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  • FIRST POST
    • AndrewSmith
    • By AndrewSmith 8th Jun 06, 7:58 PM
    • 2,830Posts
    • 2,238Thanks
    AndrewSmith
    First Time Buyer's Guide To Mortgages
    • #1
    • 8th Jun 06, 7:58 PM
    First Time Buyer's Guide To Mortgages 8th Jun 06 at 7:58 PM
    Official MSE Insert:

    If you've arrived from Google, our First Time Buyer's Mortgage guide may also be useful.

    Back to the original post...



    Please everyone remember that this is not a definative guide to mortgages, simply my own interpretation and opinion. Therefore don't start having a go or trying to prove me wrong by saying there are things I have missed etc. Mortgages is such a massive topic that it is impossible to cover everything in a post such as this. Also much of the actual advice on mortgages and the definition of suitability is dependant almost entirely on personal individual circumstances.

    OK Rant over

    Different Types Of Mortgage

    There are many different types of mortgage, I will list the basic ones here and a brief description:

    Capital & Interest: More commonly known as a 'repayment' mortgage. You make a payment to the mortgage company each month which consists of Capital and Interest (hence the name). As long as you pay what you are asked, on time, for the term of the mortgage you have an absolute guarantee that you will owe nothing at the end. It does assume however that you will remain with that mortgage for the entire term. In reality most people will change mortgages / lenders / move home etc at which point the balance and repayments will be re-calculated to reflect the payments to date.

    Interest Only: As the name suggests, you only make a payment consisting of Interest Only to the mortgage company. It is then your responsibility to ensure that, at the end of the mortgage term, you have the means of repaying the mortgage balance which will NOT decrease throughout the term (unless you make capital overpayments). In the past this would have been via an endowment policy or similar. The monthly payments will be less that the identical repayment mortgage but remember that you are merely 'renting' the money. Most buy to let mortgages are on an interest only basis.

    100% mortgages: Quite simply it means that you are borrowing 100% of the purchase price or valuation whichever is lower. It means that you have to put no deposit down, however you will generally pay a higher interest rate for the pleasure.

    125% mortgage: This is similar to the above however it works in as much as you will have a total loan amount of 125% of the purchase price divided between a Mortgage and an unsecured loan, with the same lender. Beware of anything offering you over the purchase price. In the case of a 125% mortgage your property must increase in value quite healthily before you can sell with enough to clear the existing mortgage and loan, and have some profit for a subsequent deposit. Personally I very rarely recommend these to clients, and on the occaisins that I do it is in conjunction with in depth discussion and warnings about borrowing more than the property is worth.

    Negative Equity: Not a type of mortgage but I think ties in with the last 2. Simply means that you owe more than the property is worth.

    Base Rate: The rate set by the Bank Of England from which mortgage rates are calculated. Think of it as a wholesale rate, you cannot go to the Bank Of England for this money. Tracker mortgages are based on this. They will mirror or 'track' the movements of this rate with a percentage difference.

    Standard Variable Rate: Each lender has it's own variable rate. It is a no bells or whistles, no tie in, basic mortgage which is variable and can be whatever rate the lender chooses to set. Discount mortgages are based on the individual lenders standard variable rate, where they offer you a 'discount' off their normal rate.

    Fixed Rate: Your rate will be set at the outset to a level stated by the lender for a set period of time (2,3,5 years eg). The rate you pay will not change in this period, then at the end it will revert back to the lenders Standard Variable Rate.

    Self Certify Mortgages: This is a type of mortgage suited to people who are unable to prove their income. It does not change or increase the amount you earn, merely allows you to declare without evidence. Useful for recently self employed people with no accounts, or an employed salesman paid mainly on variable commission. The penaties for falsely stating your income are severe and may even land you in prison for up to 10 years.

    Remember. Capital & Interest or Interest only are the types of Mortgage, to which all the above variations such as Fixed, Tracker, Discount etc can be applied.


    Setting Up A Mortgage

    Finding a Broker: This can be done in may ways. I usually suggest that it be someone who is know to you or has advised you satisfactorally in the past. You could ask friends and family for a recommendation or look in your local pages. Brokers will either deal face to face or via phone/email/post, or a combination of the two. Either is fine as long as you are fully comfortable with what you are putting your name to.

