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| Mortgage Guides |
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- A typical variable rate of interest is currently 7.2% per year. The overall cost for comparison is 7.4% APR.
- The actual rate available will depend upon your circumstances. Please ask for a personalised illustration.
- An arrangement fee of 1.9% of the advance (up to a maximum of £3,500) will be charged.
- Think carefully before securing other debts against your home.
- Your home may be repossessed if you do not keep up repayments on your mortgage.
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Step-by-step guide to buying your new home
Please note that the home buying process explained in this guide applies to England and Wales only.
Selling Your home Selecting the right mortgage |
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How much can I afford?
Typically lenders allow a single person to borrow 3 to 5 times their annual income and a couple 3 to 5 times their joint income. The actual amount that you can borrow also depends on other debts and outgoings that you already have. UK Financial can help you to assess what you can afford.
Income usually needs to be evidenced by regular payslips for employed borrowers or three years' full accounts for self-employed borrowers.
UK Financial specialises in arranging loans and mortgages for applicants who cannot meet most high-street lenders' criteria, by dealing with lenders who are able to use a wider range of evidence of income to ascertain that the mortgage is affordable for the customer.
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Costs
Buying your new home can be expensive. It involves the legal cost and the land registry cost apart from the cost of the property.
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Making an offer
When you've found the property you want, you make an offer, passing on your offer through the estate agent unless the seller is selling direct.
Be sure to clarify what's included in the sale price e.g carpets and curtains.
Your solicitor can confirm your offer in writing, making it "subject to survey and contract" - this means you are not obliged to go ahead until you have had a survey done and signed and exchanged contracts.
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Choosing a solicitor
You'll need to appoint a solicitor or licensed conveyancer to carry out the legal work. The estate agent will ask for their details when your offer is accepted.
You can appoint your own solicitor or licensed conveyancer, but we need to make sure the firm has two or more partners, it's a good idea to shop around as charges differ and you should always ask what the solicitor fees include as some may charge extra if additional work needs to be carried out.
You can also opt to use our lenders' panel of approved solicitors. We have excellent arrangements with these firms and because of this we are able to speak to them whenever we wish. This can greatly speed the process from start to finish of a property purchase.
A solicitor has to act for the lender too, and you will have to meet this cost. It is usually possible to arrange for one firm of solicitors to act for both you and the lender, so you only get one bill in the end.
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Surveys and Valuations
There are essentially 3 types of service available for mortgage applicants and the cost of these depends upon the type of survey you have and the value of your house. A basic valuation, which most lenders will insist on, costs around £150.00 for a £50,000 property.
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Basic valuation (Option 1)
The basic valuation is carried out on behalf of the lending institution to assess the adequacy of the security and the value of the property for mortgage purposes. The valuer may be a professional outside (panel) valuer or an employee of the lending institution. The task is carried out on behalf of the lender, not the applicant, although the applicant pays the fee if charged.
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Home buyer's report (Option 2)
This is a 'half-way house' between the basic valuation and a full structural survey. It is easy to condemn someone for not commissioning a full survey, but the price is prohibitive to many, especially when one accepts that moving house is exceedingly expensive. The home buyer's report is carried out on behalf of the house purchaser, but to spare the borrower from having to pay for a basic valuation as well, if agreed in advance, lenders will generally accept the home buyer's report as a moderately priced option, well within the budget of most prospective mortgagors.
The report identifies any problems that are visible. In essence, the valuer will walk around the property to identify any problems that are visible, but will not lift carpets, shift furniture about and the like so as to discover what problems may be hidden by them.
Again, the report is limited in focus, and there is little comeback in the event that problems are encountered later. The applicant does, however, have a chance that obvious defects will be identified, giving them an opportunity to turn down the property, make an amended offer or plan expenditure necessary to redress the problems.
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Full structural survey (Option 3)
A full structural survey is a detailed inspection of the property carried out by a qualified professional surveyor, engineer or architect. It is expensive but nevertheless worthwhile for many mortgage applicants. If the property is defective, this will generally be discovered by a full survey. If it is not discovered, the borrower may have some comeback against the surveyor (depending on the terms on which they have been engaged).
