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What is a mortgage? In legal terms it’s the way a lender creates a security in your property for the money you’ve borrowed. For you, it’s the way you can borrow money to buy the home you want.
There are some lenders you will be familiar with, banks & building societies you see on the high street or in advertising. However, with the help of a skilled broker, you can increase your choice of lender from a much wider choice of banks, building societies and specialist lenders, all of which are competing to secure you as a customer. Brokers also benefit from exclusive mortgage products not available to customers applying directly.
Before going further, let’s see what’s involved in buying your home by clicking on the video below.
Your home may be repossessed if you do not maintain payments on any mortgage or loan secured against it.
ADVICE TYPES
When considering where to find your mortgage advice you should be aware of what options are available to you.
The widest advice is from mortgage brokers, such as A G Mortgages Ltd, offering a “whole of market” proposition where the broker has access to a very wide range of lenders.
The next option is from mortgage brokers offering mortgages from a limited panel of lenders, which might restrict your choice of products.
The narrowest choice is where you access directly from an individual lender which will only offer their own products, such as applying to your own bank.
No broker has access to every lender or every mortgage product as a few lenders have elected not to work with brokers.
REPAYMENT TYPES
There are three repayment types: capital & interest (known as repayment), interest only, and a combination of both.
With the repayment method, each payment you make includes a repayment of some of the capital (the money you borrowed) and interest charged on the capital. If the payments are maintained as agreed with the lender, you will repay the mortgage at the agreed date. In the early years your repayments will be mainly interest and therefore the capital outstanding will reduce more slowly.
With interest-only method, you only repay the interest on the amount borrowed. At the end of the mortgaged term the capital is still outstanding. Therefore, you will need to have a pot of money to repay the mortgage at the end of the term. Traditionally the preferred product for repaying the capital was a mortgage endowment policy (which included a set amount of life cover), although more recently Individual Savings Accounts (ISAs) and pensions are being used. However, you must be aware that the pot of money you build during the mortgage term may not be sufficient to repay the mortgage.
RATE TYPES
There are three rate types: fixed, variable or a combination of both types.
With a fixed rate mortgage your monthly mortgage payment is fixed for a specified number of months or years as agreed when you select your mortgage product. This may help you with your budgeting as you know what you will be paying for your mortgage each month.
With a variable rate mortgage (including products know as tracker, discounted, capped or standard variable), your monthly mortgage payment can increase or decrease depending on economic and market conditions. The interest rate may be linked to the Bank of England Base Rate or linked directly or set independently be the lender. This might be suitable when you have sufficient income to meet potential rises in interest rates or anticipate interest rates falling.
INCOME TYPES
Lenders need to be assured that the mortgage they offer you is both affordable and sustainable. To satisfy the underwriting you will be asked to provide evidence of your income and this will vary from lender to lender according to the specifics of the application.
If you are an employee, you may be asked for payslips and P60’s issued by your employer. For self-employed you may be asked for tax calculations and tax year overviews available from HMRC. In addition, lenders may ask to see bank statements or other supporting information.
Mortgage brokers have the knowledge to understand the information in these documents and can assess which lenders are most likely to offer you the mortgage you require.
DEPOSITS
This is the amount of money you will be putting towards the purchase of the property and a larger deposit is likely to secure a lower interest rate from a lender.
Lenders will accept deposits from a wide variety of sources, including the proceeds from previous sales, savings including Help to Buy ISA’s, gifts from family members and sometimes friends, inheritances or from builder incentives when buying a new build.
CREDIT FILES
Everyone has a credit file which holds information about such things as your address history and credit history. This data is used by all lenders when deciding whether to offer you a credit facility such as a credit card, loan or mortgage.
On application for any credit, a lender will complete a credit search looking at your credit file to identify patterns of behaviour with your past credit to see if you are suitable for future credit. In addition a lender completes a credit score, which looks at how well you match their preferred client profile. If your credit search and credit score are both acceptable, the lender is more likely to offer you a mortgage.
Your credit file holds information about you and those you have a financial connection to. Sometimes there may be outdated or incorrect information which you will be unaware of, but which can result in an application being declined. Typical examples might be unpaid bills at a previously rented property from after you left, or old phone contracts not closed properly. The credit reference agency may also be able to offer tips to improving your credit score or to identify and report suspicious/fraudulent activity to you.
There are 3 main credit reference agencies, Experian, Equifax, and TransUnion which lenders use, but each lender may have its own preferred credit reference agency, and sometime the data can vary between agencies.
A G Mortgages Ltd has affiliated to Checkmyfile* which combines the data from all these credit reference agencies into a single report.
