The choice of mortgage provider and the terms and conditions make what seems a complicated process even harder to follow. There's the jargon to cope with! Many people prefer to appoint an independent financial advisor to use their knowledge of the market and the provider and come up with the best possible package. High street banks and building societies generally offer their mortgage services but many people choose neither of these options and approach lenders direct.
Historically, home owners would stick to their mortgage provider and keep the same mortgage for the full term, usually 25 years. Since the market has changed, it is now far easier for all of us to switch products and lenders. Circumstances change and our financial situation can alter completely due to job change or illness.
We can alter our preferred payment strategy and often pay the entire mortgage off early. You could opt to pay interest only for a while or take out a re mortgage and spend some of the equity on home improvements or a holiday. Below is a brief explanation of the main types of mortgage on offer.
First Time Buyer
It has always been tough for anyone to get their foot on the property ladder for the first time but you can't argue that for the past 6 years at least, it has been harder than ever before. One minute you read that the number of first time buyers entering the market is the lowest number for 40 years and the next report say's they are making a comeback and the numbers are increasing.
The annual mortgage business see's peaks and troughs like any other. Entering the market at the right time when it is perhaps flat and sellers are keen to shift a property that may have been sticking, looking for good deals direct from developers on new builds and keeping an eye on interest rates is very important. The increase of the stamp duty entry level to £120,00 will help some buyers but the emergence of the 35 year old first time buyer looks less then encouraging.
Fixed Rate
This is a relatively straightforward and reliable product and popular with first time buyers or anyone on a budget who prefers the stability of a set monthly repayment. Whatever happens to the base rate, your monthly repayments remain the same for the duration of the mortgage deal. With low interest rates they are a good bet.
Capped Rate
This mortgage is a compromise between fixed-rate and a variable rate one. There is a fixed upper limit to the amount of interest that will be charged on your homeloan. If the base rate falls the interest charged on it remains in line with it and will fall too. Capped rate mortgages combine the most attractive aspects of fixed and variable rate mortgages. The cap will not last the entire lifetime of the mortgage, five years is usually the longest.
Remortgage
Remortgaging is like taking on a new mortgage but without actually buying a new home and physically moving. You can still choose the rate you will pay, the repayment method and type of product. You are in fact taking out a new mortgage to repay the old one. You do not have to move lenders but you will need to pay fees and have your home valued. You may have your fees returned if you choose to use your lenders recommended surveyors and solicitors.
Discount
Lenders offer an initial discount off their standard variable rate. This then reverts to the standard variable rate once the set period of discount has elapsed. In a period of low interest rates, this can have the effect of making a large mortgage look affordable. The length of the mortgage term can vary from one to ten years. Read the small print as these products often come with penalties attached (a fee you pay if you move your mortgage to another lender or type) or tie ins (the period of time you have to remain with that mortgage).
100% Mortgage
Now widely available, you used to have to put at least 10% - 5% down as a deposit, with some lenders lending additional funds to cover the cost of stamp duty or fees. These do not always come with the cheapest of interest rates. The rates could be fixed or variable and the emergence of 110% mortgages makes it even more important to be sure of your liabilities.
Buy to Let
These used to be available through a small core of 8 specialist lenders. Buying a property as a principle residence and then renting it out privately is against the rules of most conventional mortgages. The mortgage works the same way as any other mortgage, you need to pay a deposit which is usually 15% to 20%. The rental income would usually need to be between 100% to 150% of the mortgage repayments. Some lenders will only lend up to ten times the predicted annual rental income.
Adverse Credit
The saviour to many people with CCJ's, this is a bad credit product designed to help people with poor credit to buy a property. This mortgage is now available from high street lenders as well as the specialist providers. The interest rate may not be the most competitive on the market. If you build up a good repayment history with your lender, usually for around three years, you may be able to remortgage to a standard product. |
