The Homebuyers Complete Guide to Mortgages and Remortgages
At The Mortgage Broker Limited, we cater for all types of enquiry. The most frequently occurring enquiry we receive is the residential enquiry for a new house purchase or a re-mortgage. Although this is normally a simple and straightforward process, every purchaser or homeowner in the UK could benefit from the no obligation advice of a professional adviser.
Are you thinking of making a residential purchase?
You could be looking to get on that most important first rung of the housing ladder to buy your first property. Homebuying can be daunting if you’re new to the marketplace. Seeking advice from an experienced and qualified adviser can make the world of difference.
Alternatively, you may wish to move to a new house. Perhaps you require finance from a new lender as you are moving up the housing ladder. You may need new and appropriate funding as your existing lender is reluctant to provide the loan you require.
It could even be that you are moving, and you want to move your current mortgage from one house to another (known as porting), perhaps with additional funds to complete the new deal.
How much money should you have to buy a house?
While it would be lovely to set down the exact amount required in cash, most people aren’t able to do this. A mortgage is likely to be required to meet most of the purchase price. You’ll also need to supply a deposit, typically at least 5% of the property’s value but ideally more. The more you can put down as a deposit, the more mortgages you’ll be able to choose from.
The amount you’ll need to borrow, and the amount required for a deposit will depend on the value of the property you wish to buy. This in turn depends on property prices in the area you are looking at, not to mention the type of property you want to purchase. Apartments may be cheaper than houses (but not always), while any property in a sought-after location is likely to be worth more than one in a less popular area.
In every case, though, affordability should be your first consideration.
What mortgage can I afford?
When you are thinking about buying a home, you need to consider how much you can afford. Various factors come into play here – your income, any bonuses you might receive, your savings, your outgoings, and the price of properties in your area (or the area you wish to buy in, if different).
The best way to find out what you can afford to borrow is to use a mortgage calculator. This is designed to make it easy for you to type in the relevant figures to calculate which amount you might be able to borrow from a lender. However, it does not guarantee you’ll be accepted for a mortgage.
The amount you could afford would be based not just on your income but your current outgoings too. This reveals how much you could reasonably afford to pay for the loan each month. Think about how much you could put down as a deposit as well. If a typical property where you live goes for £250,000 and you could put down a 20% deposit, you would need to borrow far less than you would if you could only stump up a 5% deposit. You would get access to better deals too, not to mention more competitive interest rates.
Look for a mortgage affordability calculator to help you work out what you may be able to borrow. This is based on current income and other factors, especially your current outgoings. This is a good calculator to use in the early stages, as it gives you the chance to crunch some numbers. It might also highlight how you can reduce your outgoings to increase your borrowing potential.
How do I find out about a mortgage?
Start doing some research as soon as you start thinking about the possibility of buying your own home. The more you know, the easier the process will be, as you’ll understand more of the various stages involved in applying for and getting a home loan. There are many good and basic guides online that assume no prior knowledge of loans like these.
Our advisers are standing by to guide you. We have access to a large range of deals offering varied interest rates on different LTV (loan to value) amounts.
What are the different types of mortgages?
The two main types are:
- Repayment mortgages
- Interest only mortgages
The latter are far less common nowadays, although you can still obtain them. The idea is to repay only the interest accrued on the loan during its term. You would then repay the capital at the end of the term. A lender would only offer you an interest only deal if you could prove you have clear plans in place for clearing the lump sum you originally borrowed. They can also periodically ask you at any stage of the loan’s life to confirm your plan for repayment is going as planned.
Most people opt for a repayment mortgage, however. This means each monthly payment clears the interest and some of the capital borrowed. Over time, you pay less interest and more capital, reducing the amount remaining on loan.