    Usual upfront costs: Depends really on the type of mortgage and which lender you are going through. An average though would be:

    Valuation (basic survey) 300-600
    Booking/Arrangement fee (Charged by the lender and can be added to the loan) 300+ (some lenders charge as much as 1.5% of the loan)
    Deposit (obviously) if you are using one.
    Solicitors fees including all associated costs 1000-1500 (based on a purchase of 120,000-200,000)
    High loan to value fee. If you borrow over 75% of the value, a sinlge premium indemnity policy is required by the lender to protect them against financial loss should they need to reposess. Up to 90% most lenders pay this for you. Over 95% the vast majority will charge it and add it to your mortgage. Varies dramatically from lender to lender but an average on a mortgage of 150,000 would be about 2600.
    If possible I also recommend that you ahve an emergency fund of about 1000-3000 to cover misc costs.

    What will they lend you: Again this varies from lender to lender, and the individual case (credit history, deposit size, employment history etc) however the average is 3.5-4x single income or 2.75-3x joint income. When calculating the borrowing amount you must first deduct the annual costs of any loans outstanding from your salary before applying the multiples. Ask me if you want examples. Some lenders will work on affordability, where by the look more at your net income monthly and calculate an affordable amount based on that.

    Credit Score: This goes hand in hand with credit history, Credit history is how you have conducted your financial affairs over the last 6 years. Credit score is a combination of this along with detailed information regarding payment histories and certain points given for your individual circumstances. You can obtain your credit file at any time from one of the credit reference agencies such as Experian or Equifax.

    Information you need to supply:It never hurts to carry out a simple credit search on yourself however just make sure that you dont do it too often.

    Prior to my initial meeting with any client I always ask them to provide the following:

    Driving License
    Passport
    3 year address history
    3 year work history
    3x payslips (latest)
    Latest p60
    last 3 bank statements
    Current mortgage details / original offer
    details of any outstanding loans/credit
    details of any credit problems in the past 6 years

    How long does it take to get the mortgage: Depends again on the lender and the type of mortgage you are getting. As long as the lender/broker has all the info they need you should expect the mortgage offer within 2-4 weeks.

    Buying A House

    Pretty much all the info you ask for here is in my other post Housebuying Moneysaving Tips

    If not then simply ask me for more info

    Hows this to be going on with?

    Apologies for the length of the post

    Anything else you need, just ask me.

    Will cover the insurances a bit later.

    Cheers (now with RSI)

    Andy
    Last edited by Former MSE Zorica; 05-02-2014 at 5:17 PM.
Page 24
    • nathan.derringer
    • By nathan.derringer 11th Jun 18, 2:48 PM
    • 2 Posts
    • 0 Thanks
    nathan.derringer
    Best Mortgage advisor?
    Hi there,

    Firstly, thanks for your thread, as a first time buyer i learnt alot from reading though it all.
    I was wondering if there are any recommendations for mortgage advisors? Im in a bit of an odd position, in that im trying to buy a property from my parent so none of the standard formats i can find online seem to work for me! Any advice would be greatly appreciated.
    Thanks,

    Nathan
    • kingstreet
    • By kingstreet 11th Jun 18, 5:44 PM
    • 34,228 Posts
    • 18,578 Thanks
    kingstreet
    Hi there,

    Firstly, thanks for your thread, as a first time buyer i learnt alot from reading though it all.
    I was wondering if there are any recommendations for mortgage advisors? Im in a bit of an odd position, in that im trying to buy a property from my parent so none of the standard formats i can find online seem to work for me! Any advice would be greatly appreciated.
    Thanks,

    Nathan
    Originally posted by nathan.derringer
    Pretty much any decent broker can advise on a concessionary purchase and knows the SDLT is based on the "consideration" ie the amount actually paid and not the true value on which the transaction is based.

    Just stay away from national chain estate agents.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
    • VivianBlair
    • By VivianBlair 20th Aug 18, 12:47 PM
    • 1 Posts
    • 0 Thanks
    VivianBlair
    Stamp duty for first time buyer (catch 22)
    Hi,

    I inherited a house 2 years ago (deeds are in my name now) however I wish to sell it and move to a bigger house. Although I Inherited the house I have never brought a house do I still have to pay stamp duty if I move?

    Also what if I sold my house and moved in with my parents for a little while, then buy a house say 3 / 6 months later would I still have to pay stamp duty? even though It would be my first time buying a house?

    Any advice and tips would be gratefully received.

    many thanks Viv
    • kingstreet
    • By kingstreet 20th Aug 18, 2:24 PM
    • 34,228 Posts
    • 18,578 Thanks
    kingstreet
    It's the "owning" rather than the "buying" that's the issue here.

    Once you've owned a property, that's it. You can't be a FTB.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
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