the mortgage account based on the balance outstanding at the end of the year. This means that if you pay off lump sums during the year you will not receive credit for this payment until the next financial year. Just as important however, is the fact that with a repayment mortgage you are making repayments of capital each month which are not taken into account until the end of that year. Over the entire term of the mortgage this can result in thousands of pounds of extra interest having been paid. Several lenders have now converted to a daily calculation of interest which means that any reduction in the mortgage debt is taken into account immediately and the interest charged is therefore reduced accordingly. This is a common feature of most of the ‘Flexible’ schemes.
We have looked at the effect of redemption penalties in earlier sections. These ‘Flexible’ schemes generally do not impose early redemption penalties.
Payment Holidays on your mortgage
Many of these products allow the borrower to take a payment holiday within certain limits. This could mean that you are allowed to miss up to six months payments which are then added to the mortgage debt until the pre-agreed limit is reached.
Competitive Interest Rates
Most of the ‘Flexible’ style products are based around a variable rate of interest (although there are some that will offer fixed or discounted rates). The lenders who are most aggressively marketing this type of product tend to offer a good, competitive variable rate and some will even guarantee to keep the rate below the normal variable rate for a period of time.
The best of these products are certainly worth considering. If you are happy to pay a competitive variable rate of interest then the other advantages listed above make them an attractive alternative to the standard products in the market. Some of these products are now being marketed as an all round financial planning tool which will enable the borrower to have all personal borrowings in one place and to also use the mortgage account as a savings vehicle. It is worth examining this philosophy in a little more detail before we move on. If you look at your mortgage account as an available pot of money then you can see how you can borrow against that mortgage for any reason. In times when you do not need to borrow additional funds then you can use surplus savings to reduce the mortgage debt, thereby saving interest and creating a reserve fund that can be drawn down on at a later date if required.
What different repayment methods are available?
Make sure you understand the whole range of mortgages available. You should be told about capital and interest mortgages and interest only mortgages as well as the different repayment vehicles such as endowment policies, ISA’s and pension mortgages.
What is the interest rate that I will be charged and for how long does this rate apply?
This sounds obvious but you should make sure that you understand how long the initial interest rate will apply.
What will happen at the end of the initial incentive rate period?
If the interest rate on offer is below the normal variable rate of the lender then you should make sure you know what will happen when this incentive rate runs out. Some fixed rate mortgages give you the option to fix for a further period at the end of the initial fixed rate period whilst others will be conditional on you reverting to the normal variable rate.
What is the lenders normal variable rate?
Find out what the lender charges as their normal variable rate and compare this with other lenders. There is no point in taking out a mortgage with a competitive rate initially if you then find that you are paying over the odds later on.
How much will my monthly repayments be at the incentive rate and at the normal variable rate?
This again sounds an obvious question to ask but you would be surprised how many people do not ask the question ‘how much will the mortgage cost at the standard variable rate?’ Remember, no matter how cheap the mortgage is initially at some point you will have to pay at the normal rate so make sure you will be able to afford the mortgage when this happens. Furthermore, remember that the standard rate may be higher in two or three years time so make sure you leave yourself with some flexibility.
Are there any penalties for repaying the mortgage early?
Ask about early redemption penalties and be particularly wary if these extend beyond the term of the initial fixed, capped or discounted period. If there are no penalties after the initial incentive period then you will be free to move your mortgage at the end of that time and will therefore me able to take advantage of other incentives available. If you are tied into the lender at the end of the initial period then you will probably have no choice and be forced to accept the normal variable rate.
Will I have to pay a mortgage indemnity premium and if so how much will this be?
Mortgage indemnity premiums have already been covered in this book but it is important that you establish the position at the outset. Mortgage indemnity premiums have in the past been charged whenever a mortgage went above 75% of the value of the property. However, many lenders have now raised the threshold to 90% of the value so there can be quite large discrepancies from one lender to another.
Is there an arrangement fee to pay and if so will I get this back if my application does not proceed?
If there is an arrangement fee to pay find out how this is collected. Some lenders will ask you to pay the fee up front with the mortgage application whilst others will either add the fee to the mortgage debt or deduct it from the advance cheque when the mortgage completes. If the fee is payable up front ask if it will be refunded if the application does not proceed. Some lenders will retain the fee even if they decline your application so make sure that you understand the situation at the outset.
