What is a 95% Mortgage?
A 95% mortgage is as simple as the name would suggest; you are borrowing against 95% of the price of a property, and then you are covering the remaining 5% with your deposit. An example of this is if you looked at buying a property that was worth £150,000 with a 95% mortgage, you would be putting down £7,500 as your deposit and borrow the remaining £142,500 from the lender.
95% Mortgage Advice in Lincoln
Off the back of the March 2021 Budget, Boris Johnson announced a Mortgage Guarantee Scheme for mortgage lenders, making 95% mortgages more readily available from the bigger high street banks.
This is fantastic news for First-Time Buyers and Home Movers alike, as this scheme will continue running until December 2022. Certain terms and conditions will apply though, which is something your Mortgage Advisor in Lincoln will be able to look at, to see if you qualify.
All our customers who opt to Get in Touch will receive a free, no-obligation mortgage consultation where one of our dedicated mortgage advisors will be able to make a recommendation on the best possible route for you to take.
Can I get a 95% mortgage?
95% mortgages are usually accessible by both First-Time Buyers in Lincoln & those who are Moving Home in Lincoln. Whilst saving for a 5% deposit sounds like a pretty straightforward concept, you’ll still need to have an acceptable credit score and prove that you are able to afford your monthly mortgage repayments, in order to access a 95% mortgage.
Improving your credit score
A good credit score is essential in the process of obtaining any mortgage, especially a 95% mortgage. Things like paying any current credit commitments on time, ensuring your addresses are updated and checking that you’re on the voters roll, can all help with your credit score.
Affordability
Affordability is another one that is important to take note of. By giving the lender details of your income and monthly outgoings (things like your bank statements will be necessary for this) and any pre-existing credit commitments, your lender will be able to get a general overview of whether or not you are able to afford this type of mortgage.
Can my family help me get a 95% mortgage?
Nowadays we see lots of family members helping each other get onto the property ladder, especially parents looking to further their children’s lives. The way this usually happens is by gifting the person looking to find their home, the deposit required. Known through the industry as the “Bank of Mum & Dad, Gifted Deposits are only intended to be a gift, and not as a loan. The lender will need proof that this has been agreed, before it can be used towards your mortgage.
How do I choose the right 95% mortgage?
When looking for a 95% mortgage, you want to make sure you have the right type of mortgage. Each mortgage type works differently, with that choice allowing you to find one that is most appropriate for your personal and financial situation.
Some homeowners and home buyers prefer Fixed Rate or Tracker Mortgages, mortgage types which mean you either keep interest rates at a set amount for the term given or have your interest rates tracking the Bank of England base rates.
Alternatively, you might find that Interest-Only or a Repayment Mortgages are more your style. Interest-Only allows cheaper payments until you need to pay a lump sum at the end (mostly now used for Buy-to-Lets), whereas a Repayment mortgage (a normal mortgage if you’d like) means you’ll be paying interest and capital combined per month.
How can a bigger deposit help with my mortgage?
Seeing as a mortgage is such a large financial outgoing, you need to be prepared and need to be aware. You might find things like higher interest rates, remortgaging difficulties due to less equity and then negative equity all cropping up if you’re not.
There is no need to worry though, as all these can be avoided if you’re savvy enough with your process to begin with. The more deposit you put down for a property, the less risk the lender will see you as.
A larger deposit, of say 10-15%, would not only reduce the rates of interest by a noticeable amount, but would also give the property more equity and reduce the risk of negative equity, thanks in part to you borrowing less against the property.
So, whilst the risks may seem intimidating, planning ahead and saving for a bigger deposit to access something like a 90% or even an 85% mortgage will be a massive help in your mortgage journey and something you’ll be able to reap the rewards from in the future.
The Pros and Cons of Using a Mortgage Broker in Lincoln
The Pros and Cons of Using a Mortgage Broker in Lincoln
Deciding to buy your first property is a challenging task. Therefore, you must take your time, look around for various options thoroughly and make an informed decision.
As you might anticipate, we believe there are some excellent reasons to use a mortgage broker in Hull. Whether the brokerage service is online, you can still pay a visit directly to the lender. Even in technological advancement, we find that most people still refer to a mortgage broker. Hence, we will take you through the pros and cons of both methods.