In this category, there are many variations on the type of loan you can get:
- Fixed rate – this means you borrow at a fixed rate of interest for a specified period, i.e. two, three, or five years
- Variable rate – the interest rate can go up or down at any time
- Discount – this product offers a discount off the usual standard variable rate offered by that lender (you’ll need to compare deals and discounts from different lenders to get the best one)
- Offset – this requires you to have your mortgage, savings, and current account all with the same provider; instead of receiving interest on credited amounts, this is offset against your loan interest rate
- Tracker – this rate is set a specified amount above the Bank of England base rate, so while it can go up or down, it will only do so via the tracked rate
Consider which type of loan you would prefer. Would you like to have the safety of a fixed rate deal that fixes your repayment amount each month for several years, for example? Variable rates are cheaper, but you lose the certainty of knowing what each repayment amount will be worth.
How do you shop around for a mortgage?
It’s best to start by exploring the various types you can choose from, as we highlighted above. Once you’ve got an idea of which one that you’d like to go with, you can start looking around to see what is available. You’ll need to do your sums to work out how much you could borrow too, as this would give you a rough idea of what to expect.
Think about how much you could put down as a deposit, calculating this as a percentage of the amount needed to buy a property. Once you know what the LTV would be (loan to value, or the percentage of the loan compared to the property price), you’ll know which deals you can look at.
For example, if you know you can provide a 5% deposit, you’ll need to look at 95% LTV rates. If you can provide more, perhaps 15% of the property price, you can look at 85% LTV rates. These should be cheaper as they offer a better deal to those who can put down more money as a deposit.
Viewing deals from various lenders is always the best way to shop around. Our advisers can access deals that are not typically available on the high street or from easy to locate sources. This gives you more options to consider.
What are mortgage interest rates?
These are applied to home loans in return for lending you the money to buy a home. Rates vary hugely according to various considerations. For example, variable rates are usually lower than fixed rates, although you can never be sure when variable rates might rise. Fixed rates give peace of mind and certainty over the period they are valid for (usually two or more years).
If the interest rate goes up, your monthly payment will also go up (unless it is fixed). At the end of a fixed rate term, you would be moved onto the lender’s standard variable rate (SVR) unless you take steps to move onto another product, either with the same lender or by moving your mortgage elsewhere.
What is a mortgage in principle?
This is a term given to a statement made by a bank or building society confirming its willingness to lend you a specific sum to buy a property. It usually lasts for at least 60 days and as many as 90 days before expiring. It is also referred to as an agreement in principle.
Since the lender does conduct certain searches before agreeing to a mortgage in principle, most people go ahead and are accepted for a mortgage once they have obtained the original one in principle. However, there are cases where this may not occur. When making the full application for the loan, the lender will dig deeper, and this may uncover issues that did not arise when considering the agreement in principle. At this stage, the lender can refuse to lend you the cash.
How does porting a mortgage work?
Porting is another term for a portable mortgage. If you port your mortgage, it means you move from one property to another and retain your existing mortgage deal. Oftentimes when moving, homeowners change loans – perhaps to adjust the loan amount or to get a better deal. However, if your existing deal is already a good one and you do not need to increase the loan amount, your lender may agree to port the current loan when you move. All the terms and conditions relating to the loan remain in place, giving you the chance to keep the deal you wanted to start with if that works for you.
The current loan is cleared when your existing home is sold. You then take out a new loan on the same terms to cover your new home. There is a possibility you could increase the value of the loan if need be, but this is not guaranteed. The lender may consider you to have borrowed to your limit already, in which case an increased loan amount wouldn’t be possible.
Even if the lender does agree to loan you the difference between your existing loan and the amount required to buy the new property, the extra cash might be offered at a different rate. You may be subjected to an arrangement fee too, so these are all things to consider. You won’t be able to seek the extra cash from another lender either, since that is not how porting works.
Is porting a mortgage worth it?
