Residential Mortgages

Understanding Residential Mortgages

James McGregor talks all about residential mortgages. From First time buyers, home movers, the self employed and those looking to invest in a. buy to let property. Listen to the interview below.

What’s the process for getting your first mortgage, particularly if the value of the property is high?

It becomes a different ball game when you’re asking for more money than you would usually be able to borrow. Lenders normally want a bit more of a deposit in this situation.

Up to a property value of £1 million you can probably get 90% Loan to Value mortgages. Over a million, it normally drops down to 85% Loan to Value, but a handful of private banks will push that limit for the right client.

My advice is to get all of your income documents ready and speak to an expert as soon as possible. Every lender is different in their approach. With higher end lending, people’s income structures are often quite complex, so each individual lender will assess that very differently.

What deposit do I need for a higher value mortgage?

It really is down to the individual and their circumstances, especially with higher end property. Up to £500,000 you will find mortgages with a 5% or 10% deposit. Above that you will normally need 10%, although some lenders will allow less. Once you go over the million mark the rules become quite specific to each lender, so it’s harder to give a ballpark figure.

How is the process different if I’m a company director?

The process isn’t massively different. You gather your income documents together and pass them to your adviser, who then recommends the mortgages that best fit your requirements.

The main difference is how your income is perceived by the lender. They won’t necessarily just look at your payslips. They’ll also take into account your dividends and your company profits as well.

What happens if you don’t remortgage at the end of a fixed rate deal?

If you don’t remortgage, you’ll get hit with a Standard Variable Rate mortgage – which banks make a lot of money on. Lenders rely on those people who don’t remortgage or look at their options, pushing them up to a high interest rate. A typical standard rate at the moment is around 4% to 5%.

Most lenders these days will allow you just to switch rates with them. That often means you don’t have to go through the affordability assessment. They capitalise on making it easy and locking customers in.

Later down the line, you might realise this is not the best bank for you. If you want to move house, you face expensive exit fees – so just taking a new rate could cost you a lot more in the long run.

In this turbulent market, we’re trying to contact people within six months of their mortgage expiry to explore the options and help them understand their position.

When is a good time to secure your remortgage deal?

Most mortgage offers last six months, so in the current market with rising interest rates, the earlier you start, the better. Contact your broker around six months from the end of your fixed rate deal. You’ll have more than enough time to explore the options and make a plan.

What remortgage options are available?

We have access to thousands of mortgage products at the click of a button. How we advise you to move forward all depends on your circumstances.

It’s not always about finding the best interest rate. It could be that you want extra money for cash flow, so you want to look at interest only options. That’s especially true when you’re looking at bigger mortgages. Income is often a lot more complex and more fluid – you might get large bonuses, which means you can pay off some of the mortgage in chunks. Your remortgage options depend on your needs – and we’re here to advise you how to progress.

How do I improve my chances of getting a good remortgage deal?

The key is just to make sure all your bills are up to date. Keep your credit record as clean as possible – which means not being late on any payments. Normally the rest takes care of itself. Again, the earlier you look at your position, the more chance you’ve got of securing a remortgage that suits you.

If I want to move house, what happens to my mortgage?

As I was saying earlier, this is relevant where lenders fix people in and then when they try to move, they face a massive early repayment charge.

But in theory lenders will allow you to port your mortgage to another property, which can seem simpler, but the issue could be that you could borrow more or get a better rate with a different bank.

We do often see clients having to pay massive early repayment charges to switch lenders so that they can borrow the extra money they need for a property.

As advisers, we look at the whole picture. We’ll talk to you about not just your current position but where you want to be in two, three, four or five years time.

What are the fees and costs associated with buying a home?

First time buyers have access to stamp duty benefit, so they don’t need to pay this tax on property worth up to a certain value. If you’re a home mover, you will have to pay stamp duty.

You will also have legal fees. Depending on the property you’re buying these could range from £1,500 to £4,000. You also have the lender’s application fees, which are normally added to the loan.

It’s normally best to get a survey, depending on the house. That could range from £800 up to £2,000 or more, depending on the value and size. If you use a mortgage adviser they may charge an advisory fee which could be zero or all the way up to maybe £1,500 or more, depending on the complexity of the situation.

How does a Buy to Let mortgage work?

A Buy to Let mortgage essentially allows you to buy an investment property. Most mortgages require a 25% deposit, although a handful of lenders offer an 80% mortgage, so you would need a 20% deposit. You put that money down and then you rent the property out to a tenant.

Should I choose interest only or repayment on a Buy to Let mortgage?

This is really a personal preference and it depends on the client’s scenario as a whole. We generally tend to lean towards interest only. That’s purely because you can then manage your own cash flow.

Once you’re in a repayment contract, you need to do a full new assessment to come out of it and go on into interest only. Plus, you could end up paying more in taxes.

Do I still pay Stamp Duty with a Buy to Let mortgage?

Not only do you still pay stamp duty, if it’s your second property you will pay a 3% stamp duty for the privilege.

How many Buy to Let properties can I own – is there a limit?

There is no limit as long as you can afford to keep buying!

What is the role of a mortgage broker?

Our role is to make the whole process as simple and as seamless as we possibly can. First of all we find you the mortgage that best fits your circumstances; whether that’s a cheap rate, an interest only structure or to fit your longer term plans. There are multiple factors that come into finding the best structured mortgage.

Next, we liaise with the lender to get the full mortgage offer – making sure that they’re actually going to lend the money. We will then liaise with all parties: the solicitors, the bank and the estate agent to make sure no one drops the ball.

Once you have successfully bought your new home, we aim to look after you for your mortgage lifetime. We’re there to make sure you don’t make any of the mistakes that we’ve discussed along the way. Alongside that, we make sure you’re fully protected through that whole situation.

What’s the key difference between going to a broker versus a local high street bank?

Over the years, banks have cut a lot of staff numbers and closed their branches. Trying to get an appointment can take two or three weeks. A telephony service often involves two lengthy and disjointed appointments. And in the end the bank will just submit your application then leave you to it.

There’s a huge difference in the service offering and role we play compared to a bank.

When is the best time to get in touch with a mortgage broker?

As soon as possible. Even years before you want to buy! That way you know exactly where you stand.

Preparation is key. The earlier you can prepare the easier the whole process becomes.

It also helps if you have the best professional team. Make sure your mortgage adviser and solicitor are on the same page. That way they’re all pulling in the same direction, are responsive and on hand for advice.

Your home may be repossessed if you do not keep up repayments on your mortgage. The Financial Conduct Authority does not regulate some Buy to Let Mortgages. 

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