Advantages and Disadvantages
Firstly, a well-versed mortgage broker will take the time to have an initial conversation with the applicant to help him decipher if you are mortgage ready to make an application. When contacting us and gathering the necessary details, one of our mortgage advisors in Lincoln will make sure to shop around and get the best deals possible.
One of the most notable advantages of going with a mortgage broker is valuable expertise in the home buying or refinancing process. Mortgage brokers have ample industry experience to lean on when offering mortgage solutions to their customers.
Similarly, our mortgage broker in Hull also has access to try and find wholesale rates on home loans. These rates can be lower than the retail interest rates, helping borrowers save a substantial amount of money over the life of a home loan.
Most importantly, a Mortgage broker can be your point of contact from the time you first call them right up to when you finally get the keys of your house in your hands, and we will guide you through the entire process.
Bank vs Broker
On the contrary, going to a bank helps save you a broker fee, saving yourself a reasonable amount. In earlier years, another significant advantage of a bank was that the branch manager knows an individual’s finances in and out. However, that all went by the wayside when credit scoring came in and is no longer the factor.
Likewise, some Lenders offer exclusive ‘direct-only’ deals that a broker would not have any access. Lenders do this to attract a wide range of applicants to make a good spread of business from consumers and brokers alike, turning exclusive products on and off when deeming necessary. On the other side, some products may only be available via the broker and not direct with the lender.
From 2014 onwards, lenders got restricted to sell mortgages on a non-advised basis to just anyone. Up until that point, many applicants felt like the non-advisors had been trying to force actual advice on them. They weren’t able to benefit from some consumer protection that goes with mortgage sales conducted by professionally trained mortgage advisors.
Lenders were coming to terms with and hence the issues present in these services led to a significant shift towards more applications getting made via mortgage brokers who are quick enough to offer you same day mortgage service.
You also need to check carefully if a lender is willing to lend you a considerable amount of money. It does not matter how good a lender’s deal might seem, but he should lend a significant amount. For this reason, people opt to go to an apt and professional mortgage broker in Lincoln.
Handling Difficult Cases
Nowadays, mortgage applications are no more straightforward. Many factors make a case more complicated. A few of the examples are as follows:
– Poor credit history
– Too much debt
– Payday loans
– Self-Employed Income
– Mixed source of deposit (savings/gift)
– Let to Buy (keeping your current house and buying another)
– Contract workers/zero-hours contracts
– Affordability
In the past years, lenders could stand out from the competition by offering a better deal to the applicants. In the current era, this is different because the lending criteria vary from one lender to another. Some lenders lend more to Self Employed applicants or take a more empathetic view of their credit report’s previous discrepancies.
When you explain your case to an experienced mortgage broker in Hull, there is a possible chance that they have encountered the same thing earlier in the past, allowing them to personalize their service and help you through the process. With extensive experience in the field, your mortgage advisor will hopefully be able to recommend the most suitable lender for you at the lowest rate possible.
More than that, it is not just about getting the Mortgage. Even if the application itself is self-explanatory, we offer extensive experience and knowledge to our clients. For example, we will discuss how much we will deliver on the property they are buying. Our team of mortgage advisors in Hull can recommend other professional services such as Solicitors and explain the different types of protection and survey available.
Responsive Service
Another significant advantage of using a mortgage broker is that the brokers are far more responsive than some lenders. Delivering personalized service is the differentiating factor between the broker and a lender.
Besides, another significant reason for hiring a mortgage broker is that it helps you save time. Most customers prefer a broker because they are too busy nowadays. they might need a mortgage but have no time to get it done so that our advisor will take the weight off for you.
You only need one application with a mortgage broker rather than individually filling out forms for every lender. Your mortgage broker can also provide a comparison of any loans recommended; guiding you to the information that accurately portrays cost differences, with current rates, points, and closing costs for each loan reflected.
Mortgage Advice in Lincoln | Mortgage Payment Holidays
At the start of the Coronavirus pandemic, the Government promised that all borrowers would be allowed a three-month mortgage payment holiday on the condition that they needed it. Most lenders followed the Government’s guidelines and did their best to help out their borrowers during these hard few months.