Such a survey will be more detailed than the home buyer's report, generally comprising an inspection of the state of the electrical system, drains, damp-proofing and damp-coursing. It should identify any major, and indeed more minor, problems.
In some instances, the lender will not accept a full structural survey that has been commissioned of the applicants' own volition and will still insist on a valuation report for its own use. This may happen, for example, if the surveyor is not known to the lender or if it would necessitate considerable time or expense to validate the surveyors credentials. To avoid unnecessary expense, it is therefore essential to discuss your choice of surveyor with the lender before you go ahead.
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The legal process
What the solicitor does on your behalf
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Local authority searches
Your solicitor will look for anything which might affect the value of the property in the future, e.g. plans for new roads or planning permission for new buildings.
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Questions to the seller
The seller will be asked a list of questions about the property e.g. whether any alterations have been made, who is responsible for the boundaries and details of what is included in the price.
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Exchanging contracts
When the terms of the contract have been agreed, and your solicitor is satisfied all questions have been answered, contracts can be exchanged. When you exchange, you are committed to going ahead. You then pay your deposit through your solicitor.
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Setting dates
The contract will agree a date for completion, which is the day the property becomes yours and you have to pay the balance. If you are selling as well as buying, your solicitor will usually arrange for completion of your sale and purchase to happen on the same day.
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Insurance
You will need to have buildings insurance cover from the time contracts are exchanged.
When arranging a mortgage you can seek advice at the same time about suitable insurance for your home and mortgage. The sale of Non investment Insurance is regulated by the Financial Services Authority.
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Land registry
Your solicitor will have requested the title deeds for the property you are buying early on in the process. After contracts are signed, the solicitor will make a final check that no new rights have been created over the property.
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The transfer deeds
This is the document which records that you are the new legal owner at the Land Registry. Your solicitor will prepare it and send it to the seller's solicitor before completion.
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Completion
On the day of completion the title deeds and keys to the property are exchanged for the purchase money.
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Land tax
Your solicitor will arrange for the signed transfer deed to be stamped. It's then sent to the Land Registry to record you as owner and register the lender's interest as mortgagee.
Land tax is payable on the full purchase price of homes costing £120,000 or more. In general terms the amount payable is worked out like this, based on rates as at 17 March 2005 and the value of your home:
- for properties valued between £120,001 and £250,000 - 1%
- for properties valued £250,001 and £500,000 - 3%
- for properties valued over £500,001 - 4%
Please note however that rates are subject to change.
The amounts and rates that apply to sales of homes in areas nominated as 'disadvantaged areas' and of leasehold property are different from those shown above. Your solicitor will be able to advise you of the rate applicable to the home you are buying.
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Selling your home
Valuing and selling your existing home
Although you can do it yourself, most people choose to use an estate agent to sell their property.
If you have never sold a property before it may be better to see how the process works through an estate agent before trying it yourself.
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The role of the estate agent
An estate agent's job is to put the right price on your property, and then find the right buyer. If an agent puts too low a value on your property it will sell quickly but you could lose out on money. Too high a valuation means that your property may not sell at all, or may not sell in time for you to buy a new home. It's important the agent can find enough potential buyers to view your property. Even at the right price, if no-one sees it you'll not be able to sell it.
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Choosing an agent
Before appointing an agent we would recommend that you check they are members of a professional organisation such as the National Association of Estate Agents or Incorporated Society of Valuers and Auctioneers, and that they follow the estate agents "code of practice". Look for well-established agents in your area. The number of "sold" boards with the estate agents name on will also give a clue as to how successful they are.
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Other points to consider
- How much publicity will they give your property?
- Will your property be featured in their window?
- Are their premises located in an area where there is plenty of pedestrian traffic?
- Do they advertise in local papers?
- Are they part of a chain or independent?
- Fees can vary, so make sure you agree the price before making your choice. Fees are normally a percentage of the sales price.
- Are they on the Internet?
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Valuing your property
Get a valuation from more than one agent, and compare the valuations they give with other similar properties in your area that are for sale. If you're not in a hurry to sell, you can start out with a higher price, see how things go you can always lower it if you do not receive an offer.
