/ Mortgages

17 Actionable points on how to get a mortgage

You might already know that getting a mortgage is hard work but what can you do to make it much easier?

Here are 17+ actionable points worth a consideration before you Google "How to get a mortgage"

What is a mortgage?

A mortgage is a loan you have take out to purchase a property. Most commonly for you to buy a house, but they are also used for commercial properties if you are running a business.Mortgage can either be capital repayment: this is when your monthly repayments include both the capital and interest or Interest only: this is when your monthly repayments are only the interest element of the mortgage and the capital remains the same for the term of the loan. You will then have to pay off the capital borrowed in one lump sum at the end of the term.

Types of mortgages

There are two main types of mortgages that are primarily used. The fixed rate: whereby the interest rate stays fixed and your monthly repayments do not move up or down and the variable rate: where the interest rate may move up and down and your monthly repayments may move up or down. The type of mortgage you take out can affect how much you are able to borrow as they will have different affordability assessments.

The Mortgage process;

So you have saved up your Mortgage deposit and now you are ready to get your mortgage and move into your new home.

So here is how the Mortgage process works, how long it takes and who’s involved

Agreement or Mortgage in principle(valid for 30-90 days): Your mortgage broker will make a product recommendation and attain an agreement(Mortgage)in principle from a Lender. (Mortgage broker(Huuti)15 minutes)

Assign a Conveyancer( solicitor): Conveyancing is the legal process that transfers a property from one person to another. Licensed conveyancers are specialist property lawyers, who do all the legal paperwork, Land Registry and local council searches, draft the contract and handle the exchange of money.This can cost up to £2,000.The lender will also carry out checks on the property to ensure it meets their criteria. (Mortgage broker(Huuti) & Conveyancer 5 days)

Get a Mortgage offer: Your agreement in Principle gets converted into a Mortgage offer(if we don't find you a better deal since the time you got your AIP).This is a good time to carry out your property survey and obtain buildings insurance quotes and cover. (We will assist you with all of these too! 3-5days)

Exchange contracts: As you now have a Mortgage offer from the Lender your solicitor can then begin the exchange of contracts phase. After this stage you cannot pull out of the deal if not you may lose your deposit.After this your solicitor obtains the mortgage funds from your lender and pays for your new home.(conveyancer 1-2 weeks)

Your are officially home: Don't forget you have other fees to pay such as the stamp duty which is due 30 days after completion. (Conveyancer 1 week)

Mortgage fees

Below is a list of fees you are likely to be charged during your mortgage application:

mortgage Arrangement fee:

Due to the robust checks and processes in completing a mortgage there’s a lot of paperwork involved. This fee pays for the costs that the lender has accumulated through maintaining and setting up your mortgage application.

The mortgage valuation fee:

This pays for the lender to carry out a basic inspection of the property you wish to buy to ensure that it is secure in the right areas so that it meets their criteria. Most importantly they need to verify that it is worth the money they are lending you.

Solicitor/Legal fees:

Typically to handle the hefty paperwork and more commonly conveyancing of the property.

Mortgage Broker fees:

If you go with a broker they may charge a fee for organizing the deal and completing the application on your behalf.

Stamp duty:

This is paid on completion of purchasing your home and is only applicable to homes worth over £125,000. This is not associated with your mortgage application, but purchasing the house itself.

Once your mortgage has begun you may incur further costs. We have listed below two fees mortgage borrowers are commonly charged.

Mortgage Early Payment fees:

Some mortgages will be charged you for for paying it off earlier. You should keep a lookout as sometimes this fee can be thousands of pounds as it is charged as a percentage of the loan.

Mortgage Exit fees:

You will be faced with this fee by closing your mortgage account. This will occur during completion of your mortgage, switching to another deal or switching to another lender. The fee varies from lender to lender but is generally under £250. If a remortgage becomes a must do then you cannot avoid this charge.

What documents do you need for a mortgage application?

To make sure you save time during your mortgage process and to avoid the prospect of a rejection then you must get your paperwork together in advance.

Original documents are the only type Lenders will accept. Your documents must be original documents rather than printouts or photocopies.

Here is a list of documents a lender may request:

Your last three months’ bank statements: if you are self-employed this will include your business bank accounts as well.
Your last three months’ payslips
Proof of bonuses/commission
Your latest P60 tax form (showing income and tax paid from each tax year)
Your last three years’ accounts or tax returns(usually for self-employed)
Proof of deposits (eg, savings account statements)
ID documents (usually a passport or UK driving license)
Proof of address (eg, utility bills or credit card bills)
A gift letter. If you are getting deposit help, the lender needs to know it is a gift (not a loan), and that the person gifting you the money will not part own the home.

Can you afford a mortgage?

Before applying for a mortgage you should know if the lender will take you, there are a host of calculators that can assist you to some degree but here are some basics to get an understanding of if you are mortgage ready yourself.

The first things you need to work out are:

How much do you make per month?
How much do you spend per month?