* Checkmyfile will pay A G Mortgages Ltd when you complete your validated trial.
MOVING COSTS
Moving home or buying your first home involves costs for a variety of services so it’s important to budget for these.
The costs might include: mortgage application fees, property valuation or survey fees, legal fees, stamp duty and removal services.
FIRST TIME BUYERS
First time buyers are usually defined as applicants that have never owned a property in the UK or abroad.
It’s both exciting and daunting to start the journey to home ownership for the first time and many lenders have introduced schemes to help you. Speaking with family and friends can be a good place to start but it is really important to seek expert advice. A G Mortgages Ltd will be able to answer all your questions, and support you throughout your journey, starting with understanding your needs, and letting you know how much you can borrow and how much it will cost.
HOME MOVER
You’re moving home and might feel confident in your understanding of the process but what’s changed since you bought your current home?
Preparation is key and as a professional, I can help you go through the figures and assess the options with any existing mortgage, and any implications for your move.
REMORTGAGING
Your current mortgage deal is coming to an end and you have received a letter from your lender explaining how much your mortgage payments will increase or you may be offered a new mortgage product but without any accompanying advice.
Before making any decisions, contact me to discuss your plans and priorities so we can compare your current lender with alternatives that may be more suitable.
BORROWING MORE
You may need to borrow more money for home improvements or to help children with their first purchase. Your first option may be to speak with your current lender and request a further advance.
However, your current lender may be unable to help and this is where a mortgage broker can explore alternative options.
PROFESSIONALS
Some lenders will have mortgage products and criteria dedicated to certain occupations broadly classed a professional. This is where a lender expects an applicant in a certain profession to have a defined career path and predictable increase in income. Often this allows the lender to offer extra borrowing which considering an application.
Occupations will include, but is not limited to: Accountants, Architects, Barristers, Chartered Surveyors, Engineers, Financial Advisers, Medical (Ambulance Workers, Dentists, Doctors, Nurses, Pilots, Police Officers, Solicitors, Teachers, Vets.
COMPLEX INCOMES
In today’s world, more clients have multiple sources of income, for example, commissions, bonuses, allowances, 2nd jobs, short-term contracting, bank hours, dividends, DWP benefits, investments or pensions.
Lenders had previously considered you to be either employed or self-employed with simple rules about what was an acceptable source of income, but as incomes become more complex, lenders are adapting their approach. However, lenders have a wide variety of rules about what incomes can be included in the assessment of what you can borrow, so specialist advice from a knowledgeable mortgage adviser can help you find the right lender to meet your borrowing needs.
GUARANTORS
Sometimes mortgage applicants have insufficient income or insufficient deposit to be able to secure the required mortgage, so lenders have created a variety of innovative solutions whereby a close family member can offer support by acting as a guarantor, or being a co-mortgagee, or offering additional security to the lender.
There can be more complicated arrangements than standard mortgages so specialist advice is essential to ensure everyone understands their obligations and responsibilities.
FOREIGN NATIONALS & EX-PATS
Being a foreign national living and working in the UK is not usually a bar to securing a mortgage, but understanding what the lenders’ rules are requires specialist knowledge to link your specific status to the right lender. Knowing what visa you have or your immigration status allows a mortgage broker to quickly find a solution. It may even be as simple as asking an applicant to send a share code available from the UK Government website.
As a UK national living abroad, you can still secure a mortgage and property in the UK, possibly for yourself if you’re planning to return to the UK or for a family member already living in the UK. Specialist lenders are available although there are likely to be some additional checks to be made as part of the application process.
BUYING FROM FAMILY
There are times when a client might be buying from a relative as the only option to home ownership. Sometimes this can be at full market value and sometimes at a lower price.
Lenders can accept this arrangement and in some cases, no deposit is required from the purchaser. Instead the mortgage is based on the market value and the deposit is seen as the difference between the mortgage that can be approved and the market value.
This is an unusual scenario so speaking to a specialist mortgage broker can help all parties through the process and answer many questions.
LATER LIFE BORROWERS
There may be a variety for older applicants wishing to have a mortgage. It may be to help children or grandchildren buy a home by providing money towards a deposit; it may be for home improvement or modifications make life easier; it may be to buy a 2nd home of holiday home; it may be to increase income in retirement; it may be for inheritance tax planning.
There are a number of innovations being offered by lender as the UK population ages offering income, lump-sums or a combination of both with options available for how to repay the mortgage to suit all types of clients. In all cases specialist advice is necessary to help you understand your options and agree a solutions that meets your needs.
