The Latest Mortgage Advice
For most people, their monthly mortgage payments are their biggest regular outgoing. This is why it is really important to have the right mortgage, as this could save you thousands of pounds and give you the security or flexibility you need. However, there are many factors to consider regarding what type of mortgage is best for you.
APR stands for the Annual Percentage Rate of charge. You can use it to compare different mortgage offers. The APR takes into account not just the interest on the loan but also other charges you have to pay, for example, any arrangement fee. All lenders have to tell you what their APR is before you sign an agreement. It will vary from lender to lender. Set-up costs have a big impact on the cost of your mortgage – some can be as high as £2,000 or more. In addition, there will probably be legal and valuation fees on top. So when you're comparing mortgage products it is really important that you factor in the initial fees and work out the total cost over the term of the deal and don't just base your decision on the interest rate. Depending on how much you need to borrow, it may be cheaper to opt for a higher rate of interest in return for a lower application fee.
Fixed versus Variable
Fixed mortgage rates may at certain times be higher than variable rate products and at other times be lower. However, if the thought of your mortgage payments suddenly increasing will keep you awake at night – it might be worth choosing a fixed rate mortgage.
If interest rates do rise during the fixed term (usually 2, 5 or 10 years), you may find it proves a cheaper option because the rates on variable trackers and discount mortgages will obviously rise.
There are two main types of variable mortgages; standard variable rate (SVR) and trackers.
The SVR is set by the lender and is not directly linked to the Bank of England base rate. Changes to the SVR are therefore at the lender's discretion and could change even if there's no change in the Bank of England base rate. Many providers will offer discounted mortgage rates for an introductory period which is still linked to the lender's SVR.
If you are considering a variable rate, a tracker may be worth investigating as they are directly linked to the Bank of England Base Rate. Trackers are therefore easier to predict – compared to discount rates – because you know that any Base Rate changes will be reflected in the tracker rate.
Care should also be taken to check any terms at the end of the fixed or discount period offered by the lender, as they may have certain conditions.
Term of deal
If you are considering a fixed rate or a mortgage with an initial low tracker or discounted rate, an early redemption charge (ERC) usually applies for the duration of the introductory period. This means that if you need to get out of the mortgage during that time you will be charged a penalty and it could be very expensive, so bear this in mind when deciding which mortgage to go for.
Deposit and Stamp Duty
The most competitive mortgage deals are restricted to those with sizeable deposits. A deposit of 25% is likely to significantly reduce the rate of interest you can get compared to a 10% deposit. Therefore, it is worth saving for the biggest deposit you can.
Consideration should also be given to Stamp Duty Tax which has to be paid on completion of your house purchase. This tax is tiered as shown in the table below. It is worth noting that the rate is charged on the full value of the property purchased.
Repayment versus interest only
There are two types of mortgage: interest-only and capital repayment.
With a capital repayment mortgage, as well as repaying the interest each month you also pay off some of the capital you borrowed. Monthly repayments are calculated to ensure that your entire debt is repaid by the end of the mortgage term.
With an interest-only mortgage, your monthly payments only cover the interest on your mortgage. Lenders have clamped down on the availability of interest-only loans because of concerns that many of those who have them don't have a repayment plan set up. There are fears that when the mortgage term ends the borrowers will have no means by which to pay off the outstanding mortgage capital that was borrowed. You will therefore most likely have to prove to a mortgage lender that you have a repayment plan in place.
Most of us dream of being mortgage-free and making overpayments is a logical way of paying off your mortgage sooner. Most mortgage deals allow some level of overpayment. Often this is capped at a maximum of 10% of the outstanding capital each year.
If you have a penalty-free or fully flexible mortgage, such as a lifetime tracker, unlimited overpayments may be allowable.
If you are having difficulty paying your mortgage, speak to your lender as soon as possible. If you fall behind with repayments, your home may be repossessed, but this is usually a last resort for lenders.
Mortgage providers will try to help borrowers who are struggling. Options that may be available include, payment holidays or a temporary reduction in monthly payments. However, the longer you leave it, the greater the risk that you will lose your home.
Help to buy
Help to buy is a government-backed scheme in the UK that aims to help first time buyers purchase property. Mortgage guarantees help you buy a home with a deposit of 5% of the purchase price. It’s open to both first-time buyers and home movers for new-build and older homes in the UK with a purchase price up to £600,000. For more information visit: https://www.gov.uk/affordable-home-ownership-schemes/overview
All lenders will offer mortgages with different rates and terms and conditions, so it is worth checking the small print before you apply. You may also wish to talk to a mortgage broker to help you find the best mortgage, but remember, they will charge fees for this service. Make sure you have a full grasp of all the factors above when applying for a mortgage and the result should be an affordable mortgage that suits your needs. Then the difficult part is finding the right house, with enough space for a wicket!
FF&P Wealth Planning is not providing advice or a mortgage product recommendation.
Ambro Finance Limited
Former Derbyshire, Somerset, Leicestershire and Tasmania cricketer has launched a new mortgage advice service, free to all members of the PCA. Ambro Finance Limited (AFL) is directly regulated by the FSA to conduct whole of market mortgage and insurance business.
Finding the right mortgage is one of the most important decisions you make whether you’re a first time buyer, next time buyer or have realised your current mortgage is not competitive.
At AFL, we can help you find the right mortgage deal. We are a whole of market brokerage, which increases your chances of finding the mortgage that suits you.
We also manage your application from start to finish, dealing directly with the lender on your behalf, taking the stress of finding a mortgage away from you.
We can also ensure that you and your mortgage are protected – just like our mortgage service, our life insurance advice is also free. We have access to the whole market and can provide competitive premiums on life insurance, critical illness cover and income protection.
If you suspect you are paying too much for your mortgage or protection, please call Peter Bowler on 01823 478068/ 07977 448464 or firstname.lastname@example.org to discuss the best options available for you.
JOHN CHARCOL – MORTGAGES
Contact Simon Holdsworth on 020 7611 7075 / 07768 795991 or email email@example.com