For the vast majority of us, buying your home can be a daunting experience, particularly if it’s your first time. Even if you’re a seasoned veteran of the property ladder, going through the process of selling, buying and moving is, by all accounts, one of the most stressful things we do in our lives. Our brief guide to buying your home, obtaining a mortgage, remortgaging your home and protecting your home aims to make the process a little less overwhelming. And it goes without saying that if you have any queries about any part of the process, our specialist advisers will be only too happy to assist, with plain talking, independent advice.
Buying Your Home
Whether it’s your first home, or not, buying a new house is usually an exciting time with ideas and dreams of how you want to make the space your home. Unfortunately, most of us don’t have the money in the bank to make an outright purchase, so you’ll need to take out a loan to pay for it. A mortgage is a loan that is secured against your home and will usually be offered at lower interest rates than other standard high street loans. Your house is the security on the loan, so in the unlikely event that you don’t keep up your mortgage payments, the house can be sold, and the mortgage company can recoup their money.
If you already have a mortgage, you’ll probably know all of this! Few people these days stay with the same lender for life. Like with most things, it pays to shop around, and when your current mortgage terms comes to an end, you’ll want to re-mortgage your home. You may even choose to re-mortgage your home before your term comes to an end, if the new rate is attractive enough. The new lender may offer to cover any costs and fees associated with moving. However, they may also charge you a deed discharge fee. An independent mortgage adviser such as Macbeth will be able to advise as to what is going to be the best solution for your requirements.
You could lose your home if you don’t keep up the payments on your mortgage
There are some key upfront costs you’ll need to consider when buying your home:
- Application / Arrangement Fees – (charged by the mortgage lender for arranging the mortgage)
- Solicitor Fees – (including land registry charges and local search fees)
- Stamp Duty – (a sliding scale of tax, depending on the value of the property your are purchasing)
- Valuation and Survey Fees – (charges depend on the nature of the valuation or survey)
- Mortgage Advice Fees*
- Removal company costs – (unless you have a really big van and willing friends!)
Stamp Duty currently breaks downs as follows:
- Up to £125,000 – No Stamp Duty
- £125,001 to £250,000 – 2% of the portion over £125,001
- £250,001 to £925,000 – 5% of the portion over £250,001
- £925,001 to £1.5 million – 10% of the portion over £925,001
- Over £1.5 million – 12% to be paid on anything above £1.5 million
Additional ongoing costs will obviously include the mortgage repayments, but will also include the relevant insurance and protection costs. The mortgage lender will need to see that the property is adequately insured, so that in the event the property suffers major damage, their security on your outstanding loan is covered. Protection costs will cover the eventuality of death or critical illness, ensuring your family’s standard of life remains as secure as can be should the worst happen.
*(Here at Macbeth, we make sure we are clear and transparent from the outset as to whether or not we will be charging a fee for our services; which will depend on the details of the mortgage taken out.)
How Much can you Borrow?
The overall amount you will be able to borrow for buying your home will depend on a handful of factors. If you’ve been saving hard for a deposit, well done, it’s hard work. Generally, the more you can put down as a deposit, the better. Your income and outgoings are obviously also going to effect how much you can borrow, so ask for that pay rise and stop eating out! Your credit history will also have an impact, so spend some time reviewing it and getting it into shape if needs be. You can review your credit history and rating for free with Noddle and Clearscore.
Knowing how much you can borrow is useful before you make an offer on a property. Most lenders will provide a decision in principle, giving you some piece of mind when negotiating your offer and speeding up the process should your offer be accepted. You’ll need to provide proof of your income, including bonuses and overtime if relevant.
As a working example, if you and your partner have a joint annual income of £60,000, you may be able to get up to 4 and half times that as a mortgage, subject to credit status. So if you’ve managed to save a deposit of £30,000, together with a mortgage of £270,000, you’ll be looking at properties up to £300,000. Although a mortgage will generally be less expensive than a regular loan, the term over which a mortgage is held can be up to 40 years. The shorter the mortgage term, the more you will save. Your mortgage term should end before you retire as your income at that point is unlikely to be sufficient to cover the remaining repayments.
The role of a mortgage adviser is to assess your needs and requirements and to advise accordingly based on what is available in the market.
Repayment or Interest Only?
So you’ve bought your dream home, congratulations! Now you need to pay for it. You can do that in one of two ways. You can either pay back what you borrowed plus the interest, or pay back just the interest. With a repayment mortgage, at the end of the term, you will own the property. With an Interest Only mortgage, you’ll only ever be paying the interest on the loan, not the actual loan. Interest only mortgages are not typically available to first time buyers and those with a small deposit. There are pros and cons to both, and it would be your mortgage adviser’s job to tailor advice accordingly.
Perhaps one of the more confusing and complex aspects of obtaining a mortgage is knowing the differences between the various interest rate options offered by lenders. This is potentially where saving for a bigger deposit could be favourable in the long term. Generally, the more you can put in as a deposit, the more favourable your interest rate may be, and also, the less you will have to repay over the term of your insurance. Mortgage Interest options generally fall into six categories:
- Standard Variable Rate (SVR): flexible, but can go up or down with the market. not usually the lowest rate.
- Discounted Rate: reduced repayments in early stages, but possible early repayment charges. Can go up and down with markets.
- Fixed Rate: gives stability, making budgeting easier. Likely early repayment charge. Variable interest rates may be more favourable however.
- Tracker Mortgage: tracks a Bank of England base rate but may have a lower limit. Can go up or down and may have early repayment charges
- Offset Mortgage: Use your savings and current account to reduce the interest rate. Save more, pay less interest. Potential tax savings.
- Capped & Collard Rate: Like SVR, but with an upper and lower limit. Offers some stability but you wont benefit if rates fall below the cap.
Protecting Your Home and your Lifestyle
Buying your home and taking on a mortgage is one of the biggest and longest financial commitments most of us will make. So it makes sense to consider what happens if you or your partner are unable to work for any reason. With the right protection in place, in the event of death or critical illnesses, protecting your home and all of your ongoing costs would be covered. Your family would be able to maintain their standard of living, pay the bills and pay off debts as well as being able to afford to stay in the family home. The cost of protection premiums will vary depending on your particular circumstances.
Your mortgage lender will usually insist on you having a building insurance policy in place. This protects their asset should any major damage occur during the term of your mortgage.
Mortgages are not a one size fits all subject. Everyone’s circumstances differ to some degree. Here at Macbeth, we realise that buying your new home can be an exciting time, and we want to help you through the process. Our advice is truly independent and always geared to finding the best solution for you and your family. Whether you’re looking for a new mortgage or to remortgage, our mortgage specialists will do their best to present you with a full market review and make a recommendation based on your requirements.
If you’d like to have a no obligation chat about your plans, feel free to speak with Brian directly on 0118 923 5097
You could lose your home if you don’t keep up the payments on your mortgage