Subtracting your monthly expenditure from your monthly income will give you your monthly disposable income.

Most lenders will want your monthly mortgage repayment to be maximum of 40-60% of your disposable income. It is unlikely they will accept anything above 80% as this doesn't give you much room.

The next step is to figure out how much savings you have for a mortgage, Is this atleast 5% of the total house price? If not it is highly unlikely you won't be able to get a mortgage through conventional means and should consider the available government schemes.

The next thing to figure out is exactly what the mortgage you are after will cost you per month. To do this you will input your mortgage deposit, term, and mortgage amount. If the monthly mortgage repayment is less than 80% of your disposable income then great, things are looking good!

But this isn't everything, you also have to consider the other costs of buying a mortgage.

The table below gives you an indication of what those costs will look like.

Stamp duty Table for properties under £500,000 with qualifying first time buyers

If property price is below £500,000 and buyer is classified as a first-time buyer Stamp duty rate
0- £300,000 0%
£300,001 - £500,000 5%

Stamp duty cost where the above does not apply

Purchase price Stamp duty rate on first property if buyer isn't classified as first-time buyer Stamp duty rate for additinal properties
Up to £125,000 0% 3%(2)
£125,00.01- £250,000 2% 5%
£250,000.01-£925,000 5% 8%
£925,000.01- £1,500,000 10% 13%
£1,500,000.01+ 12% 15%

Rate applies to that portion of the property price(2) properties up to £40,000 are exempt from stamp duty properties between £40,000 &£125,000 will be charged stamp duty on the full purchase price

Other costs involved with getting a mortgage

Mortgage valuation £150-£350 Upfront
solicitor search fee £150-£350 Upfront
Conveyancer fee £700- £1000 Usually paid 50% upfront and 50% on completion
Lender arrangement fee £1000 - £1500 Paid upfront or added to loan

So now probably think you can afford a mortgage but does the lender?

How lenders work out your mortgage affordability

Lenders can now do a complete deep dive into your finances and highlight key points of interest such as how many times you dine out, the type of restaurants you dine at, if you are a gambler, if you take holidays often etc. It is not clear what underwriting procedures all Lenders use as they are all different but as a rule of thumb if you wouldn’t lend money to someone with a particular factor then your mortgage lender probably won't.

Mortgage lenders still use a 4.5 income multiple to determine how much mortgage they can give you( e.g if you earn £60,000 you will qualify for a £270,000 mortgage) but they will always carry out a more in depth deep dive into your finances.

If your proposed mortgage repayments on top of your basic living costs will take up an excessive amount of your monthly income then they would be reluctant to lend that amount to you.

Mortgage Lenders will look into

How much you earn
If you have any existing debts
What your committed expenditures are and how likely they are to rise
If you have any dependants e.g Children or plan to
If your employment is stable
Your age- some lenders will not give you a mortgage if you are approaching retirement
The mortgage term- which intertwines with the above
If you are applying alone or with a co-buyer(Co-buyers can greatly boost your affordability, hence why we are such big fans of or co-buyer network “Homebae”)

And then your credit file:

You knew this was coming... Mortgage lenders have their own scoring models which all differ amongst them.Some things to look out for on your credit files before applying for a mortgage.

Have you missed a payment in the last 3 months before applying?
Have you got too many open accounts on your credit file?
Have you got too many addresses on your credit file?
Have you made too many credit applications recently?

How mortgage lenders view your Overdraft

Lenders will still lend to you if you have been in your overdraft, just as long as it is not consistent. For example during christmas it is understandable that you might have to dip into your arranged overdraft, but if you are living in your overdraft month on month they will be very hesitant to approve your mortgage as it shows you are living beyond your means.

As lenders can ask to see up to 6 months of your bank statements it is generally good practice to get your spending habits in good shape before this timeline and not within it.

How to Improve your mortgage affordability

To improve your mortgage affordability, you should focus on these categories: your affordability, your spending habits, your credit score and current credit commitments..

Your affordability essentially boils down to the lender seeing a consistent yearly income that is enough to keep up with your monthly payments and living expenses that fit sufficiently within that income with room to cover your monthly mortgage repayment.

You can use our Property ladder plan to get a quick health check prior to applying, we show you exactly what the lenders will be looking at and what changes to consider making.

For example, If your monthly mortgage repayment makes up more than 35% of your combined monthly income then many mortgage lenders will not be willing to lend to you.

Your spending and repayment habits

When it comes to your spending there are two habits that can severely ruin your chances. 1.) Not paying your bills on time and 2.) Not having a history of ‘normal’ spending habits. e.g random betting.

What you need to do:

If you haven’t been doing so already then start paying your bills on time! If you do not have a track record of doing this running up to your application, it may severely harm your chances.
Review your bank statements for any transactions that would raise concerns or require an explanation. For example, blowing cash on online gambling and betting may make lenders think you are a risk to lend money to. If this is the case then see if you can do without these for at least 6 months before your mortgage application.

