Mortgage
Mortgage Choices
Additional Features
Repayment or Interest Only
Steps To Buying A House
Remortgaging
Purchasing a property for the first time, re-mortgaging an existing property or building a buy to let portfolio can be one of the most rewarding financial experiences we ever have. It can also be one of the most costly and it is this time that using an Adviser who has expertise in each of these sectors to advise you is critical. We will explain the various types of mortgage options available such as fixed, variable, tracker, offset etc and provide advice on the most appropriate way of repaying your mortgage to fit in with your current and future circumstances.
With hundreds of lenders and with thousands of offers, we will source your mortgage from the UK's top lenders and prepare a full breakdown of the mortgage lenders monthly payments, fees and charges. The availability of mortgages changes almost daily and therefore using an adviser who has access to most up to date information will save not only time but potential thousands over the term of your mortgage.
Harris & Associates will deal with ALL your paperwork for your mortgage and any associated insurances reducing the pressure on you having to deal with keeping solicitors and estate agents informed, as we do that for you.
Your personal mortgage adviser will ensure your application is processed efficiently and will keep you up to date throughout the process until completion.
Once your mortgage completes Harris & Associates will review your mortgage periodically to see if you have still got the most suitable deal for your needs and will advise you accordingly.
Our typical fee for mortgage advice is £349.
Which mortgage should you choose?
When considering what kind of mortgage you want, you will want to consider the deals on offer and their advantages. Mortgages usually offer one or more of a number of ‘core’ features, listed below:
• Standard variable rate (SVR)
Most borrowers are transferred to their lender’s SVR once their initial, promotional rate period comes to an end. This is usually the most expensive of their lender’s rates, and the rate from which many people choose to switch to a new product elsewhere.
• Fixed Rate
A fixed rate loan charges a set rate of interest for a predetermined period, and then usually reverts to the lender’s SVR. This kind of loan offers you the security of knowing how much you’ll be repaying during the initial period, and can make budgeting much easier. But repayments may prove more expensive than a discount rate initially, and may also become uncompetitive later on, depending on how interest rates move over the period of the fixed rate.
• Capped rate
A capped rate product offers similar security to a fixed rate – since the rate you pay during the capped period won’t exceed the capped rate – as well as the chance to benefit from any fall in mortgage rates within the capped period. However, the benefits of capped rate mortgages usually come at a price: rates are often higher than on lenders’ comparable fixed products, and the initial term seldom lasts longer than two or three years.
• Discount rate
A discount mortgage offers a reduction of a given amount on the lender’s SVR and if this rate changes, the rate you pay will fluctuate in line with it. Usually, the shorter the discount period is, the greater the discount. After the discount finishes, the loan reverts in most cases to the lender’s SVR.
• Tracker
Trackers give borrowers the certainty of knowing the rate will move either up or down automatically in line with Bank Base Rates. This allows the borrower to benefit straight away from any cuts in these rates, even if, as is often the case, the lender delays reducing its SVR to reflect the reduction. Many trackers also offer flexible terms.
• Cashback
A cashback mortgage pays an upfront lump sum, thereby allowing a borrower to pay for, say, home furnishings or to repay credit card debts, or to put down a deposit. The rate paid is most often the lender’s SVR however, it could be higher and early redemption penalties could apply.
• Droplock
A droplock mortgage is a discount or tracker mortgage which has an option to switch to a fixed rate at any point within the initial period without paying early repayment charges (also known as ‘redemption penalties’). This provides an ideal way to benefit from base rates when they’re low, with the option to switch easily to the protection of a fixed rate should interest rates then look set to rise significantly.
Your home may be repossessed if you do not keep up repayments on a mortgage.
In addition to the core features listed above, mortgages can offer one or more additional features, such as:
• Flexible
A flexible mortgage allows you to vary your monthly repayments to reflect your changing financial circumstances. Depending on the flexibility of the product, you can, without penalty:
over- or under-pay, and/or
repay lump sums, and/or
take a payment 'holiday' to allow you to fund a large expense, such as a wedding or new car.
Payment holidays and underpayments are, of course, conditional – usually on the borrower adhering to, or exceeding, a predetermined repayment schedule. And many deals, even if not fully flexible, still offer the ability simply to overpay.
• Current account
With a current account mortgage, your current account and mortgage are effectively merged, and your salary can be paid into your mortgage account. Interest is calculated on a daily basis, and when you pay money into your account the overall loan size is lowered, thereby reducing the amount of interest paid.