We felt that it is best, to sum up, what mortgage payment holidays are, what lenders are doing, and who can deliver you with help and advice through these next few months.
What is a Mortgage Payment Holiday?
Mortgage payment holidays are agreements you make with your bank, building society or mortgage lender, allowing you to take a break from your monthly mortgage payments for a set period. In the case of the current COVID-19 crisis, homeowners are being granted 3-months relief.
The 3 months will be added on at the end of your term or your payments will be recalculated at a slightly higher level, meaning you will still have to pay those 3 months back eventually.
Your interest, however, carries on as normal, meaning you’ll technically be paying an additional 3 months of interest on top of what you’ve paid already.
Most lenders would likely prefer to not extend your mortgage term, as you may end up going beyond their standard retirement age. There’ll be more information on this over time.
Depending on the mortgage deal you have in place, you may be able to pay off a lump sum later on in the year to bring your mortgage in line with where it would’ve been had you not taken a holiday.
Mortgage Payments Holidays are available for those with residential mortgages and Buy to Let mortgages, meaning landlords will also have help if their payments are affected.
What is the Government Proposal?
The full proposal is in detail below:
- Mortgage lenders will offer an automatic 3-month mortgage payment holiday for customers impacted, directly or indirectly, by COVID-19.
- The mortgage payment holiday will apply to customers who are up to date on their payments, not in arrears, and wanting to self-certify that they are impacted by COVID-19.
- This means that lenders will not complete an income and expenditure assessment, or an assessment of alternate payment options as ordinarily required under MCOB.
- This proposal will allow lenders to be more responsive to customer needs and offer forbearance in a simple way to customers in an environment where the operation of collections teams made be also impacted by COVID-19.
- Customers will be made aware that interest will accrue in the holiday period and they will need to make up deferred payments in the future.
- Customers who wish to undertake a full assessment of their ability to pay or financial difficulty may still do so.
Mortgage Payment Holidays: How do I apply?
To discuss your options for Mortgage Payment Holidays, we would recommend speaking to a Mortgage Advisor in Lincoln to start with and not jumping straight into taking a holiday.
We’ll be able to take a look for you first and see if this option is something worth your time. Lenders will no doubt be facing an influx of calls, needing to be free to speak with the most urgent matters over everyone else.
We’ll look through your personal situation and see if there are any other options for you first before you decided to take a Mortgage Payment Holiday.
For a customer, up to date with payments, not in arrears and impacted by COVID-19:
- The customer would contact the lender and inform them that they are impacted by COVID-19.
- The lender would accept these details from the customer and offer an automatic 3-month mortgage payment holiday.
- No evidence will be sought from the customer.
- The lender makes the customer aware that interest will accrue and will be contacted at the end of the three months to complete an assessment of the customer’s circumstances.
- At the end of three months, an arrangement to pay will be agreed with the customer according to their circumstances to recover any shortfall, while ensuring that the mortgage remains affordable and sustainable.
- The lender notifies the customer that if they wished to complete a full assessment now, there may be other forbearance options more suitable to the customer.
Mortgage Payment Holidays – What does this mean for my Credit Score?
Generally, these can show up on your credit score as a negative mark, but most lenders have said if your case is linked to the virus, they’ll make sure it doesn’t affect your credit score at all.
It’s important that you speak directly with your lender to ask them this, recording their response. Also take the date and time, as well as the name of who you spoke to, to avoid any confusion later on. Different lenders will handle these things differently than one another.
Will I still be able to remortgage or take a Product Transfer with my lender?
Controversial for some, but there is now evidence that lenders are asking borrowers to try and not make changes to their mortgage whilst within the holiday period. This means, for the time being, you can’t take out a remortgage or product transfer.
In simpler terms, borrowers reaching the end of their current product may be forced to move to the higher lenders variable rate. This means many borrowers who act too quickly could find themselves on a Mortgage Payment Holiday that gains interest on a more expensive variable rate.