Keep your Credit score in check

Every Mortgage lender will check your credit score and whilst you don't know exactly what they are looking for, it is important your credit file looks good.You can get your free credit score with Huuti and see exactly what is holding you back and what to do. E.g registering on the electoral role, reporting your rent payments.

Some ramifications can take up to 6 months to fix so it is best to correct them instantly.

Another important tip is to avoid making any new credit applications 6 months before your mortgage application as this can negatively affect your credit score. Firstly each time you apply for a loan, a footprint is left on your credit score lowering it for a period of time. Secondly, another loan will show that you are increasing your monthly liabilities and mortgage lenders may not take kindly to this.

Getting a Mortgage or Agreement in Principle

What is a Mortgage In Principle?

A Mortgage in principle, also known as an agreement in principle is essentially a guide on if a lender will loan to you and how much they will loan on your desired property. This gives you much authority in the property market. It usually involves a credit check and basic affordability checks. Once you have had an offer accepted on a property you can then go ahead to make a full mortgage application to the mortgage lender.

How long will a mortgage in principle last?

A mortgage in principle will last between 60 to 90 days on average.You should not apply for multiple mortgage in principles as whenever they are generated a lender will most likely do a hard credit search on your credit file and too many of these will appear negative.

What will you need for a Mortgage in principle?

You will need proof of your income
You will need your address history

PROS

A mortgage in principle will make you look serious amongst other buyers
A mortgage in principle will let you know if a lender will consider you

CONS

A mortgage in principle does not reflect on what sort of rates or monthly payments you will eventually qualify for

There is no guarantee the lender will give you a mortgage

What is Mortgage Loan to Value(LTV)

You will often hear the term LTV (loan to value) ratio. This is the percentage of the property value you’re loaned as a mortgage – in other words, the proportion you’re borrowing in relation to the property value.

To calculate this, simply subtract your deposit as a percentage of the property value from 100%. So if you’ve got a £50,000 deposit on a £250,000 home, that’s a 20% deposit. This means that you owe 80%- so the LTV( Loan to Value) is 80%.The loan is 80% of the valiue of the home.

Similarly, if you’re remortgaging, and you own 40% of the value of your home, you’ll need a remortgage deal for the remaining 60% – this is your LTV.

LTVs are not just affected by the amount you put into a house, but also by house prices.

A practical example: let’s say when you first bought, you had a £50,000 deposit on a £500,000 house – that meant you owed £450,000 at the start. That’s an LTV of 90%.

After a few years you’ve paid a little off and now owe £250,000 on your mortgage. You’re ready to remortgage and the house value is the same, so your LTV has become 50%.

However, if the house is now also worth more, say £750,000, this means you now have more equity in your house as the debt is still £250,000. Your equity is now £500,000 so your new LTV will be 33% (as it’s £250,000(debt) divided by £750,000 (house value)multiplied by 100).

This means you’ll be likely to get a much better remortgage deal. However, if the house’s value had dropped to £400,000, you’d now owe more than it’s worth (negative equity) and you’d be unable to remortgage as your current mortgage is worth more than your house.

Loan to value rates are important as they determine what interest the mortgage lender charges you. The more you borrow, the higher your mortgage interest rate is going to be. So

Getting a lower Mortgage LTV

To get a good mortgage interest rate you will ideally need a 40%+ deposit so you fall into the 60% LTV.

What mortgage deposits gets you what:

5% gets you over the line but with incredibly high interest rates.

15% gives you a better chance of being accepted by most Lenders and rates will be much higher.

20% is typically the standard mortgage deposit requirement and rates will be high

40% gets you the good rates

So the more the deposit the better the rate usually

It's always a good idea to wait a bit longer, negotiate a better house price or save more to get into a favourable LTV band

Cheapest type of mortgage

Mortgages come with several charges but the highest charges will be the interest you repay over the term of the mortgage.

So which mortgage type is the cheapest?

The most important factor guiding your mortgage will be the interest rates which are guided by the bank of England base rate. If this goes up or down, it is very likely your mortgage interest rate will do the same.

If interest rates stay the same:

A variable or tracker rate mortgage will usually be the best mortgage to be on whilst fixed rate mortgages are known to have slightly higher interest rates.

If interest rates go up:

A fixed rate or capped rate mortgage will be the best while a standard variable rate mortgage or tracker rate mortgage will likely follow the England base rate.

If interest rates go down:

If interest rates go down then a fixed rate mortgage will be the worse mortgage rate to be on if the current interest rate is lower than the interest rate being charged on your mortgage. A variable or tracker mortgage rate will be the best mortgage to be on as your mortgage rate will go down and hence your monthly mortgage repayment will go down.

Choosing a mortgage type also hugely depends on scenario, if you plan on moving homes sooner, a fixed rate mortgage might not be an ideal option due to the fact that the early repayment charges might be hefty and the set up costs are expensive too. Some fixed rate mortgages are portable so this might not be so much of a problem.