Sometimes yes, sometimes no. Some people think about porting their loan if they are tied to a deal and would need to pay a penalty to exit it when moving. If you are on a fixed rate deal, for example, you are likely to be subjected to a penalty if you exit that deal, even if you port your loan as described above. This may make it more expensive, although you’ll likely pay a fee if you exit your loan for a new deal too. Charges and fees vary, so check which ones might be applicable to your current loan.
If you’re close to the end of your current deal, it is more likely to be worthwhile switching. Again, start by checking the terms to see how long the deal has left to run.
Another point to consider is how easy it may (or may not) be to choose this method. Porting still requires certain checks to be made by your lender. If these checks flag some concerns for the lender, they may refuse to let you port over. In this case, you may not be able to move until your circumstances have improved. This might mean improving your credit score, reducing your outgoings, or earning more.
Is it better to get a mortgage from a bank or broker?
If you approach a bank, you’re only going to be presented with their deals. Even if you shop around all the banks, you are likely to miss some lesser-known ones. Conversely, going through a broker can open the way to finding a wider range of deals. Some deals may only be available via this route, for example.
If you decide to go with a broker, you’ll be able to find out in advance of using their services how much it costs to do so. Some brokers take a commission direct from the lender rather than from you. There may also be a fee involved, and if so, this would be payable by you. However, in each case, you’ll be notified of the services you will receive, and the costs involved before you choose to take this route.
One major advantage of going through a broker to seek a home loan is that they have vast experience and knowledge of the mortgage market. Even if you were to use online comparison tools and similar methods to compare many different deals, you likely wouldn’t get the same offers a broker could find you.
How do I find the best mortgage?
The best way to get the best deal for you is to consider as many possible deals as you can. This is difficult if you go it alone, as there will be swathes of the market you may not even know about.
However, if you rely on the services of a broker (such as The Mortgage Broker Limited), you can benefit from a far wider pool of offers. Brokers are likely to be able to access deals that would not otherwise be available to you.
What happens to your mortgage when you move house?
Your existing loan is attached to the property you live in at present. If you intend to move, the sale of your property will clear that loan when the property changes hands. At that stage a new loan would be applied to your new property, and this should be arranged in advance.
Are you considering a residential remortgage?
Your current deal may be ending with your existing lender and your monthly payment could be increasing if your standard variable rate (SVR) is higher than your current rate. Your existing lender may even have offered you an alternative rate to keep your business with them.
If your payments are going to increase – and even if the deal your lender is offering you seems attractive – take the time to get a free, no obligation quote from us to make sure you are getting the most suitable deal. There could be an enormous potential saving to be made compared to your existing deal. The process only requires a few minutes of your time, so it is worth investigating the potential.
You could save between £15 and £120 per month doing this. It may not sound worthwhile to begin with, but when you do the maths over two or three years, you can see why our clients return to us time and time again.
How does it work when you remortgage?
Remortgaging is the process of changing from your existing loan to a new one. This can be done in two ways. Some people find the best deal is available with the same lender, so they would remain with the lender but swap their existing deal to a better one. Conversely, it is possible to remortgage your property by ending your existing deal and changing to another one offered by a different lender.
Can you remortgage a remortgage?
Many people remortgage more than once during the life of their home loan. There can be many reasons for doing this. However, a popular reason is often to save money by switching to a better deal.
Many homeowners like the certainty of knowing how much their monthly payment will be. This is made possible by taking out a fixed rate loan. It applies an agreed interest rate that will remain in place for a set time. This could be for a year or more. For example, if you take out a two-year fixed rate mortgage at 2.99%, you know that interest rate would be in place for two years. You’d know exactly what your monthly payment would be, with no changes during that period.
However, towards the end of the period, most people would look to remortgage. If they don’t do this, the fixed rate would end, and they would be transferred over to the lender’s standard variable rate. This may be higher than their current deal, but regardless of the rate, it leaves the lender able to adjust it up or down at any time. This leads to uncertainty for the homeowner regarding their monthly payments.