This is another reason why we highly recommend speaking to a Mortgage Advisor in Lincoln first, to determine the right path for you to take. If possible, try arranging a transfer prior to asking for a holiday, as that seems like a more sensible option.
What “Other Options” are available?
Some lenders are offering a temporary switch to interest-only, in order to reduce monthly payments by a large amount, while not adding on any further amount to the loan, by still servicing the interest each month.
You may not need to convert the entire mortgage to an interest-only mortgage and it may be that putting only a portion of this mortgage on that basis could give you room to breathe.
Those who have savings may prefer remortgaging onto an offset basis. This would reduce their monthly payments whilst keeping their savings safe and intact.
For example, someone with a £500,000 loan and £100,000 in savings would only pay interest on £400,000 reducing their payments accordingly.
For others, remortgaging onto another lender, calculating the cost of any early repayment charges, maybe all you need to ease the pressure you currently face. You could also simply extend your current term, thus spreading your payments across a longer time frame.
To discuss any of these options, or to just have a helpful chat about your current situation please contact us and we’ll see how we can be of assistance.
8 Factors to Help you Decide Where to Live in Lincoln
When you start house hunting there are many things you will consider. Such as mortgage arrangements and the best mortgage deal for you and your general finances. With regards to your new home, you will consider the location, amenities in or near the area and how much you get for your money.
Let’s consider a few points for when you start looking for your new home.
1. Where to Live, Lincoln City or Rural Location
The location will be important, whether you want a city location or are you looking for a more rural setting. You need to consider this carefully, as this could also affect the commute to work, access to local amenities, shops, schools etc.
2. Transport
For many people, there are some factors we all generally have to consider, how we get to work. So access to major transport links, railway or bus station, motorway links.
3. Schools, Colleges
For those with children, an important factor is usually the quality of the local school. There are some great schools in Lincoln and you will probably already taken a look at the school league tables and will have some opinions on which school(s) you would like your children to attend. Check the catchment areas, this will then provide you with the area(s) to consider your new home.
4. Lincoln – Local Amenities
What you are looking for from the local area may differ depending on your lifestyle. Some of the things you may consider are the proximity of local shops, the nearest supermarket and maybe how close you are to bars, restaurants. You may also like to have local parks, open spaces, gym’s etc. We recommend you make a shortlist, what you need and what you would ‘like’. When you find a house you are interested in you can then compare with your ‘wish list’
5. Family & Friends
This is a personal choice and will be dependant on your circumstances and influenced on whether for example, you need family support with the children, help with school runs and childcare. Your friends are important so so it may also be that you would like to be as close to them as possible, or at least just a short distance away.
6. Value for Money
Value for money. Where you buy your next home will affect how far your money will go and what you get in a home for the money you spend. So you may need to compromise on location to get what you are looking for in your new house
7. Where to Live – Local Community
Some of us like to be ‘part of the community’ so may like to see you local area involved in arts, crafts, book fairs, local events at the community hall etc, so take time to look and see what happens in the local area, ask the estate agent to find out for you or look at local websites
8. House Prices – Long Term
First time buyers buying a new home is usually viewed as a long term investment with outhouse value expected to rise over time. To help this you could look to see if the local area has investment plans, new road links, local developments, shops, sports facilities, companies investing in the local area can all have an affect your future house value, so do a little research if this is important to you.
Getting an Up-to-Date Credit Report
Obtaining my up-to-date Credit Report in Lincoln
Building up a picture of your individual financial circumstances is the way that our Mortgage Advisors in Lincoln help to find the most suitable mortgage for you. To achieve this, we will always strongly recommend that you obtain a copy of your current credit report.
To do this, we recommend using the ‘Check My File’ report agency. It works by accessing data from the 4 main Credit Reference Agencies, providing a detailed insight into your credit profile. The data that is held may differ in some circumstances, depending on which agency you choose to use. This is why we recommend using Check My File so that we can analyse the data from all 4 agencies.
How to get your up-to-date credit report:
- Please use the Check My File credit report. You’ll receive a free 30-day trial, which can be cancelled at any time and is £14.99 a month afterwards.
- Upon following the link on the website, you will notice a button stating ‘see your multi-agency credit report for free’. When you click this button, you will need to enter the necessary information accompanied by the answers to the security questions asked.