So what type of mortgage should you get?

This really depends on your future plans and attitude to risk.Interest rates can rise or fall at anytime and this might be somewhat hard to predict.

If you are risk averse then a fixed rate mortgage might be your best option as this will give you the most security in case interest rates rise.

If you are less risk averse and can afford higher mortgage payments then the savings gained from choosing a variable discount or capped mortgage rate might be better and certainly gain you much savings if interest rates stay low for the duration of your mortgage in comparison to a fixed rate mortgage with higher interest.

Self employed mortgages

Getting a Mortgage as a self employed borrower is substantially different to getting one as someone with an employer. This is because Lenders see self employed borrowers as much more risky and the process of assessing their creditworthiness is much harder and so requires much more documents and checks.This is the same if you are on a contract or working overseas.

Lenders find self employed borrowers more risky due to the fact that the income stream might not necessarily be stable or constant over a long period of time.It is always a good idea to get Mortgage advice from a qualified Mortgage broker if you are a self employed borrower.

If you are newly self-employed with little history of trading or no revenue than getting a mortgage could be incredibly hard and you might find the process a waste of time. However, if you have a partner then who has a paid job and can show regular incomings from their job then it is best to gift your savings to them and for them to apply solely for the Mortgage whilst you ensure the Lender lists you as a party on the Mortgage deed.

What will you need for a self-employed mortgage?

To make the process of getting a Mortgage easier you will need to start compiling certain documents months in advance.This documents will help prove to the lender that you can maintain the Mortgage payments over a sustained period of time.

Mortgage Lenders will typically want to see your income over 1-3 years and this will be assessed differently based on if you are a sole trader, partnerships or a contractor.

If you are a sole trader: The Mortgage lender will consider the profits of your business

For a partnership: The Mortgage lender will look at your share of retained profits and any draws.

If you are a director of a limited company: The Mortgage lender will look at your salary, dividends and some Mortgage lenders will look at the retained net profit of the(or your) business.

If you are a contractor: Some Mortgage Lenders will consider your daily pay and consistency of work.Mortgage lenders have become more familiar with contractors and some Mortgage lenders now have a laid out criteria for contractors. This is especially true for It contractors where Lenders usually favour contractors

  • Who have got a long time left on their contract with
  • who have a long history with the same employer
  • Who have a history of renewals with the employer
  • whoa can get a written confirmation of their employers intention to extend the contract
  • You have been working within the same industry for a longer period of time
  • Who get paid a sizeable day rate.

The paperwork you should gather prior

Prior to contacting a Mortgage broker, you should have at least these documents ready for viewing as this will greatly expedite your waiting time.

1-3 years' worth of accounts prepared by an accountant if part of a limited company
SA302's for 1-3 years – this is the self-assessment form that shows how much personal income you declared to HMRC and how much tax you paid on said income.
Bank statements for 12 months from all your accounts
Proof of your deposit
Details of any debt repayments and other outgoings(Your credit report might do the trick)

What will help you:

  • Sizeable Mortgage deposit
  • No defaults on personal/business credit file
  • No outstanding debts
  • Up to date bank/company accounts
  • Sizeable taxable income

PS. There is no such thing as a self employed Mortgage but rather the way Lenders assess self employed borrowers are much different. Always seek advice(if in doubt) from a reputable broker.

Note: Be aware that self-cert mortgages, mortgages in which you declare your very own income and the creditor doesn’t require proof are no longer available.

What is a home or property survey?

Home surveys allow you to ascertain the true value of a building and any potential structural issues.

Who does the home or property survey?

The home or property survey should always be carried out by a qualified surveyor who is an active member of the Royal Institute of Chartered Surveyors(RICS) or the Residential Property Surveyors Association(RPSA).

Why should I get a home or property survey?

As with anything a home or property can come with expensive surprises. Getting a home or property survey will allow you to negotiate prices or decide if you really want the property based in its condition. It will also give you an insight into what your home insurance costs will be and allow you to evaluate if to go ahead or not.

Old properties, properties with timber frames and listed properties seem to be at most risk of issue. Most lenders will insists on a basic valuation report before giving you a mortgage offer to ensure they are not lending on a risky asset.

What should I do if I discover issues in my home or property survey?

Your report might find issues and this is fairly normal, in this case you should.

  • Find out if you are covered by any guarantee
  • Check replacement costs and get quotes from different builders.
  • Renegotiate with your seller now you have costs in hand

What are the types of home or property survey?

When buying a home it is usually recommended you get a home or property survey but there are many different types of surveys. Here are a few and how they can help you.

A Royal Institute of chartered Surveyors Homebuyers Report(RICS)

This is a more focussed and detailed report that highlights specific structural problems such as damp.The survey will not be so detailed whereby the surveyor will move things around but rather one where he will simply observe what is in plain sight(such as unregulated builds or structures)and compile a report as well as any repair, maintenance and replacement costs.This survey usually comes with a property valuation.

