In the beginning of the mortgage process, you’ll very quickly realise that there are lots of different options available to you as a customer. Below we have put together a list of the most popular types of mortgages available on the market, hopefully answering any questions that you may have. If you would like to speak further with a mortgage advisor in Middlesbrough regarding any of these, please do not hesitate to Get in Touch.
A fixed-rate mortgage is a simple form of mortgage wherein your monthly payments are going to stay the same for a set period of time. You are able to set the length of which you want to fix your payments for yourself, with standard choices being 2, 3 or 5 years or sometimes longer. Even if there happen to be any major changes to inflation, interest rates or the economy, you know that your mortgage payment, usually your biggest outgoing, will stay consistent.
A tracker mortgage will follow the Bank of England’s base rate. What this means is that the lender that you are with does not actually set the interest rate themselves, thus making it potentially unpredictable due to the potential for it to change. You will likely be paying a percentage above the Bank of England base rate. An example of this would be if the base rate is 1% and you are tracking at 1% above base rate, that means that you will be paying a rate of 2%.
By taking out a repayment mortgage, this means that each month you will be paying back a total combination of capital and interest. Providing that you keep your payments going for the full length of the mortgage term, the mortgage balance is almost certainly going to be paid off at the end and the property will become yours.
This is widely considered to be the most risk-free way to pay your capital back to the lender, especially as in the early years it is mainly the interest that you are paying and your balance will reduce at a slightly slower pace, especially if you have taken out a term over 25, 30 or 35 years. Your circumstances will change within the last ten years or so of your mortgage, as your payments will be paying off more capital than interest and the balance will come down at a quicker pace.
Whilst many Buy to Let mortgages in Middlesbrough are set up on an interest-only basis, taking out a regular residential mortgage in the form of interest-only is a lot more difficult and not seen as often.
It is a lot less likely for lenders to offer an interest-only product to applicants these days. That being said, there are very particular circumstances where this can be an option. These options can include downsizing later in life or to use the capital to pay off other investments. Lenders are very strict when it comes to offering these products now and the loan to values are a lot lower than they used to be.
With an offset mortgage, the lender will set you up a savings account to run in tandem with your mortgage account. This is quite in an interesting one in how it works. Let’s say you have a mortgage balance of £100,000 and £20,000 is transfered into your savings account; you would only be paying interest on the difference between the two amounts, so in this case it would be £80,000. This can be a very efficient and financially savvy way of managing your money, especially if you are a taxpayer with higher rates.
The happy days of 100% and even 125% mortgages seem a long time ago. Now the credit crunch is behind us, and lenders tend to be more confident again to offer 95% mortgages.
It’s reasonable that you should show you can save each month. It also gives lenders comfort that you have something to invest in the process showing you have something to lose should it start to become more challenging to keep up your mortgage repayments.
We know it’s challenging to save up a deposit for many people, and this is their primary barrier to entry into the property market. It is daunting if you have a family or are in rented accommodation.
The higher the deposit the lower interest rate you will receive and this usually is more cost-effective and helps you in the long-term. The reasons for this is that you appear more reliable to them.
Bands differ in price depending on various factors such as your deposit.
The percentage of your mortgage provides lenders with an idea of how invested you are to your mortgage, although considering – the higher the interest rate, the more expensive. This means that the higher your deposit, the more secure you will be when it comes to purchasing your dream home meaning you will be happier in the long term.
In a limited number of circumstances, it can be successfully achieved.
The Lender will make the monthly payment as an additional credit commitment, therefore, grant you a smaller mortgage.
As a result, one will qualify if you hadn’t borrowed the deposit. Most lenders oppose this as you are essentially borrowing 100% of the purchase price.
Yes, most accept gifted deposits from family members and friends can be acceptable too. The sender of the gift will need to confirm it’s a gift, rather than a loan, and need to produce ID and proof of funds for anti-money laundering purposes.
Others have turned to the Bank of Mum and Dad, gifting their children funds towards a deposit.
For Anti-Money Laundering purposes, providing bank statements help to evidence funds. Lenders like to see how the money is being built up as this provides more of genuine insight.
If you have deposited a large amount into your account, you may need evidence to support this.
For example, if you have sold a car, then you’ll need a receipt and the amount you have sold the asset for would match the amount paid into your bank account. This will highlight reliable sources backing up your finances.
If you are selling a property, then the Memorandum of Sale provided by the Estate Agent is your proof.
