Mortgages

mortgages

Your home may be repossessed if you do not keep up repayments on your mortgage.

Mortgage Repayment Types

A mortgage is a loan you take out to buy property. Most banks and building societies offer mortgages, as well as specialist mortgage lending companies. If you change lenders but don’t move home it’s referred to as a ‘re-mortgage’ when you look to re-arrange your current borrowing.

The two main ways to repay your mortgage are ‘repayment’ and ‘interest only’.

With a repayment mortgage you make monthly repayments for an agreed period (the ‘term’) until you’ve paid back the loan and the interest.

The facts:

  • Each monthly repayment to the lender consists of an element of capital and interest.
  • Gradually your loan reduces, building up equity in your home.
  • At the end of the term your mortgage will be repaid, providing you keep up your monthly repayments.
  • Suitable for people who would like to guarantee the repayment of their mortgage.
  • A low risk method of repaying your mortgage.

With an interest only mortgage you make monthly repayments for an agreed period but these will only cover the interest on your loan (endowment mortgages work in this way). Normally, you’ll also have to pay into another savings or investment plan that’ll hopefully pay off the loan at the end of the term or possibly look to sell the property and clear any borrowing at that time.

The facts:

  • Each monthly repayment to the lender consists of interest only.
  • As no capital repayments are made during the term of this mortgage, monthly costs are lower, however you will not increase the equity in your home.
  • Suitable for people who do not wish to repay the capital until the end of the mortgage term. It is your responsibility to ensure an adequate repayment method is in place to repay the mortgage at the end of the term.
  • Repayment of the loan is self-managed by you and would usually be paid from proceeds of the sale of your home, inheritance, savings or investments.
  • This type of mortgage is not accepted by all lenders unless an investment vehicle is also selected.

 

Purchase Mortgages

A loan to purchase a property for your own residential use. The type of scheme you choose will depend on your circumstances but special schemes are often available for first time buyers and those purchasing their council house. The amount you can borrow will depend on income and existing credit commitments as well as the size of the deposit you can put down. The latter is commonly translated into the loan-to-value ratio (LTV) which is simply the loan expressed as a percentage of the purchase price, i.e. putting down a £10,000 deposit on a £100,000 purchase requires a loan of £90,000 which is 90% of the purchase price so you could not choose a scheme which had a maximum of LTV of 75%. Often as the loan-to-value reduces, the more you will be able to borrow as this represents less risk to the lender.

Re-Mortgages

Changing your lender without moving house. Usually done to obtain a discount to reduce monthly costs or to change scheme type e.g. from a variable to a fixed rate. Re-mortgaging is often the best way to release equity to fund home improvements, clear other debts or provide a deposit for a second purchase such as a buy-to-let property. In the case of separation or divorce a re-mortgage can be carried out in conjunction with a ‘transfer of equity’ which is the procedure of removing (or adding) a party to a mortgage. In many cases funds are raised at the same time in order to meet the financial settlement of the separation agreement.

Buy 2 Let Mortgages

 Over recent years many people have turned their backs on the stock market, preferring to invest their money in property in the hope that it will either provide a level of income or capital growth over the medium or long term or both, giving them some additional financial security for their retirement which is controlled by them and not a fund manager.

  • Mortgages for landlords

When buying a property to rent out, the mortgage is possibly the most critical factor. You cannot take out a typical residential mortgage. However, most banks and building societies offer buy-to-let mortgages specifically for landlords.

  • Higher deposits for buy-to-let

A buy-to-let mortgage is comparable in most ways to a residential mortgage. However, there are some differences. Firstly, the interest rate is typically higher. You will also be required to supply a larger deposit on a buy-to-let mortgage – a minimum of 25% is usual, although many of the most competitive mortgages demand 40% plus, this is due to the lender considering this type of lending as higher risk when compared to a normal residential mortgage commitment.

  • Rental income

With a buy-to-let mortgage, lenders look at the expected rental income and don’t just assess the mortgage on your personal income, as they would with a residential mortgage. Typically lenders insist that the monthly rental income must equal 125% of the monthly interest payments at 5% to 6% payrate coverage. For example, if you are paying mortgage interest of £400 per month, your rental income should be at least £500 per month.

The tougher conditions reflect the higher risk of buy-to-let mortgages, as statistically borrowers are more likely to default on a buy-to-let mortgage than residential mortgages.