A Royal Institute of chartered Surveyors Report(RICS)

This is a basic report that does not go into detail but simply ranks the property with a traffic light system. The ranked areas gives you an insight into if further investigation is needed.

A Mortgage Lender's Valuation report

A mortgage lender’s valuation is not a house survey.
It’s carried out on your mortgage lender’s behalf and you usually pay for it. It serves to highlight any major known issues the property has as well as give some insight into the properties true value by confirming an independent valuation. This allows the lender to assert how much to lend to you in relation to their valuation of the property.

Your Mortgage lender will request this report before they make you a mortgage offer so its a cost you will incur before you get any real confirmation that you can qualify for a suitable mortgage product. This is why a good digital mortgage broker is essential to guide you before this point.

A Royal Institute of chartered Surveyors Building survey(RICS)

This survey is hands down the best and most detailed survey available. It goes into detail on the properties structure and condition. The surveyor will spend a few hours looking into every corner, removing floor boards, going into the roof, investigating any issues or red flags and at the end he/she will compile a report on the repair cost, replacement cost, and maintenance cost. The surveyor will give you advice on what to do next.

SAVA conditional home survey

This is similar to the Rics HomeBuyers report However it does not include a market valuation. You can download an example of a SAVA home condition survey here.

New Building snagging survey

This survey is essentially for new homes to ensure they are structurally sound and to allow the buyer to get recourse from the property developer. Issues such as structural or small cosmetic issues should be given to the property developer before you move into the property so they can be sorted quickly and under under your two-year developer warranty.Every new home buyer should consider this survey.

Conclusions

You should always consider a property survey as its benefits far outweigh the cost. A local surveyor with local knowledge will be better and seek advice from your digital mortgage broker in regards to what surveyors/surveys are best suited to certain property types. E.g listed properties might be more suited for a RICS homebuyer report etc.

What is conveyancing?

Conveyancing is a legal process undertaken by a solicitor, lawyer or legal professional who specialises in property.This process can often take weeks or even months in the UK.This could be due to things such as unverified source of mortgage deposit, remortgages, survey delays, title and search delays.
Another thing which can increase the conveyance time is the “chain”. A chain exists when a buyer has to sell their home or a seller is buying a new home and all transactions are dependent on each other.

In a scenario where you don't need a mortgage to buy a property conveyancing can be incredibly quicker due to a lot of the mortgage delays vanishing.

To ensure you conveyancing gets handled efficiently and in the quickest time possible you will need to hire a suitable conveyancer from a firm where technology is as much a focus as the quality of work. If the solicitor does not have a conveyancing quality scheme then you should think twice.

Technology will play a key role in informing you with updates and making the process faster. It will also reassure a seller as they will know things are moving on forward.
Ensuring you hire a suitable Digital mortgage broker will enable your mortgage funds to be in place on time and avoid that being a source of delay.

So to recap:

  • Hire a suitable conveyancer
  • Technology is key
  • Use a reputable digital mortgage broker

What's included in a conveyancing fee?

Conveyancing fees will include the cost of hiring the conveyancer as well as costs which are not paid directly to the conveyancer but are part of the conveyancing(these are called disbursements) such as search costs, stamp duty and land registry fees.
Ensure this costs are included in your quote and are VAT inclusive before proceeding to avoid getting blindsided.
If the property purchase falls through some solicitors offer a 'no move, no fee' deal. Be sure to confirm this is included before hiring a conveyancer and ensure disbursements mentioned above are included in this deal.

So how does conveyancing work?

Once you receive and sign a letter of engagement from your solicitor, your conveyancer will inform all parties involved that they are now working on your case.

After receiving the memorandum of sale your conveyancer will review the property information form and then begin searches on the property.

If they are satisfied they will then confirm the mortgage details with the lender.

You conveyancer will then request you to sign the contracts and then begin the exchange of contracts process.You lender will usually require you to have building and contents insurance before signing the contracts. Once the contracts have been exchanged the sale becomes legally binding.

Your deposit is then sent to the seller's conveyancer or solicitor after which you will need to pay your conveyancer.After your payment has been received your conveyancer will draw up a transfer deed which you will sign for completion.

And then its completion, this will require your conveyancer ensuring nothing goes wrong at this point after which keys are dropped off and you can get into your new home.

Complain about your conveyancer

If you are not satisfied with the service you have received from your conveyancer then the Legal Ombudsman or the Law Society will welcome your complaints and take any necessary action.

What is Gazumping?

Gazumping is when a seller accepts an offer to sell from a buyer but then towards the end of the process accepts a higher price from someone else. Gazumping can also be when a seller requests a higher price towards the end of the transaction process.This is usually bad for the first-time buyer as they lose out on some costs which they have incurred already such as mortgage fees and conveyancing fees.

Is Gazumping Legal?