It’s still 5% as a minimum if you qualify for the Government’s Help to Buy Scheme in Middlesbrough. It can be topped up to 25% via the equity loan so you will obtain a lower rate mortgage.
Choosing to opt-out from the scheme results in the 20% deposit gift provided by the Government changing meaning you will have to pay it back as a loan.
Usually. If it is a genuine discounted purchase, i.e. the house is worth £100,000, and you have been offered it, for example £90,000, then some Lenders will accept this as your guaranteed deposit.
This works well if you have the Right to Buy from the Local Authority or other Social Landlord.
Off the back of Help to Buy Scheme in Middlesbrough, many builders started selling houses on a leasehold basis when traditionally homes had always been freehold. Over time this became a debatable topic at which the Government felt the need to step in.
Some of the country’s housebuilders got pointed the finger of putting profits before their social conscience while they are aware that they need to build homes for families they also have shareholders to answer.
The media had made it publicly known that there was a situation with land banking.
Land banking is a real estate investment scheme that involves buying large blocks of undeveloped land with a view to selling the land at a profit when it has been approved for development
Thanks to consolidation, some builders have inherited land into their organisations which is on a leasehold basis.
It’s a debatable topic that they offer both leasehold and freehold properties for sale so that buyers can make an informed choice.
Many people had felt that the market had swayed much too far towards leasehold when it came to light how much profit the Builders had been making off the back of the leases.
Things came to a head when the Chief Executive of one of the UK’s most prominent Builders received a bonus of over £100m. At the time, this was one of the most substantial bonuses paid in corporate history.
Some Leasehold Homeowners were shocked when they were being quoted thousands of pounds in fees when they sought permission to make alterations to their homes. The fees were being charged by their Leasehold Management Companies.
Some of the annual ground rents were to double every ten years and owners could see that selling their home in the future once these increases have kicked in would be more difficult.
After notifying their MP’s and getting the subject debated in Parliament, the Government agreed that if you were buying a house (not a flat or apartment), then it is reasonable that you should own the freehold.
If you are in the situation of owning one of these houses and you didn’t realise if it was leasehold, then you should have been made aware. If you feel that the Solicitor acting for you did not give you the full facts about the lease you signed, you should re-contact them immediately to investigate why.
You can contact the freeholder at any time if you are interested in buying the freehold from them.
In addition to leaseholds, there is the issue of service charges.
When Councils grant permission for Housebuilders to build on the land, they don’t always agree to adopt the common areas (such as grass verges) and roads.
That means that the upkeep of these areas needs to be outsourced, usually to a private company. The owners in the area then make a financial contribution to this maintenance work on top of their council tax. By the way, this can happen whether the house is leasehold or freehold.
The costs of the service charges can go up, which infuriates homeowners who are affected. Sometimes the residents in the area get together to form an association which might allow them to choose a different service provider.
If you are considering buying a leasehold property, take advice from your Solicitor regarding the lease. It’s straightforward to get carried away with the excitement of purchasing a home, but you also need to realise it’s a significant investment decision that you need to think about carefully.
If you’re a First Time Buyer in Middlesbrough and looking to benefit from one of the many government schemes available today then we can certainly help find the best scheme for you, use a friendly Mortgage Broker in Middlesbrough like us.
One of the most popular schemes, Help to Buy, is the flagship project and certainly, it’s helped a huge number of individuals, young couples and even families get their foot on the first rung of the housing ladder.
In fact, the number of First-Time Buyers in the UK has been growing every year since 2015. They haven’t all used the Help to Buy scheme, but many of them have. Find out if you’re eligible too by getting in touch today and speak to one of our Mortgage Advisors in Middlesbrough for more information.
The most popular of all the government’s schemes, Help to Buy isn’t one scheme, there are quite a few available with the main one being the ‘Help to Buy Equity Loan’.
With this scheme, the government gives you 20 per cent of the cost of your property in the form of an interest-free loan for up to five years. The good news is you have all that time to save up to pay it back. The bad news is you have to be really disciplined in saving – otherwise, you’re going to be paying the interest on top of your existing mortgage payment. The scheme only covers new build properties and the mortgage (which can’t be used for a buy to let) must be for less than £600,000.
For example, if the home sold for £210,000, you’d get £168,000 (80%, from your mortgage and the cash deposit) and you’d pay back £42,000 on the loan (20%). You’d need to pay off your mortgage with your share of the money.