ADVERSE CREDIT
With the background of Covid-19, war in Europe and a global economic slowdown, interest rates and the cost of living spiralled in 2022 & 2023 which led to more people struggling to meet their commitments. This led to more missed payments on credit cards, loans and mortgages which have made it more difficult to secure a mortgage.
When assessing your circumstances, I will work with you to find a solution, but if this is not possible, might refer you to specialist organisations that can help offer free advice in rearranging your debts.
You should always take specialist advice before securing credit commitments and other debts against your home.
NEW BUILD PROPERTY
New build properties can be an attractive option with additional benefits such as deposit incentives, kitchen appliances and carpets included, and a warranty. You may even be able to negotiate with the developer which style of kitchen or bathroom you prefer, and whether you can upgrade the flooring. It is likely the energy efficiency will be very good and this should help keep your fuel bills lower. Sometimes it’s just nice to get that “new build feeling” when you’re the first person to own the property.
However, new builds are not right for everyone. You may need to offer an early payment to reserve the property and it may be ready for occupation later than you expected. If you are buying as part of a larger development, you should expect some ongoing noise and disruption from other parts of the development as construction continues so speak with the developer about their plans.
SHARED OWNERSHIP
Shared ownership may offer you more options if you’re struggling to buy the home you need, especially if you’re struggling to raise a large deposit.
With shared ownership, you can purchase a share of the property, usually starting at 25% of the market value, and pay rent on the remaining share of the property. Over time you can buy more of the property, known as “staircasing” which could lead to full ownership in the future.
SECOND HOMES
You may wish to buy a second home for work or leisure purposes, or for a family member to live in.
Lenders will be able to offer you a mortgage subject to your income, but you will need to consider the higher rate stamp duty and ensure you have the correct insurance for the property.
BUY TO LET
If you have ever wanted to become a landlord, or maybe you inherited a property, there are a wide range of strategies and mortgages to suit you situation and plans.
Do you want to create a limited company? Do you want to build a portfolio of properties? What type of tenant do you prefer? What is an HMO and will I need a licence? What type of property is acceptable? What are the tax implications?
How much you can borrow is impacted by all of these questions so early professional advice is strongly recommended.
Not all buy-to-let mortgages are regulated by the Financial Conduct Authority.
HOLIDAY & SHORT-TERM LETS
With the growth of AirB&B has come a growth in people looking at buying property for short-term lets.
Lenders will assess these types of mortgage applications in a very different way to the personal mortgage you may be used to. By understanding these rules, mortgage brokers can help you prepare your business plan to present to a lender in the best way to help increase your chances of securing the mortgage finding you require.
UNUSUAL PROPERTIES
Not all properties will meet the traditional type of home and many lenders are very traditional. Examples of unusual properties that you may find are: freehold flats; flats above commercial property such as retail units; small studio flats; concrete constructions; large acreage.
Lenders are available to meet the majority of these unusual properties but an experience mortgage broker will be able to let you know if the property you wish to buy is unsuitable, saving you time and money.
SELF-BUILD
Have ever watched Grand Designs and thought “I could build my own home just the way I want it to be”? It is very complicated and needs professional support throughout.
You may need a specialist “self-build” mortgage where the funds are issued in stages in line with progress of the project. At the end of the project when the property has been finished and all the appropriate completion certificates are issued, you might need to remortgage onto a more traditional mortgage, which often has more attractive interest rates.
BRIDGING & AUCTION FINANCE
There may be times you need finance quickly or for a short period of time. You may be looking to buy and renovate a property before selling it; you may need to buy a new home before completing the sale of your current home; you may be planning to purchase at auction which often requires you to pay for the property within a few weeks.
Bridging finance could be the solution where you can secure short-term money, usually secured against property you already own, but which can be secured against more than one property.
Once the money is no longer required, you settle the loan, sometime by selling the property you bought or selling other property and sometimes by refinancing into a more traditional mortgage.
FOREIGN CURRENCY
If you are employed by a multi-national company and work abroad, you are likely to be paid in the local currency.
There are lenders that are able to accept this form of income subject to the nature of oyur employment and the currency in which you are paid. However, some lenders may apply a factoring to your income to compensate for currency fluctuations.
Speaking with an experienced mortgage broker can help determine if your arrangements are acceptable to a UK lender and the an application can even be arranged whilst you are out of the country.
COMMERCIAL
Commercial mortgages are assessed in a very different way to residential mortgages. You may need long-term or short-term finance. You may be buying an existing business or property or you may be looking for development finance.
Whatever type of commercial finance you are looking for, it will be a bespoke solution based on your plan and experience so speak to a specialist as early as possible so you know what your options are.