Well, gazumping certainly isn't illegal and and although a bit unfair, It is very much legal and there is nothing a first-time buyer can do to get recourse.
This is simply because until exchange of contracts , there really is no binding agreement in place. Verbal agreements! I hear you scream. Yes,verbal agreements are not strong enough to secure the property and so a seller is fully within their right to walk away from a verbal agreement to sell at any time until the exchange of contracts.

Before contracts are exchanged you will usually employ the services of a conveyancer to carry out searches on the property and then manage the exchange of contracts.This is truly the crucial part of the home buying process as it tends to make or break a sale.If conveyancing takes too long a seller might begin to shop for a better offer with other buyers and as a result gazumping could end up being a first-time buyers fate. To prevent this it is recommended to use a conveyancer who technology plays a key part in their day to day work. This will at least give you some confidence that typical communication delays or ancient methods of doing things will not cost you your first home.

Another reason for Gazumping could be the real estate agents who desire to take as much profit in commision from the property and therefore will continue to market it even after a buyer has been found in the hope that they get a better price for it and therefore a higher commision for themselves.

Gazumping doesn't necessarily mean a higher offer has been accepted. The seller might just have run out of patience with you or the process and accepted a buyer at an advanced stage of the home buying process.

How to avoid Gazumping?

Ensure the seller takes the property off market;The easiest way to avoid gazumping is if the seller has agreed to take the property off the market and instructed their real estate agent to stop seeking more buyers.This will indicate a level of seriousness to you from the seller.

Swift actions.

We have already mentioned getting a conveyancer who understands how swift things have to be and use technology to ensure they are as efficient as possible.Your conveyancer might also be able to assist you in getting insurance which would cover you in the case of being gazumped.

If You want to get a property survey you must also consider do this well in advance to prevent any further delays and ofcourse to allow you negotiate prices if need be.

Agreement in principle.

Getting a mortgage or agreement in principle not only marks you as serious to the seller but of course speeds things up once you have an offer agreed.

Finally, You could get an exclusivity agreement.

This is a binding agreement between you and the seller which stipulates that the seller cannot negotiate with anyone during a set timeframe whilst you continue the buying process. This prevents you from being gazumped during that time frame but ultimately the seller can just delay the process and still end up gazumping you after the agreement comes to an end.The agreement works by both the seller and bUyer paying a percentage of the property price e.g 1%. This amount will be lost by any party who tries to back out of the agreement or ignores the agreement.There will also be some conditions at which the price can be shifted or negotiates e.g survey reports or search reports.

The future of Gazumping.

The Communities Secretary, Sajid Javid has announced a call for evidence to improve the experience of house buying and selling, making it 'cheaper, faster and less stressful.'He plans to prevent sellers from walking away from a home sale after a certain point.There is some hope after all!

What is Gazumping insurance or Home buyers Protection Insurance?

Gazumping insurance essentially covers you in the event the seller pulls out of a sale. You will be able to get a payout to recover some or all of the upfront costs of buying the home. Gazumping insurance is usually purchased once an offer has been accepted on a property but at the very latest within 2 weeks of conveyancing work starting on the property.Cover can last up to 6 months from most providers. Gazumping insurance costs up to £70 in most cases and is paid upfront not in installments.

Gazumping or home buyers protection insurance will cover you as long as you reside in the Uk and the property you are buying is within the UK.

Gazumping insurance will not pay out for retrospective costs hence costs incurred before the insurance was purchased.Gazumping or home buyers protection insurance will also not pay out for situations caused by you e.g you decide you no longer want the property.

What does Gazumping insurance or home buyers protection insurance cover you from?
Gazumping insurance essentially covers you from a few scenarios but this are all dependant on the insurance provider.

The main scenarios include

Discovery of negative factors in the conveyancing process or property survey
When a seller accepts a higher offer and leaves you with unrecoverable costs
Seller pulling out of the transaction for a variety of reasons such as a chain transaction failing. E.g the seller couldn't move into their new home because the seller couldn't get a mortgage to buy a new home.
Mortgage lender insisting on ratification work or Mortgage lender valuation is lower than the property offer the seller accepted.

Do you really need Gazumping insurance?

Well that's really up to you but with thousands of pounds on the line a £70 Gazumping insurance might represent great value.

What is Gazanging?

Every conveyancer will tell you they dreamt up the word “Gazanging”.

Gazanging is a new problem faced by over 50,000 home buyers each year. It is the term used to describe when a seller abruptly pulls out of a house sale usually towards the end of the process. This leaves the buyer with costs which cannot be recovered such as solicitors costs, mortgage fees and general expenses. In most cases it also leaves the borrower with a mortgage offer which they then need to quickly find a property for before the offer expires.

This usually occurs when sellers who don't really intend to sell but rather intend to see how much they could realistically get enter the market. In some cases a seller will inflate their property price in the hope a buyer will come and make an offer. At this stage the seller should inform the buyer that they really do not intend to sell but this rarely happens and eventually ends up leaving prospective buyers & first time buyers out of pocket.

So what can you do to avoid gazanging as a first-time buyer?