- When you successfully login and can see your credit report, the next step is to scroll down to the bottom of the page. You will then notice an option to ‘Download Printable Version’. When you click this, you will see a download of your credit report available locally on the device that you are currently using.
- The downloadable PDF document will be password protected by your 6-figure date of birth (DDMMYY).
- Upon download completion, please send your credit report to enquires@ukmoneyman.com along with your date of birth.
The next step in the process depends on what type of device you choose to use to email your credit report to us i.e. Laptop PC, Android, iPhone. It can be a little more difficult sending your credit report from your mobile phone.
What happens when I send my Credit Report to a Mortgage Broker in Lincoln?
Our Mortgage Advisors in Lincoln with be able to go over your mortgage options with very accurately when they have reviewed your credit file and made contact with you.
As a knowledgeable Mortgage Broker in Lincoln, our wealth of experience means that we can help with the different criteria set out by many lenders that we work with. Some of these are Specialist Lenders. If you require more information on this, please see our Specialist Mortgage Advice in Lincoln pages.
Whether you are a First Time Buyer in Lincoln or are looking to Move Home in Lincoln, our expertise, partnered with the information you have provided to us in your credit report will help us recommend the most suitable mortgage.
Book your free mortgage consultation today and speak to an expert mortgage advisor in Lincoln.
Costs of Buying a Home in Lincoln
One of the common First Time Buyer questions we are asked by prospective clients is “How much will this all cost?” so here is a full list of the fees you can expect to pay when you are thinking about buying a new home (and when they become payable).
Estate Agency Fees
This only applies if you have a home to sell. With the rising of the on-line Estate Agent, the price to sell your home can be as low as £500 for a basic Rightmove listing. However, if you are looking for a more personalised local service and a dedicated sales negotiator the fee will be in the region of 1-2%.
Valuation Fees
Your mortgage lender will have a requirement to have a valuation carried out on your chosen property to ensure they are lending against adequate security.
Prices can vary from nil (for a basic valuation with some lenders) up to several hundred pounds for a more detailed Home Buyers’ Report and even more for a Full Building Survey.
The key is that you always have an element of choice in whether you wish to elect for a more detailed report or not, with your decision likely to depend upon the age and type of property you’re buying and any fears/concerns you have about it.
Mortgage Arrangement Fees
Some mortgage products offer comparatively cheap rates but this benefit can be outweighed by an arrangement fee payable to the lender. Not every product has one, so the cost can be nil but could, for example, be £999 or even more depending upon the lender/product.
Sometimes these are to be paid upfront or you can elect to add these to the balance of your mortgage, but clearly you would then incur further interest charges.
Being an experienced team of Mortgage Advisors in Lincoln, we compare mortgage deals with all fees added so we can compare on a like for like basis.
Solicitor’s Fees
You’ll need to engage the services of a solicitor, the fees quoted by various firms can differ enormously. Estimation for a straight forward purchase with a local company is £600 for a low-value property. You will need to give the property address, whether it’s leasehold or freehold and the purchase price to obtain quotations.
The key points to cover when asking for a quote are:
- Ensure the firm includes VAT.
- Ensure the firm includes the cost of any “disbursements.” These are fees such as Land Registry Fees and Local Authority Search Fees.
- Is your Solicitor on your mortgage lenders panel?
Stamp Duty
In addition to your Solicitor’s fees and disbursements, you’ll be required to pay this tax which the solicitor collects on completion of the property purchase. Full details can be found here: https://www.gov.uk/stamp-duty-land-tax/ – a residential purchase of £180,000, the Stamp Duty would be £1100.
Broker Fees
Your Mortgage Broker in Lincoln will usually charge a fee for their service, typically £499. Please try to use a local company that charges on completion only and avoid any application fees where your money will be at risk.
Removal Fees
The cost of moving your furniture can vary significantly and will depend on the level of service you are looking for. If you are quite happy to hire a van and roll your sleeves up, this can cost less than £200. On the other hand, if you are looking for a company that provides the full service this can be £1,000 plus.
If you would like to discuss the costs involved in obtaining a mortgage in more detail then please don’t hesitate to contact us.