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Selecting the right mortgage
There are thousands of mortgages to choose from, and the market can get very confusing. There are magazines which are available that can help you to research which mortgage may be suitable. There are also many websites, like this one, that provide information on mortgages and for personalised advise, speak to a qualified mortgage adviser.
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Finding the right mortgage
Finding the right mortgage requires experience. There are a number of different mortgage repayment options. Our rough guide to mortgage repayment methods gives a brief outline of the more popular repayment methods our customers select, as well as the advantages and disadvantages that some customers have identified.
- Repayment
- Interest Only
- Combination
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Repayment mortgage
How it works:
You borrow a lump sum to be paid back over an agreed term, often 25 years, and gradually pay back the capital over the whole term of the loan. The monthly payments that the borrower makes are divided into part interest and part capital so that if payments have been kept up, at the end of the loan term the whole amount borrowed will have been repaid.
Because the monthly payments are for both capital and interest, it is important when comparing the monthly cost of a repayment mortgage with those of an interest only mortgage, to add the money that you would need to put aside as savings, to the monthly interest payments for the interest only loan.
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Advantages
There can be some flexibility with repayments on some repayment mortgages.
A repayment mortgage is suitable for borrowers who prefer to be 100% certain that the loan will be repaid at the end of the loan term as long as they keep up the monthly payments.
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Disadvantages
The monthly payments are higher than for an interest only loan because the capital as well as the interest is being paid
Not much capital is being repaid in the early years, which makes a repayment mortgage appear expensive on early repayment, particularly in the first few years. It may be tempting to extend the period of your mortgage commitments by repeatedly remortgaging for 25 year terms.
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Interest only mortgage
How it works:
You borrow a lump sum to be paid back at the end of an agreed term, often 25 years. The monthly payments that the borrower makes only cover the interest on the loan so the outstanding amount stays the same. At the end of the loan term, the whole amount borrowed must be paid back in one lump sum.
Most borrowers set up some type of savings or investment account to build up the necessary funds to pay off the mortgage at the end of the term, for example, an ISA or Endowment policy or even a pension plan.
It is important to remember that it is the borrower's responsibility to make sure that they have enough money to pay back to loan in full at the end of the term, even if their savings have not given as high returns or as much interest as they had thought when they first took out the loan. Because the monthly payments are for interest only, it is important when comparing the total monthly cost of an interest only mortgage with those of a repayment mortgage, to include the money put aside as savings.
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Endowment Mortgage
Interest only mortgages are often referred to by the name of the savings plan used alongside the mortgage, the most common being 'endowment mortgage'.
Advantages
- There is a wide choice of savings and investment vehicles to chose from to build up the capital to repay the loan at the end of the term, some of which have tax advantages
- If you move or remortgage, the savings vehicle can usually be reallocated to the new mortgage.
- Some savings vehicles, e.g. endowment policies, include life and/or critical illness cover and this may be a cheaper method of buying such cover than by separate policies
- If the savings perform better than anticipated, you can yield more than required to repay the loan.
Disadvantages
- The amount of debt does not reduce over time, which may limit the scope for further borrowing in the future
- There is no guarantee that the chosen investment vehicle will grow sufficiently to repay your loan
- Not suitable for borrowers who wish to avoid as much risk as possible because some or all of the savings are usually invested in stocks and shares.
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Combination Mortgage
A combination mortgage is one where some of the capital is borrowed as a repayment mortgage and some as an interest only mortgage.
At the end of the loan term, if all payments have been kept up to date, the repayment part will have been repaid in full and the interest only part must be repaid by a lump sum payment.
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Advantages and disadvantages
The advantages and disadvantages for each part is as for repayment mortgages and interest only mortgages but the impact is reduced by choosing a combination mortgage.
A combination remortgage can be used to make up the shortfall where the savings vehicle intended to repay an interest only loan is unlikely to achieve the necessary growth to repay the whole amount borrowed. The shortfall can be converted to a repayment mortgage. The monthly payments will increase but it will reduce the risk of not being able to repay the loan at the end of the term. |