Please note, money can be withdrawn from the current account and this could increase the outstanding mortgage balance.
• Offset
Like current account mortgages, offset products allow you to offset the balance of your mortgage against any funds in a savings and/or current account held with the same lender, and pay interest (calculated on a daily basis) on the net balance between the accounts.
There are a large number of different mortgage options on the market – all suited to different lifestyles and circumstances. It can be confusing understanding all the features of the different products and knowing which one to choose.
You need to decide:
Do you want a repayment or interest only mortgage?
What type of interest rate calculation do you want?
What other special features suit you?
If you’re looking at an interest only mortgage – what type of repayment vehicle suits you?
Repayment or Interest only?
The key decision you have to make is between a repayment or interest only mortgage – you are either paying only the interest on the money you have borrowed, or both the interest and a portion of the capital.
Repayment mortgages
With a repayment mortgage your monthly repayments cover both capital and interest on the loan. No other repayment vehicle is needed, but your lender may insist on life insurance in case you die before the mortgage is cleared.
On the plus side, a repayment mortgage is simple, straightforward and easy to understand. It also avoids the risk of investing in the stock market for your repayment vehicle.
However, unlike a pension, ISA (Individual Savings Account) or endowment mortgage, repayment loans do not give you the opportunity to benefit from a rising stock market, if this is what you are looking for. Also, when remortgaging, people may choose another 25 year repayment mortgage, to keep the initial monthly costs down. This means that the overall total period of your mortgage debts don't reduce as quickly.
Your home may be repossessed if you do not keep up repayments on a mortgage.
Interest only mortgages
With an interest only mortgage, your monthly payments to the lender cover only the interest on the loan (i.e., they don’t repay any of the capital). The full amount of the loan has to be repaid to the lender at the end of the term. To ensure you can make this final payment, you invest additional funds in investments which are designed to generate enough (preferably more than enough) capital to repay the loan at the end of the term.
On the plus side, you can choose from a variety of investment vehicles, some of which can have tax advantages. And should you move or remortgage, your investment vehicle can usually be reallocated to the new mortgage.
However, unlike a repayment mortgage, the total amount of your debt does not reduce over time. And there is no guarantee that your chosen investment vehicle will grow sufficiently to repay your loan (although you can usually top up your contributions to investments as you go along if this looks likely to be the case).
Your home may be repossessed if you do not keep up repayments on a mortgage.
Interest Options
If you choose an interest only mortgage you will also need to arrange a repayment method to pay back the capital at the end of the mortgage. There are a number of different options available, including an endowment or a pension or an ISA.
Endowment
With an endowment mortgage you make your monthly repayments of interest to the lender and in addition you make contributions to an insurance/investment company to fund a savings plan. This savings plan aims to generate sufficient funds to pay off the capital at the end of your agreed mortgage term.
The good thing about an endowment repayment vehicle is that you can maintain the policy if you move house or change mortgage provider. Endowments can also include some kind of life and critical illness cover which is usually cheaper than buying such cover separately. If the underlying investments perform well, you may get more than is needed to pay off the loan.
But... if the underlying investment performs poorly, you could end up having to review the premium subscriptions to your endowment policy and/or the basis on which your mortgage is operated in order to ensure that the mortgage loan can still be repaid in full at the end of the agreed term.
Pension
With a pension mortgage, you make your monthly repayments of interest to the lender and you also make contributions to a personal pension. This personal pension then provides a tax-free lump sum as well as a taxed regular income at retirement. Most, if not all, of the lump sum is used to clear your mortgage loan at that date.
On the good side, pension contributions qualify for tax relief of up to 40% (for a higher rate taxpayer), which boosts the value of every pound you contribute to your pension.
However, using your tax-free lump sum as a mortgage repayment vehicle may leave you with inadequate income in retirement. Also, the lump sum is payable on retirement, so your loan term may be more than 25 years (depending on how old you are and when you are planning to retire!).
The biggest problem is that poor performance could adversely affect the amount of the tax-free lump sum resulting in insufficient funds available to repay the loan at the end of the agreed term. Also, you should bear in mind that tax rates may change. You also need to consider the possibility of joining a company scheme after your mortgage has started. If this was to happen you would no longer be able to have a pension mortgage and would have to consider an alternative method to repay the mortgage.
ISA
With an ISA mortgage, you make your monthly repayments of interest to the lender and you also make contributions to an Individual Savings Account (ISA). Like the PEP mortgages which preceded them, ISA mortgages use stock market-based investments for tax efficient growth.