Can I Have Two Mortgages In Lincoln?
There is most likely an option where you are able to have two mortgages as there are many situations that require a person to have more than one mortgage. Our Mortgage Advisors in Lincoln can normally help with this.
Here are some of the reasons for needing two mortgages:
- Do you want a second mortgage to raise money on your existing home?
- Are you looking to rent out your existing home and purchase a new one?
- Are you looking to help your children out with a second mortgage?
- Do you require a second mortgage to purchase a buy to let property?
- Is your name on an existing mortgage and you are looking to buy a new property?
Second Mortgage to Raise Money
If you have equity in your home and are looking for a second mortgage to release some of this to fund a purchase or something else then we can help.
Quite often at this time if you are currently on a lenders standard variable rate, we are able to shop around and find a more competitive deal at the same time as releasing capital. A further advance with your current Lender is also an option.
Second Mortgage to Rent Out Existing Home to Purchase a New one
If you are looking to move house but keep hold of your existing property with the view to let it out we will be able to help. Your second mortgage will be a new residential one. This type of move is known as a Let to Buy and is becoming increasingly popular in recent years.
Second Mortgage to Purchase a Home for your Children
If you are exploring the options available to you of helping your children or grandchildren with getting on the property ladder there are now many products that we can run though to achieve this.
Second Mortgage for a Buy to Let
If you are looking to purchase a Buy to Let we are able to help. You will be asked to produce a higher deposit for this than a residential mortgage. To read more about Buy to Let please click here.
Named on Existing Mortgage and Want to Buy a New Home
Are you currently named on another mortgage and would like to purchase a new property to live in? This is a situation that we come across on a regular basis especially due to divorce or separation and can often help.
Whatever your situation being to get a second mortgage, being an Experienced Mortgage Broker in Lincoln we are able to search 1000’s of mortgage deals on your behalf and recommend the most suitable product for you based on your individual situation.
Agreement in Principle and Soft Credit Searches
A Mortgage Agreement in Principle is what you are given once you pass the Lenders credit score to qualify for a Mortgage. Often shortened to AIP, this allows you to make an offer on a property you like. It’s can also be helpful when negotiating on house prices, as it shows the seller you’re serious about your offer and are prepared as a First-Time Buyer in Lincoln.
What effect does an AIP have on your credit score?
This is dependant on whether the lender decides to use a Hard Credit Search or a Soft Credit Search. Below are the differences between the two;
Hard Searches:
Hard Searches go more in-depth than Soft Searches. The main difference is that Hard Searches are likely to affect your Credit Score. If you have a good Credit Score however, you don’t need to worry going into this as a First-Time Buyer in Lincoln.
Soft Searches:
The more likely option these days is that a Lender will carry out Soft Searches. These usually needing less information and in most cases leave your Credit Score unaffected.
Does an AIP Guarantee a Mortgage in Lincoln?
Although they can be a game-changer, a mortgage isn’t always guaranteed. The lender will need you to provide them with documents in order for the Underwriter to make a final decision.
There is often small print included on Agreements in Principle that may easily be missed. When customers reach out for assistance with their Agreement In Principle, at times we have found they’ve been turned away at full mortgage application stage.
The documents you will be required to provide can include; Identification, Payslips, Bank Statements and more. As your Mortgage Broker in Lincoln, we take pride in helping our customers, whether they are Moving Home in Lincoln or Self-Employed in Lincoln.
Is My AIP a Necessity When Making an Offer?
You may be able to get away with this, however, most estate agents will want evidence that you are able to proceed.
How Long Will My AIP Last For?
AIP’s usually need renewing after around 30-90 days, although this isn’t a worry. The main reason we recommend getting one so early is to avoid being told your dream home is no longer available for purchase.
Getting your Agreement in Principle sorted also means you don’t always need to buy the first house you see. It’s a simple process, so if it expires you can easily get another.
Types of Mortgages Explained in Lincoln
When first-time buyers start out looking for a mortgage you will soon realise that there are lots of different options available. Below you will see a list of the most popular types of mortgages available on the market and hopefully, my short videos will give you a better understanding of what each option offers.
