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Mortgages

A mortgage is probably the biggest investment decision you will ever have to make, so it is vital that you get good financial advice. Of course, you can do your own research, but with hundreds of mortgage products to choose from - and many different mortgage types - the chances are that you may not be able to find the best deal without some help.

As a way out of the mortgage maze, a mortgage adviser is an invaluable guide.

• Our Service
• What is a Mortgage?
• What does Loan to Value mean?
• What is equity?
• How much can I afford to borrow?
• What costs are involved in buying my home?
• Mortgage Choices/Products
• A Repayment Mortgage or an Interest Only Mortgage?
• Who can I talk to about this?

Our Service

‘Friendly no-jargon advisers, who speak to you in plain English’

We offer a friendly and informal service and all of your mortgage and related insurance needs can be looked after under one roof. Our advisers are qualified and experienced in dealing with straightforward residential mortgage applications as well as some of the more non-standard proposals (Buy to Let, Self-Certification etc).

We also offer a quick and efficient remortgage service.

Choice of Services we can offer you:

Information on the Range of Different Products so that you can make an informed choice - We will explain all types of products (unless you specify otherwise - for example, "I just want to know about fixed rates and discounts") so that you can then make a choice on which one to opt for.

Advice and a Recommendation - We can explain the different types of mortgage available to you and recommend the one which is most suitable for your individual circumstances.

In most cases we offer the full Advice and Recommendation Service.

What is a Mortgage?

A mortgage is a loan repaid over an extended term (usually 25 years) and at a lower rate of interest than you would expect to pay for a smaller amount of money (for example, a car loan). The lender agrees to lend you an amount to buy the property; in return you agree to pay the original amount plus the interest over the term of the loan.

What does Loan to Value mean?

The amount you are borrowing towards the purchase of the property expressed as a percentage of the purchase price rather than a monetary figure. For example, if you are buying a house for a price of £100,000 and borrowing £75,000 then your ‘loan to value’ (or ‘LTV’) would be 75%.

This term will often be used by lenders. The lower the loan to value ratio the less risk there is for the lender because the ‘equity’ in the property acts as extra security and this is often reflected by more favourable interest rates.

What is equity?

The equity of your property is the difference between the mortgage you owe and the current market value of the property. If you are a first-time buyer then your ‘equity’ would be represented by your deposit.

This term will often be used by lenders. The lower the loan to value ratio the less risk there is for the lender because the ‘equity’ in the property acts as extra security and this is often reflected by more favourable interest rates.

How much can I afford to borrow?

The amount you can afford to borrow depends on your ability to pay it back. To work this out, lenders usually want to know your salary, which they then multiply (usually by up to 3.5 for a single person or 2.75 for joint borrowers) to work out what you can afford to repay over time. This is known as an ‘income multiple’.

However, more lenders are now using an affordability calculation which may allow you to borrow more or less depending on the calculation used for each individual lender. We will be able to advise you on the most suitable lender to meet your circumstances.

Income Multiple Example - Single Applicant:

Annual Salary £ 30,000
Income Multiple x 3.5

Maximum Mortgage Available £105,000

Income Multiple Example - Joint Applicants:

First Annual Salary £ 30,000
Second Annual Salary £ 25,000
Income Multiple x 2.75

Maximum Mortgage Available £151,250.

What costs are involved in buying my home?

You will need to budget for some or all of the following:

• Application Fees - You normally pay these to the lender when you apply for your mortgage. They vary from lender to lender but range from £200 to £500.
• Mortgage Indemnity Premium (MIP) - It’s a premium payable by the borrower to the lender for loans over a set loan to value, usually when you are borrowing more than 75% of the value of the property. The lender will use this money to help insure them against the increased risk of lending a higher percentage of the value of the property. (As Independent Advisers we will be able to review the market and can often find a lender who no longer charges this fee).
• Valuation Fees - A fee payable to the surveyor carrying out the valuation. These are paid to the lender in most cases. There are three different types of valuation you can choose, depending on the type, age and condition of the property. Our advisers will be happy to explain these to you in more detail.
• Legal Fees - These are payable to your solicitor for services necessary to register and buy the property. The fee will often depend on how easy it is to carry out legal searches etc. Most solicitors will include Stamp Duty in the fee quote they give you.
• Stamp Duty - This is a tax payable to H M Revenue & Customs when you purchase a property over the value of £120,000. We have listed below the current rates payable:
  
