One of the most important things you’ll do when buying a house is sort out your mortgage.
Unless you’re a very lucky person indeed, you won’t be going anywhere without one. Most of us mere mortals need to borrow to purchase our dream dwelling and virtually every UK house buyer relies on getting a mortgage to buy property.
It’s a huge market, with billions of pounds lent in the UK every year to help people move or buy their first home. In fact, 2016 was one of the biggest years for mortgage borrowing with lenders reporting strong growth encouraged by government schemes, some of the lowest ever interest rates and attractive deals.
Depending on your circumstances, arranging a mortgage in principle – a figure that ‘in principle’ a lender would offer you as a mortgage after carrying some checks – is relatively straightforward and if you can prove your income and have a good credit record, it should be plain sailing all the way.
Apply some forward planning
It makes sense to choose your mortgage and begin the application process before you start your house search in earnest. Nothing will destroy that buying buzz faster than putting all your energy into finding the perfect property; only to discover that there’s a problem with your mortgage and you can’t buy it.
Knowledge is (buying) power
In fact, the most common shock is suddenly realising that you won’t be able to borrow as much as you thought. Mortgage lenders are now basing their decisions on ever-stricter sets of criteria to avoid over borrowing and the days of being able to an unsecured five times salary mortgages appear to be long gone.
And it’s not just what you earn, but how you earn it. If you don’t receive a regular salary because you are self-employed or you’ve just started your own company, those careful lenders will also be far less likely to part with their cash.
Get the mortgage, seize the advantage
Having a mortgage in place and ready to go also gives you a distinct advantage when it comes to putting in your offer. Most sellers and estate agents prioritise those with proven finance in place and being able to move quickly if your offer is accepted could mean the difference between getting the keys or getting the cold shoulder. When you have a mortgage arranged – even if it’s in principle – you’re already ahead of the pack in terms of buying power.
So make sure that your mortgage search starts before your property search and embark on your house hunt packing bigger guns than your rivals.
Choosing the right one
The variety of mortgage products on the market is wide and varied. The choice can be confusing and it’s important to consider all aspects of a particular mortgage before going ahead. Incentives like free legal fees or cashbook can look great up front, but be back loaded with a more costly interest rate through the mortgage term.
This can work both ways. A head-turning interest rate could also mask punitive fees that add expense to taking out the mortgage, changing it within a certain period or early repayment.
Keeping it flexible
Remember to give yourself some room for manoeuvre later down the line. Flexibility is an important consideration and you may want a mortgage that allows you to overpay, underpay or take payment holidays.
As with any financial product, it’s a case of buyer beware. Try and calculate the cost of your favourite mortgage over its lifetime to get a true idea of whether it’s the best one for you.
The minimum deposit amount is generally a minimum of 5% of a property’s value.
No problem if you’re selling a house and will use the money you make from sale to finance your next purchase.
But for first time buyers, this can make getting on the property ladder even more of a struggle, particularly when the 2016 average deposit was over £30,000. According to the findings by Halifax, figures suggest that those new to the property market need a deposit of around £33,000 on average – a rise of 88 per cent, from just under £18,000 in 2007 to £32,927 today.
The ABC of LTV
Loan-to-value, or LTV, is a bit of financial jargon that lenders use and three letters you’ll see cropping up a lot when you’re looking for a mortgage. It simply means how much the mortgage is in relation to the value of the property. If you’re fortunate enough to be able to put a £100,000 deposit down when buying a £200,000 property, you’ll require a mortgage of £100,000 which is 50% of the property’s value – a LTV of 50%. You’ll find that each mortgage product has an upper LTV limit with the ones with the most attractive terms often having lower LTV limits.
Talking to a mortgage broker can save you time, money and hassle now and in the future. As well as offering expert advice based on your circumstances, they can also access exclusive deals from some of the UK’s biggest lenders to put you in touch with a mortgage you won’t find on the high street. At Smoove Move, we’ve already done the searching to find the best registered advisers in your area.
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