The first step when you meet a serious seller is to ask them t take the property off the market and off all marketing websites. This is a stipulation most serious sellers will adhere to. In some cases and for good reason a seller will not agree to this until you can prove serious intent to them.

A good conveyancer will also go a long way to reduce the chances of gazanging happening to you. This is because they will be fast and will carry little costs of the sale didn't go through.These are referred to as no sale no fee conveyancers.Over 15% of sellers get nervous with slow conveyancing and this can contribute to the likelihood of gazanging. It worth noting that regardless of how fast your conveyancer is, if you are in a chain: hence your seller is waiting on their conveyancer to check the home they want to buy or waiting on the conveyancer of their sellers home to check another home. This will of course be completely out of your hands.

Over 30% of sellers will usually not find an “appropriate home” to move into, so it is worth asking the seller what plans they have in regards to that and how far they are. This will allow you to gauge their level of seriousness.

Look for a property where the seller will not need to buy – some real estate agents now advertise properties with no onward chain separately. This could include:

  • repossessions – but they usually want a quick exchange
  • executor's sales, where the owner has died
  • owner emigrating or moving into a nursing home
  • buy a new house – fewer new homes are being built, but it is often possible to buy properties that are already completed, rather than having to wait months for builders to finish them.
  • buy at auction – the sale date is fixed

Goodluck!

Why mortgage applications are rejected?

If you are thinking of how to get a mortgage you can be safe in knowing that if you are rejected, the lender will likely let you know why.

Having a dodgy lift

This tends to be a problem exclusively for tower blocks and council flats as they can frequently require lift maintenance which, in the eyes of the lender can affect the property value.

Because of your Ex Boyfriend/girlfriend

In some relationships people prefer to have joint credit and bank accounts, creating a financial link between them. However once separated they may still have these existing links to one another. So any negative actions they take also affects the other. Meaning if their credit score is bad, then it is likely going to make yours worse than it should be.

Being aged over 40

It was previously found there is a pattern between unsuccessful mortgage applications and your age. It is a concern for them if your mortgage loan continues into your retirement. As chances are you will be less likely to keep up with the repayments.

Online Gambling

Seeing consistent deposits into specific gambling sites can harm your application as lenders like to be as risk-averse as possible. We recommend staying as far away from online gambling as possible, before and during your application

Payday loans

Payday loans are seen as very negative to mortgage lenders and you can almost guarantee a lender will reject your application if you have had a Payday loan within 6 months of your mortgage application.

Can't pay your mortgage? Steps to take

Before you get a mortgage, you should have a good idea of what options you have if you find yourself in a situation where you can keep up with your monthly mortgage repayments.

Identify the problem:

Are you out of a job, did you just mismanage your spending for the month, was there an emergency that took out of your income or has your mortgage just risen drastically without much notice and hence you can't afford it. Identifying the problem is important before we look at solutions.

Whilst some solutions such as fair short term credit might be applicable, they won't be if you are in a long term problem such as losing your job or your mortgage interest rates rising. If your problems are short term such as mismanagement of funds or emergency use of funds then short term credit makes sense.

Regardless of what the problem is there are a few basics you must have in place to ensure your financial wellbeing is constantly in check and that you are never overpaying for any financial product including your mortgage. Your mortgage should be managed by a mortgage management platform. These platforms serve to indicate when there are savings in your mortgage by remortgaging or when you can save on interest rates by overpaying, they notify you when to overpay and by how much whilst letting you know beforehand how much interest that will save you. Valuable! yes we know

If your problem isn't short term and hence doesn't have a short term solution, here are the steps you should take.

Tell your mortgage lender:

Talking to your lender will prepare them and allow them to give you certain options such as a repayment holiday; this is when you come to an agreement with your mortgage lender to to stop or reduce your monthly mortgage repayment for an agreed period. This ofcourse means it will cost you more in the future as your interest repayments accumulate but it's a way to get some breathing room whilst you sort things out. Your mortgage lender might also be able to simply defer the mortgage repayment for that month or extend your mortgage term so your monthly mortgage repayments are much smaller.( this might work out more expensive in the long run). Your mortgage lender might also be able to simply accept smaller repayments in the short term.

There are mortgage schemes that could help you keep up your mortgage repayments. In the uk we have the support for mortgage interest and in Scotland we have the homeowners support fund. These schemes can assist you if you have any of the below.

Income based job seekers allowance
Income support
Pensions credit
Income related employment and support allowance

These schemes can help you with your mortgage interest repayments and not the capital, to find out if you are eligible contact the pension services or Job centres plus.

Mortgage repayment holiday

Before you get a mortgage you should be informed about mortgage repayment holidays and if your mortgage allows one.

A mortgage payment holiday is a good option if you are in financial difficulty, here's all you need to know about it and how to take it.

What is a mortgage payment holiday?

A mortgage payment holiday is when you and your mortgage lender agree to defer your mortgage payments in full or part. This is usually done when the borrower is in financial difficulty or has an emergency need for the funds.