On the plus side, if your ISA performs well, you may be able to pay off your mortgage early.
However, a stock market crash could leave your investment in trouble. Also, current tax rules dictate that the maximum investment in an ISA is £10,200 per annum, as of 6th April 2010, which may not be sufficient to give you confidence that you will be able to repay a large mortgage at the end of the term.
Notes:
Tax legislation may change in the future and any tax liabilities are subject to individual circumstances.
The value of an investment is not guaranteed and can go up and down depending on investment performance. You could get back less than you have paid in.
Choosing a mortgage
Buying a property can be a complicated and confusing exercise, particularly as it's something most of us only do a few times in our life. For first-time buyers, the process can be even more baffling.
Our simple guide takes you all the way from finding the right property to the day you move in.
Choosing a property
The first thing you need to decide when you buy your property is what sort of area you want to live in.
Make a list of the things that matter most to you. These might include having a good school nearby or convenient local transport links.
Next, you will need to decide how many bedrooms you want, whether you need a garden and whether you would prefer a house or a flat.
Here's a quick checklist:
Area
Distance to work and quality of local transport if required
Quality of schooling if required
Convenience of local shops and restaurants
Transport links (e.g. to visit friends or relatives)
Other local amenities (e.g. local parks, leisure centre’s etc)
Type of property
You can afford the asking price
You can afford the heating, other maintenance and on-going costs including council tax
Are you looking for a flat or a house or a bungalow
If a house, are you looking for detached, terraced or semi
Are you looking for something old or new
How many bedrooms do you need
What is the size of the garden
Does it have a garage or off road parking
Finding a property
Once you have decided what sort of property you are looking for and the area where you want to live, contact as many local estate agents as possible. Ask them to send you details of suitable properties on their books on a regular basis. You can also look at the various estate agency and other Internet sites that list properties.
Once you have identified a property you are interested in, it is worth calling the relevant estate agent once a week or so to ensure you get an early look at properties which have only just been placed with the agent. In this way, they will know you are a serious buyer and they will generally make the effort to contact you when new properties come up.
Once you get started, you will probably see a lot of different properties in a fairly short period of time.
Keep a record of each one you have visited, together with a few notes reminding you of its good and bad points. Then you can look back on this list to check that you are still fulfilling your requirements in the properties you are viewing.
It is important to organise your mortgage as soon as you think you have found a suitable property. The loan may take a few weeks to process, and the person you are buying from (and the estate agent) will want to know your mortgage lender is all set to go.
If you want to arrange mortgage finance before you’ve even found your property you can get an Approval In Principle from your chosen lender. This Approval can often help to convince the vendor that you are a genuine purchaser. We can arrange for your mortgage application to be submitted as an Approval in Principle – just make sure you mention this when submitting your application online.
The amount you are able to borrow is primarily determined by your income, your employment status, the size of deposit you can provide and what other financial commitments to you have.
Checklist for choosing your mortgage
On choosing a mortgage you have to decide what features are important to you. Is it important to have a fixed rate, payment holidays, cash back lump sum etc.
What happens next?
Once you have chosen and applied for a mortgage, the lender will want some supporting documentation. The information your lender may require includes:
Evidence of your income and commitments, such as recent pay slips, a P60, your latest mortgage statement and your bank statements;
Information from credit reference agencies, your employers, other lenders and your landlord;
Proof of identity, such as a passport or birth certificate;
If you apply for your mortgage through Harris & Associates we will handle this documentation on your behalf and manage the process with the lender – one of the advantages of using a broker to select your mortgage.
Finding a solicitor
As a first-time buyer, you will not have to worry about selling a property before you can move.
But you will still need to find an experienced solicitor to carry out the conveyancing on the property you want to buy.
The job of a solicitor or conveyancer comprises the following tasks:
Obtaining the deeds which prove it legally belongs to the person you are buying from;
Researching just where the property's legal boundaries lie and passing this information on to you;
Preparing a fixtures, fittings and contents list which makes it clear whether or not things like carpets or kitchen appliances are included in the purchase price.
This enquiry form will also ask the vendor whether they are aware of any material structural or other defects to the property that you should know about;
Advising you on a draft contract for sale, prepared by the seller's solicitor, setting out the terms of your purchase;
Carrying out a search of local planning information to uncover details of any upcoming developments, such as a new road, which could affect the property's value;
Agreeing a date for completing which suits both you and the property's seller. Conveyancing may well take longer than you had imagined, but don't be tempted to rush matters.