Is the mortgage portable to another property if I decide to move?
Find out what will happen if you decide to move to another property. This is particularly important if you are taking out a long term fixed, capped or discounted mortgage or if the redemption penalties last for a long period of time. Many lenders now make their mortgages portable which means that you can transfer the mortgage on the same terms and conditions to a different property if you decide to move.
Can I make repayments of capital or increase my monthly repayments?
Ask what conditions will apply if you wish to pay off part of the mortgage or accelerate your repayments.
Are there any other conditions attached to the mortgage?
Will I have to buy the lenders insurance?
Many of the very attractive rates available are made less attractive by the imposition of compulsory insurance. It is always the case that the lender will insist that you take out buildings insurance to cover the property but many lenders will also insist that you take this policy through them. This means that you are denied the opportunity to shop around for the best quote. If this is the case with the mortgage you are being offered then get a quote from the lender and see how competitive they are. If the premiums are in excess of those you can obtain elsewhere then take this into account when assessing the attractiveness of the deal. This becomes even more important if the lender is insisting on buildings and contents insurance and sometimes they will even make it a condition of the mortgage that you take out their accident, sickness and redundancy cover.
Will I receive advice on mortgage products from the whole market or just a selection of lenders?
The mortgage consultants that you will be connected with via Moneymatchmaker.com’s mortgage broker network offer mortgages from many lenders within a chosen panel, so you will be offered many options to make a choice from.
What should I do if I am unable to prove my income or if I have had previous credit problems?
It used to be the case that, if you were unable to prove your income or had a poor credit history, then it was almost impossible to get a mortgage. However, things have changed in recent years and specialist mortgage companies like Moneymatchmaker.com offer new mortgage deals that are designed specifically with these issues in mind.
Broadly speaking these mortgage products fall into two categories – those that are designed for the employed, self-employed or contract workers where the traditional proof of income is not available and those aimed at the borrower who has had previous credit problems, be it mortgage arrears, county court judgements or even bankruptcy.
All lenders, whether they are the conventional high street banks and building societies or the more specialist lenders are involved in the assessment of risk. What they all need to be convinced of is that the borrower will maintain the mortgage payments in a satisfactory manner and that the mortgage debt will be repaid in accordance with the terms of the mortgage. They also need to be sure that if the worst happens and the mortgage falls into arrears they can recover the full mortgage debt by repossessing and selling the property.
Because the assessment of risk is not a scientific process, the specialist mortgage broker evolved and the good news is that we have many schemes designed with this exact scenario in mind.
So, what to do next?
We will work with you to firstly understand your exact situation and put your case together so that we are presenting your application in the most positive light. Remember, if we are to persuade an underwriter to bend their rules a little, then we need to give that underwriter something that he or she can use to justify their decision if they need to do so at some time in the future. For example, you may have a County Court Judgement that was issued due to a dispute over faulty goods rather than a simple refusal to pay. If this is the case and you have supporting correspondence to back this up then you could provide copies of that correspondence with your application and this could have a real effect in reduced the interest rate applied to your new mortgage. You may have mortgage arrears that were the result of a particular short-term difficulty that is unlikely to re-occur. If the new lender can see that you acted responsibly and kept the previous lender notified of the situation throughout the difficult period then he is likely to respond positively to that. If proof of income is a problem, then with the correct presentation, we will convince the new lender that you can afford to meet the new repayments and we will not need to provide any written proof of how much you earn.
If you have tried to approach mortgage lenders and put a case together to justify a good lending decision, but still you have been turned down for a mortgage, don’t despair, we specialise in non standard mortgages and will work with you to secure a mortgage choice that suits you.
Our experienced mortgage broker will know which lenders are most likely to be sympathetic and in addition will have close relationships with a number of lenders – this means that in effect he or she will have ‘buying power’ simply because of the volume of business that we are controlling. You would be surprised how valuable this can be in persuading a lender to relax their rules a little.
If you are self-employed there are several options open to you to find a self employed UK mortgage. Lenders have relaxed their rules with regard to the proof of income needed and the traditional method of proof (3 years audited accounts) has been dispensed with. Some lenders will allow you to simply ‘self-certify’ your income on the application form or your accountant may simply be required to provide a certificate detailing your income. Other lenders will not even need you to tell them your income, but will rely on your previous credit history as proof of your ability to pay.