  • Are you likely to qualify?

Most banks and building societies insist on a minimum age, often 25. Also they often require a minimum income, usually around £20,000 to £25,000 per year. Each buy-to-let lender has their own restrictions on how many buy-to-lets they will allow you to have, and other factors which they assess before they accept an application.

  • Choice of mortgage deals

The choice will typically include fixed rate and tracker mortgages. Arrangement fees often apply – and they can be much higher than residential mortgages. Sometimes these fees can be fixed or charged as a percentage of the mortgage amount, other incentives can be offered, for example free valuations or Legal Fees paid by the lender and in some cases cash backs to help cover the new set up costs.

  • Buying a property is only the first step

Will you rent it out yourself or get an agent to do so. Agents will charge you a management fee, but will deal with any problems and have a good network of plumbers, electricians and other workers if things go wrong.You can make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs.If you choose an agent you do not have to go for a High Street presence, many independent agents offer an excellent and personal service.Select a shortlist of agents big and small and ask them what they can offer you.

 

Equity Release Mortgages

A lifetime mortgage is a long-term loan secured against your home. You could either release a lump sum to spend now or choose to take a smaller amount now, leaving the rest to spend in full or in part at a later date. There are many equity release plans on the market, so it’s vitally important to seek independent, expert advice to compare the whole market to find the right plan for your circumstances.

There are two main types of equity release plan:

With a lifetime mortgage, you take out a loan, secured on your property, and receive that amount as a tax-free lump sum. You do not usually make monthly repayments. Instead, the interest “rolls up”, and the loan plus interest is repaid after your death, when the property is sold.

With a reversion plan, you sell all or part of your home in return for a tax-free lump sum and a guaranteed lifetime lease, with no monthly repayments to meet. After your death the house is sold, so the lender gets back its percentage share.

  • Do more of the things that matter in your retirement by releasing money from your home.
  • You can continue to live in your home until you die or go into long-term care.
  • Minimum age and property values apply, and there are also restrictions on the type of property that are considered for lending purposes.
  • If you have an existing mortgage on your home or any secured loans, you’d have to use the money you release to pay these off first, but then you’d be free to spend what’s left however you want.
  • A lifetime mortgage is a lifetime commitment. It’s important to understand the costs and risks involved, including how taking a plan will reduce the inheritance you leave and how it may affect your tax position and entitlement to means tested benefits.
  • Although the amount of inheritance you can leave will always be reduced, you can choose an inheritance guarantee on a lifetime mortgage to ensure you can leave something for your loved ones. However, this will reduce the amount of money you can borrow.
  • It’s a good idea to involve your family in the decision process.

All Equity Release providers recommended by Insight Mortgages & Financial Services abide by the SHIP code of conduct. This includes a ‘no negative equity guarantee’. Full details of the SHIP guarantee can be found at www.ship-ltd.org

Self build

Self-Build mortgages are for those people who intend to build their own house or have a house built for them to a design of their choice. The project normally starts with the purchase of a plot. Future funds are then released in stage payments at the standard build stages, subject to regular revaluations upto the lenders maximum loan-to-value depending on criteria. If you already own the plot you can possibly borrow against the plot at a percentage of the value to help raise money to fund the building work.

You will have to provide detailed plans of build costing’s and you build schedule as well as the normal information a lender would require in order to assess your circumstances to support your mortgage application.

Development Finance

Many developers are looking at ways to finance their development projects without risking large amounts of their own capital. We have a variety of solutions for developers wanting to fund their projects whatever the size of development or funds required for every kind of developer or small builder, including new build or renovations to offices, warehouses, factories and shops.

Secured Lending / 2nd Charges

Many clients spend years repaying mortgages only to find, when they need to raise funds quickly, the lender isn’t willing to lend them any further finance or they are restricted with large fees to raise the required funds. Another solution which is becoming more commonly used to raise finance quickly may be a secured loan.

Bridging

Short term financing can be used for a variety of reasons including purchasing property at auction, short term cash flow problems, support and raising finance quickly against existing property to pay unexpected costs.The property market continues to present opportunities to those who can move quickly. Bridging finance is used for a variety of reasons that need access to finance quickly, these include: fast turnaround of property refurbishment and then re-finance, purchasing closed pubs for refurbishment or conversion, finishing partially complete self- build projects, auction purchases, and debt consolidation.