  Property Price Stamp Duty
  
  Less than £120,000 No Stamp Duty
  Between £120,000 and £250,000 1% of the purchase price
  Between £250,000 and £500,000 3% of the purchase price
  £500,000 and over 4% of the purchase price
• Moving costs - van hire, storage etc.
• Home Insurance - Lenders will insist that you have Buildings Insurance in place. For a quote for Buildings & Contents Insurance please contact one of our advisers.
• Life Cover - To ensure the mortgage debt is repaid in the event of the death of one or more borrowers. There are many different types and variations of this policy - please contact us or visit the protection plans section of our website for more information. As we are completely independent advisers we are able to review the whole of the marketplace to find you the most competitive premiums.
• Income Protection and Accident, Sickness and Unemployment Protection - These policies are designed to replace your earned income if you are unable to work because of accident, sickness or redundancy. This can be invaluable as in most cases you will not receive state assistance towards your mortgage payments until you have been unable to work for a period of 9 months, after which only the interest portion of your repayment will be given - and this will be means tested. To quote for Accident, Sickness and Unemployment insurance please contact one of our advisers on 01844 261283.

Mortgage Choices/Products

Fixed Rate - The rate of interest that you pay is set at a fixed level for a set term, usually between two and five years. When the fixed rate period has expired the loan usually reverts to the lenders Standard Variable Rate.

Capped Rate - The payments and interest rate are ‘capped’ so that they cannot exceed a set level, however, if the variable rate goes below the level of the ‘cap’ they will go down as well. The Bank of England Base Rate or Lender’s Standard Variable Rate is used but will not exceed the ‘cap’.

Discount - You will receive a discount on the standard variable rate of the lender for a set period (usually between six months and 3 years). With a discount you can be sure that you are making a genuine saving compared to the standard variable rate. Payments will go up and down in line with movements in the lenders standard rate; however you will always be paying a set percentage below that rate for the term of the deal chosen.

Tracker - This is a variable rate product normally linked to movements in the Bank of England Base Rate (sometimes linked to the lenders Standard Variable Rate). It guarantees that the interest rate payable will stay within an agreed range of the rate it is tracking (e.g. 0.5% above the Bank of England Base Rate for 2 years).

Cashback - Once you have bought the property, the lender will give you a ‘cashback’ in the form of a lump sum payment, usually as a percentage of the mortgage loan. However, the lender will stipulate a set period you have to stay with them otherwise there may be penalties. Alternatively, some or all of the cashback may need to be repaid to the lender. The interest rate payable during this ‘tie-in’ period is normally the lender’s standard variable rate.

Standard Variable Rate - Each lender sets a ‘standard’ rate at which they are prepared to lend to borrowers. This rate is variable in line with economic conditions and the business needs of each lender. Any changes will have a direct effect on your monthly payment.

100% Mortgages - Not all lenders offer this type of deal. It is a way of buying your property if you don’t have a deposit. However, the interest rate will normally be less competitive than other products which require a deposit.

Flexible Mortgages - A flexible loan will allow you to repay your mortgage earlier than the term you originally selected without penalties or charges. You can also take payment holidays or make over/underpayment. Any of the other mortgage products listed here may have some or all of these flexible features.

Offset Mortgages - This type of mortgage has similar features to a flexible mortgage. There are many different variations for an offset mortgage, but generally it links your current account and possibly your savings account to your mortgage. By giving up the interest payable on your current account and/or savings you reduce the amount of interest you pay on your mortgage.

CAT Standards - In order to be a CAT-Standard mortgage, a mortgage must comply with the Government guidelines in terms of ‘Charges, Access and Terms’. A CAT-Standard mortgage should be fairly priced and contain no hidden charges or penalties for repaying your mortgage early. However, it is worth remembering that there are several mortgages that do not meet the CAT-Standard which may be equally/more suitable depending on your individual circumstances.

Note: Some of the mortgage products listed above will have tie-in periods or penalties attached to them - please ask our advisers for more information.

A Repayment Mortgage or an Interest Only Mortgage?

Repayment Mortgage - Often referred to as a ‘Capital and Interest’ mortgage. Part of the monthly payment is the interest on the outstanding borrowing and part is used to repay some of the capital owing. Provided you keep up with the repayments, the mortgage will be fully repaid at the end of the term and the property will belong to you.

Interest Only Mortgage - Instead of repaying the mortgage and the interest, your monthly payments to the lender will consist of only the interest. The amount you owe will remain level throughout the lifetime of the mortgage. At the end of the mortgage term the lender will expect repayment of the loan by a lump sum. This can be funded for by paying a monthly premium into an investment plan or pension policy in addition to your interest payment to your lender.

Note: Repayment of the loan is not guaranteed using this method; in order to have an investment fund sufficient to repay the mortgage your investment will need to have grown to the same amount as the mortgage.

Who can I talk to about this?

To discuss your situation and how we can help, please call or email Debby Grinyer or Tony Hastings. Our telephone number is 01844 261283.

Richardsons Financial Services are Independent Financial Advisers - Regulated by the Financial Services Authority.