If you have any questions regarding any of the below mortgage options, then please do not hesitate to contact us.
What is a Fixed Rate Mortgage?
A fixed-rate mortgage means that your mortgage payments are going to stay the same for a set period of time. You can set the length of which you want to fix your payments for, typically this being 2, 3 or 5 years or longer.
No matter what happens to inflation, interest rates or the economy you know that your mortgage payment, usually your biggest outgoing, will not change.
What is a Tracker Mortgage?
A tracker mortgage means that your interest rate will track the Bank of England’s base rate. So in other words, the lender that you are with does not actually set the rate themselves, you will be paying a percentage above the Bank of England base rate. In an example, if the base rate is 1% and you are tracking at 1% above base rate, that means you will be paying a rate of 2%.
Back in the mid-2000s, these deals were very popular, as the rate you where tracking was a fraction above that of the base rate. These deals aren’t as attractive anymore, however always remember that it is a variable rate so if the Bank of England base rate goes up, your mortgage payments will also increase.
What is a Repayment Mortgage?
When you take out a repayment mortgage this means that each month you are paying capital and interest combined. So as long as you keep your payments going for the full length of the mortgage term, the mortgage balance is guaranteed to be paid off at the end and the property becomes yours.
This is the most risk-free way to pay your capital back to the lender, in the early years it is mainly the interest that you are paying and your balance will reduce very slowly especially if you have taken out a 25, 30 or 35-year term.
This situation switches in the last ten years or so of your mortgage where your payments are paying off more capital than interest and the balance will come down much faster.
What is an Interest Only Mortgage?
Whilst many buy to let mortgages are set up on an interest-only basis, it is much more difficult to get a residential property on an interest-only basis. Back in the ’80s and 90’s how a mortgage would work is that you would take out an interest-only mortgage, a mortgage where you just pay the interest.
The idea was that you would take out a separate investment vehicle, such as an endowment policy or pension to pay the balance back at the end of the mortgage term. Whether there is going to be enough money to pay the capital balance will depend on the performance of your investment vehicle.
During the 2000s some of these investments didn’t perform as well as expected and some borrowers were left with a shortfall. It is much less likely for lenders to offer an interest only product now, however, there are certain circumstances where this can be an option if you are going to downsize when you are older or have other investments what you will use to pay the capital back.
Lenders are very strict when it comes to offering these products now and the loan to values are a lot lower than back in the day.
What is an Offset Mortgage?
With an offset mortgage, the lender will set you up a savings account to go alongside your mortgage account. How this works is that let’s say you have a mortgage balance of £100,000 and £20,000 is deposited into your savings account, you only pay interest on the difference, so in this case £80,000. This can be a very efficient way of managing your money, especially if you are a higher rate taxpayer.
This also is a way of reducing the mortgage term because as that money is sitting in that savings account your mortgage term shrinks. This mortgage option was popular in the late ’90s and early 2000s, it originated in Australia and became popular in the UK when introduced by lenders such as The Yorkshire Bank.
Currently, this is not a very popular mortgage option, I guess the reason for this is that people don’t save as much as they used to anymore, however in the right circumstances an offset can be the perfect solution.
Don’t Pretend to live Somewhere else in Lincoln
The importance of updating information
When it comes to applying for a mortgage and your credit score, the fewer addresses you have on your record the better, however it seems that people are becoming savvier and aware of this.
We are now seeing more and more applicants who have moved out of their parents address into rented accommodation but think that it is a good idea to leave their bank statements, credit card and Electoral Roll information registered at their previous address.
There are good reasons why people do this, however, I’m afraid this is now a flawed strategy. Almost without fail, if you have moved to a new address, there will be some record of this on your credit report.
This could be from a delivery address when you have ordered something online or a car/home insurance search and many more.
By far a better strategy for you if you are thinking about taking out a mortgage is to get all of your accounts (credit cards / current accounts) and electoral roll changed over to your new address.
When updating your address on your credit file and electoral roll ensure you double-check the date in and date out. If you do make a mistake with these dates it can appear that you are living in two places at the same time.
This is a more open and honest way of trying to apply for a mortgage.