It is possible to remortgage during a fixed rate term, but you will likely be required to pay fees for doing so. There could be an early exit fee or early repayment charge, for example. This would be applied because you wanted to exit the deal earlier than the agreed term was running for.
Of course, there are occasions when opting to remortgage again earlier than you intended does make sense. Some deals come with cash bonuses, for example. It is possible that the cash bonus may be more than the charges for exiting your current deal. You might also be stuck on a high fixed rate deal at present and could swap to a much cheaper one. The savings you would make could still leave you with a better deal even accounting for the charges payable to exit the plan.
Using a calculator to work out the actual cost of remortgaging is vital, otherwise you could swap to a deal that would leave you worse off. A broker can also help you work out whether swapping is the best move, and how much you might save by doing so.
Is remortgaging a good idea?
It can be if you are about to complete a fixed rate period and you know the lender will switch you to their SVR. Looking for another competitive fixed rate deal could save you money. It does depend how much time remains on your mortgage though. The closer you are to the end, the less likely it is you’d save much to make it worthwhile.
Some people also consider changing to a new deal to reduce their monthly outgoings. If doing the sums does reveal significant savings to be made, this could make everyday life more affordable. Others remortgage to release equity – a point we are going to look at next.
How do I remortgage to release equity?
This is a popular reason for remortgaging among those who hold equity in their property. Over time, most properties gain in value. The equity is the difference between your loan amount and the value of your property. For instance, if your loan is currently £200,000 and the value of your home is £300,000, you have £100,000 in equity in bricks and mortar. The longer you have your loan and the more you pay off the more equity grows in this way too.
You can look at swapping to a different loan that would give you some of the equity held in your home. The more equity you have, the more options you may have. For example, let’s assume your property is worth £500,000 and you have a mortgage of £200,000 on it. You may wish to take out a £250,000 mortgage that would give you £50,000 to play with and you’d still have equity in your home.
Look at the loan to value (LTV) as the lower this is, the better the deals you can get. Indeed, if your property has grown in value over several years and you’ve managed to overpay a chunk of your loan, you could still end up with a reasonable monthly repayment even while increasing the size of your loan. Talking through the options with a mortgage broker would be a good idea, so you can see what the possibilities are.
How much can I borrow with a remortgage?
This depends on what you can afford to pay, the size of your existing loan, and the value of your home. The loan to value (LTV) ratio is important too, because a lower percentage gives you access to far more competitive deals. Some people remortgage to free up equity, as we have seen. A lot depends on whether you have equity in your home and if so, how much.
In every case, affordability comes into the equation. You can use an online calculator to work out what you might be able to borrow. Remember that whichever lender you go to, they will want to check you can reasonably afford to pay back the amount you want to borrow. You’ll need to go through the same checks you did when you originally took out your loan.
How much does remortgaging cost?
It depends on the situation. If you are locked into a fixed rate deal, you’ll likely need to pay a fee to exit that deal. Bear this in mind, because that fee could wipe out any savings you might make from remortgaging.
There are also fees involved in taking out your new deal. You should be told about all these fees ahead of agreeing to anything, so you’ll know where you stand. Arrangement fees are likely the largest fees of all, applied by the bank or building society agreeing to your new deal. Weigh up these fees against the interest rate you’re looking at too. It is not uncommon to find a low rate balanced out by a high fee.
Conveyancing fees, valuation fees, and a fee to your broker (if using one) could also be applied. Make sure you know about and confirm all applicable fees before swapping from one deal to another.
Ready to make an enquiry? You can rely on our trusted first-class services
We provide top quality services for both residential purchases and remortgages. With most UK lenders competing for your business, you can be sure we will source the right deal for you from thousands of schemes offered by lenders, banks, and building societies.
All our professional advisers are equipped with the latest technology, allowing instant access to the latest deals and offers from a huge variety of providers. Remember, our quotes and illustrations are free, so you have nothing to lose in contacting us to find out what we can offer. Potentially, you have a lot to gain.