A mortgage is funding raised and secured against property. Whilst giving you the ability to raise money in order to purchase or refinance it also permits a mortgage provider to hold a legal right over the property itself, commonly referred to as a first charge. This means that a lender has a legal ability to repossess the property or ‘call in the mortgage’ should you fail to keep up with your repayments.
Capital repayment means you pay both the capital and interest back to a lender, where an interest only mortgage means you only pay back the interest and the amount borrowed is left to pay in full at the end of the term. There are various uses for an interest only facility and can be beneficial in certain situations however for a standard residential mortgage it is usually recommended that the capital repayment option is taken as long as it fits within an applicant’s budget and/or circumstances.
An income multiple is what a lender occasionally uses to calculate a maximum figure they can look to lend you for a mortgage, for example; 4.5x income multiple on an income of £30,000 per annum would amount to a £135,000 mortgage. This however could reduce when the overall affordability of an application is looked into. Details such as monthly commitments on both household costs, bills etc, along with unsecured credit commitments such as credit cards or car finance will all have a bearing on what they lender deems to be ‘affordable’. Lenders have tightened their affordability models and how they assess a mortgage application and therefore it is now key to ensure that consumers are comfortable with mortgage repayments.
A credit score is statistical data that determines your credit position. There are 3 more commonly known credit referencing agencies; Experian, Equifax and Call Credit, all of whom report data to give you an overall score. There are various factors that can impact your score these include; missed payments or defaults on your finances, not being on the electoral register, too many searches being carried out on your file within a short period – all of which can have a negative impact on your score. Being on the electoral register, keeping up to date with your payments and not being over indebted (being too reliant on credit) can improve your score as well as other factors. As well as lenders using credit scoring from these credit referencing agencies, they also conduct their own personal internal score on you as a client to make a decision on whether to lend money or not.
This is also known as ‘decision in principle’ and is an agreement from a mortgage lender confirming whether they are willing to lend. They will base this assessment on the information provided to them initially, a credit search & an affordability assessment. When purchasing a property it is usually a preferred requirement that you have had an agreement in principle to show that you can borrow the funds required.
This all depends on your personal circumstances. Many factors go into making a decision on how much you are eligible to borrow from a lender when enquiring about a mortgage. These include ‘income multiples’ (please see above what is an income multiple section for more details), your credit score (please see what is a credit score section above for more details), your overall finances – how much you currently have as unsecured debt, how many dependents you have, what mortgage term you will be looking at, what product you will consider and last but certainly not least your income. These are just a few of the factors taken into consideration, but as professional mortgage specialists, we can help advise you on your mortgage needs.
This again is a generic term used in the mortgage industry to simply state whether something is affordable or not. I.e. based on the information provided, is it reasonable to assume you can afford to keep up with the repayment. Again, various factors come in to play when assessing the overall affordability as mentioned above in ‘what is an income multiple’ & ‘what is a mortgage term’.
A mortgage term is the total number of years in which you have taken the mortgage over. The term that you take isn’t just a ‘pluck a figure out of thin air’ arrangement, and is something you need to consider seriously. It goes without saying the longer you take the mortgage term, the more interest you will pay, so it’s in your best interest to keep the term as low as possible on this basis. That said, it’s not always that easy as having a shorter mortgage term as the term itself can have a significant bearing on the amount you can borrow and the monthly repayments. The length of the mortgage should always be specific to your needs and not simply a generic figure.
If you have had adverse/poor credit previously which has in turn impacted your credit score, you may be unable to obtain a mortgage from the ‘high street’. Adverse credit simply means something has occurred financially that shouldn’t, for example you may have missed payments on unsecured or secured debts such as credit cards, loans, or 1st / 2nd charge mortgages. There are specialist lenders who work within the ‘sub-prime’ market, so you may still be able to get a mortgage even if you have had credit issues in the past.
The simple answer is that no one actually knows the correct answer to this. You can read various websites that predict what is going to happen, and they can give an indication, but realistically this is a personal viewpoint from a small group of people or businesses and not a definitive answer. What you need to be taking into consideration is that if interest did change how will this affect you and are you adequately protected against these changes?
This again is a very difficult question to answer. House prices historically have been known to see growth and increase in value, but again past events could argue against that and when the market crashes so do house prices. Many people were unfortunately caught out purchasing in the ‘boom’ period prior to the last crash in 2007 / 2008 but things seem have stabilised a little more recently according to the media. Buying a property in the right area with demand for property due to housing bubbles and various other factors are taken into consideration with housing growth. For the consumer it is almost impossible to foresee market changes and your house depreciating in value but as many can attest it happens, so buying the right property at the right price in the right area for you, is very important.
Stamp duty is tax you pay on a property purchase. The amount you pay is tiered dependant on the purchase price of the property and can change year on year when the annual budget is announced by the chancellor of the exchequer.
The current rates for 2017/2018 are as follows;
Property in England, Wales and Northern Ireland, the Stamp Duty Land Tax is:
|PURCHASE PRICE||STAMP DUTY RATE ON FIRST PROPERTY||STAMP DUTY RATE FOR ADDITIONAL PROPERTIES|
|Up to £125,000||0%||3%*|
|£125,000.01 – £250,000||2%||5%|
|£250,000.01 – £925,000||5%||8%|
|£925,000.01 – £1,500,000||10%||13%|
In Scotland the figures are slightly different;
The rates apply to the portion of the total value which falls within each band. Additional SDLT of 3% may apply to the purchase of additional residential properties
|PURCHASE PRICE||RATE ON FIRST PROPERTY – ON THAT PORTION OF THE PURCHASE PRICE||RATE FOR ADDITIONAL PROPERTIES – ON THAT PORTION OF THE PURCHASE PRICE|
|Up to £145,000||0%||3%**|
|£145,000.01 – £250,000||2%||5%|
|£250,000.01 – £325,000||5%||8%|
|£325,000.01 – £750,000||10%||13%|
*Properties up to £40,000 are exempt from stamp duty. Properties between £40,000.01 & £125,000 will be charged stamp duty on the full purchase price.
**An additional property purchased for less than £40,000 will incur 0% tax. For purchases from £40,000 to £145,000 the rate will be the 3% on full purchase price.
If you want to discuss any questions of your own in more depth, by all means get in touch and let us do the best thing for you – 0161 660 4588