What is Your Motivation to Buy a Property?
A Home of your own
Leave your parents’ home
Leave rental property behind
Build a pension for your future
What Elements do you need to get a mortgage?
Work towards having a good understanding of how mortgages work, as this can save you large sums of money
What is a Mortgage?
Essentially a mortgage is a loan that is used to buy a property and is paid back over a number of years.
You have to raise a sum of money which forms the deposit you pay towards the purchase cost of the property.
Typically mortgages can be anything up to 25 or 30 years
The mortgage will be secured against the property until it is repaid in full.
Organisations that offer Mortgages
Organisations like banks or building societies offer mortgages.
These organisations can potentially repossess the property if you don’t keep up with the monthly payments.
The typical residential mortgage is given on a capital and a repayment basis. This means that you gradually pay back the amount of money you have borrowed plus the interest you owe on the property.
Contact organisations you that bank with plus a few mortgage brokers (for comparison) to get an idea of how much you can borrow. This is generally 5 times your income or combined income if you are a couple. This will give you an indication of the maximum amount of money that you can borrow. Only get a Credit Score for an Agreement in principle when you have decided on a mortgage product.
Credit Score
A credit score is a number generally in the range from 300 to 850 that shows how creditworthy a consumer is. Someone’s credit score is based on their credit history.
Credit history
The number of open bank account you have Total amount of debt Your history of repayments Lenders use credit scores to determine who will qualify for a loan, what interest rate they will be paying, and how high the loan/credit they are going to get will be.
Objectives
A mortgage can be held by one or more people. One of the objectives to consider when getting a mortgage is to get a mortgage with the lowest possible interest rate. This will mean it is cheaper for you to own your home, over the period of the mortgage. Generally when you buy a property, the larger the deposit you put down, the better the interest rate you get. If you put down a 10% deposit you will have a 90% Loan To Value (LTV) mortgage. The LTV is the percentage of mortgage borrowing in relation to how much the property you are buying is worth.
Fees
Generally, you have to pay various fees when taking out a mortgage. Arrangement Fee – Paid to the lender for arranging the mortgage. Broker Fee – Paid to a mortgage broker if you use one. Valuation Fee – Paid to the lender to organise a valuation on the property. Legal fees – Fees paid by a borrower. The legal process is handled by a solicitor. The process is also called conveyancing. Depending on the lender there may be other fees included
Examples of Types of Mortgages
Fixed Rate
The interest rate is fixed for a set period of time on the product. For example 2 years, during this period the interest you pay will be the same every month
Most homeowners generally go for fixed rate mortgages so that they can know exactly how much they have to pay towards a mortgage each month.
Tracker Rate
This product has an interest rate that will rise or fall as it tracks a certain rate. For example, tracking the base rate plus 2%, this will cause your monthly payments to vary as the interest rate changes. The base rate (Bank of England) is the bank or interest rate. This is the level of interest that all other banks charge borrowers.
Standard variable rate
This product unlike a tracker mortgage does not track above the Bank of England Base rate at a set percentage. The interest rate you pay is set by the lender.
Offset Mortgage – (COMING SOON!!!)
The Mortgage
One of the first objectives will be to save your deposit to purchase your property. This is typically 5 to 10% of the purchase cost of the property. Generally, the higher the deposit you pay the lower the interest rate that you can get on your mortgage product .
When you go to a bank you are limited to the mortgage products offered by that particular institution.
Mortgage Brokers can look at the whole market so they have a larger range of products to choose from than banks. In some instances they can get you a better mortgage from your bank than you can get yourself, this is because they are able to bring a large amount of business to the bank. Some mortgage brokers charge a commission and others don’t.
There are certain mortgage products that are only available to first-time buyers
Most people that apply for a mortgage are in full-time employment. If you are self-employed or have your own limited company, you need to speak to a Bank or Mortgage Broker to see what the criteria is to get a mortgage.
Mortgage Example:
Salary £50,000
Maximum loan amount £250,000 ( 5 x Salary)
Deposit 5% = £12,500
Mortgage = £237,500 (95% LTV)
In the example above at the maximum loan amount the property purchase cost is £250,000
Getting a Mortgage
Generally you will need to be:
Employed Have a Deposit Have a Good Credit Rating
Credit Score
Contact a good credit reference agency to make sure that you have a good credit score. When possible before you go to get your mortgage try to clear all your overdrafts, loans, credit cards, debts, etc… Any outstanding debts can have an effect on how much money the mortgage company will lend you.
Research
Do your research in advance so that you can have an understanding of the types of mortgage products available. This will enable you to choose the best type of mortgage product that suits your financial circumstances
NEXT STEPS
Make sure you fully understand how your mortgage product works, as you can save a lot of money by doing this.
Contact the organisations that you bank with to get more information.
Also contact a good mortgage broker
Is it time for you to find out more about mortgages?
Are you able to afford to buy a property in any of your desired locations?