Your house or flat is probably the most expensive thing you will ever buy, so it is important to be sure there are no loose ends.
Most lenders will be prepared to accept your choice of solicitor, as most experienced solicitors will have acted for the lender in question before. However some lenders can insist on the firm having at least two partners, so it can be best to check beforehand.
Solicitors are regulated by The Solicitors Regulation Authority.
Conducting a survey
Once your offer has been accepted, a survey is required to assess the property's condition and value. Your mortgage lender will require at least a basic valuation before allowing your loan to go ahead. In almost every case, we recommend strongly that you get a more detailed report on the condition of the property to protect not only your lender's interests, but your own as well.
Make sure that the surveyor you use is a member of the Royal Institution of Chartered Surveyors or the Incorporated Society of Valuers and Auctioneers.
There are two kinds of surveyor's report beyond the basic valuation:
A House Buyer's Report comments on the condition of only those parts of the property which are easily accessible or visible. The surveyor will recommend any further investigations he thinks are necessary – for example if he thinks the wiring needs checking or there is the possibility of some structural problems.
A Full Structural Survey involves a more extensive investigation. A full survey is more expensive than a house buyer's report, but should tell you much more about any work that may need doing on the property if you buy it. Full surveys are recommended in many cases, particularly if you are buying a property that is more than 100 years old or the building is more than three stories high.
When you view the property yourself, look out for any signs of problems like cracks or damp patches so you can point these out to the surveyor later for him to inspect properly.
When you set out on the home-buying process, you should budget for the cost of more than one survey. You might find the surveyor's report on your first property uncovers serious faults (such as subsidence or rot) which mean you want to withdraw your offer. Even if there are no problems with the property itself, another bidder could step in with a better offer at the last minute. Either way, you will have to start the whole process again, and that includes organising a survey for the next property where your offer is accepted.
Where the survey does reveal serious problems, you are free to withdraw your offer. If the problems can be fixed, you may be able to use the survey results to negotiate a reduction in the sale price to compensate you for this extra expense.
Exchanging contracts
With your survey safely completed and the lender happy with it, you can move to the stage of getting a formal mortgage offer from your chosen lender which will detail all the conditions of the loan. Read this carefully and get your solicitor to explain anything you do not understand.
By this time, your solicitor should have a draft contract ready for you and the seller to sign.
Once you have signed this contract, there is no going back, so be very sure you are happy with all the sale arrangements before you commit yourself.
Typically at exchange (unless exchange and completion are on the same day), you will have to put down a deposit of 5 or 10% of the purchase price. You also need to make sure that the building is insured as you are now legally obliged to buy it (your solicitor will help make sure that this happens).
Check that:
Your solicitor has completed all the local searches;
The surveyor's report is complete and accepted by all concerned;
You have a formal mortgage offer in writing which you have read and understood;
You have the agreed deposit available;
You have agreed a firm completion date for the sale, and this date is noted in the contract;
There are no outstanding issues remaining to be settled between you and the seller.
When you have signed the contract, your solicitor will deliver it to the seller’s solicitor in exchange for the contract the seller has signed. From this point onward, both you and the seller are legally committed to the deal.
Completing and moving in
All that remains after exchanging contracts is to pay over the money needed to buy the property, less any deposit already paid at exchange, on the agreed date. Your solicitor will get the mortgage funds direct from the lender and the remainder (if any) from you, and then pass it all on to the seller’s solicitor. Once payment has been confirmed, you can collect the keys to your new home from the estate agent.
In the last week or two before the move, contact all the relevant institutions that you deal with. We can supply you a checklist upon request.
Why switch your mortgage?
In today’s competitive market, many borrowers choose to switch their mortgage every few years in order to take advantage of the new rates on offer. In simple terms, remortgaging involves switching your current mortgage to a new deal, arranged either with your existing lender or with a new lender.
Reasons to switch mortgages could be:
To save money
If you’re paying your lender’s Standard Variable Rate (SVR), it’s highly likely that your existing lender will offer a better rate on other available products. This could save you money on your monthly repayments, or to repay your mortgage sooner.
To raise money
Rises in your property’s value means you could increase your mortgage to help pay for major outgoings such as a wedding or your child’s university costs, you may also wish to raise capital to buy a second home here or abroad.
What are the steps involved?
Remortgaging is now easier than ever. With lenders competing for your business there are many attractive rates on offer. Normally there are costs involved such as solicitors and valuations, but there are many deals that pay for this on your behalf, so to remortgage can cost you nothing.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.