Mortgage payment holidays usually last for a few months. Once the mortgage payment holiday is over you will resume your monthly mortgage repayments but they will have risen to compensate for the missed payments and due to the interest rate, charges on the debt have been backdated and piled up.

A mortgage holiday is a good idea when you are struggling to keep up your repayments but ideally your mortgage should be plugged into a mortgage management platform. This ensure you do not miss out on any potential savings through remortgaging or overpaying on your mortgage.

How to get a mortgage payment holiday

To get a mortgage payment holiday you should contact your lender to ensure this is something you can do or check the terms and conditions of your mortgage.
Once you have confirmed you can take a mortgage payment holiday, check how much of a holiday you can take and how much it will cost you in interest and increased monthly mortgage repayments after the mortgage payment holiday is over.

You must ensure you can afford to keep up the monthly repayments after the mortgage payment holiday. Missed payments will definitely negatively affect your credit score and you might find it hard to gain access to further credit in the future.

How does a mortgage payment holiday affect your credit score?

A mortgage payment holiday will not leave a negative impact on your credit score as the lender will mark this in a positive manner. If you however miss further agreed repayments then this will be reflected negatively on your credit file.

Alternatives to a mortgage payment holiday

Rather than take a mortgage payment holiday you could increase your mortgage term and this will reduce your monthly mortgage repayment.

You can also get income protection when you get your mortgage this will ensure a percentage of your income is paid when you find yourself in difficulty such as losing you job or getting injured.

Mortgage protection insurance will also pay a fixed amount to your mortgage lender if you cannot afford to keep up your monthly mortgage repayments.

Can I overpay on my Mortgage?

Yes, In most cases you can overpay on your mortgage. Mortgage overpayment simply means paying more than your lender sets as your monthly repayment. You can pay this in a lump sum or by simply paying more every month.

Here are the benefits:

  • You save more on mortgage interest payments than you will earn on interest by leaving the money in your account

  • You don't pay interest on the amount you overpay

  • You will owe less on your mortgage and own more equity in your property quicker.

  • You will shorten your mortgage term

Overpayment on your mortgage isn't always the best idea though.

Some lenders will restrict you to 10% overpayments per year and fine you for any extra overpayment. The fees can be between 1-5% of the amount overpaid.
Overpayments might be more costlier than remortgaging as you might end up overpaying on a higher rate than you would if you had remortgaged first and gotten a cheaper rate.

When should you overpay your mortgage?

Overpayments should be made in line with when your lender charges you interest(the most interest). This might be daily, monthly or quarterly. You can time your payments to be made a day or 2 in advance of when the interest rates are charged.

And when should you not overpay

Your lender might not allow overpayments and fine you.
If interest rates are higher than your mortgage rate interest charges then your money is better served in an appropriate savings account.
If you have other debts with higher interests rates then you are better of clearing these debts first.Mortgages with flexible fixtures such as offset,current account mortgages or those with a borrow-back facility will allow you to overpay and then borrow the money back without any penalty.
Overpaying should really only be done when you have spare disposable income in case of unexpected emergency costs.

Don't have a pension? You might want to consider PensionBee for a start.

The aim of Mortgage overpaying

Mortgages repayments are calculated using the amount you owe, the term of the mortgage and the interest rate the mortgage is charged at.

Mortgage overpayments simply means paying more than your lender stipulates as the monthly payment. The aim of this is to reduce the amount of interest rate payments you have to make towards the mortgage. Mortgage overpayments can be done in one large sum or in regular overpayments. To see how much you can save please use a mortgage overpayment calculator.

Steps to overpaying on your mortgage:

  • Call your lender and inquire about overpayments. Ensure you understand your limits.

  • Your lender will give you the option to reduce your term or your monthly payments.Always choose to reduce your term if not your overpayment might be less effective.Be clear to your lender that all your overpayments should go towards reducing the term of your mortgage.

  • You can then set up a standing order to your mortgage account to overpay each month

Conclusion:

Always seek professional advice from a digital mortgage broker before overpaying. Mortgage management platforms such as ours, will automatically suggest ways in which you can save the most money on your mortgage and notify you.

Mortgage porting

Before getting a mortgage, you should ensure you have considered if the mortgage is portable or not and on what terms.

Porting is the process of moving your mortgage from one property to the other. Although the process is described as such, porting usually involves paying off your mortgage with the sales proceeds of your home and then starting a new mortgage on your new property with the same terms. Porting your mortgage might not always represent the best value so be sure to shop around for a new mortgage first.

What are the fees involved with mortgage porting?

Porting your mortgage avoids most but not all of the typical mortgage origination fees but you may also be liable for an early repayment charge if you are still within your introductory rate period. You may also be liable for an exit fee and new mortgage origination fees based on your lender.

Will I qualify for mortgage porting?

You might not qualify for a mortgage if your credit score is low or your general mortgage affordability isn't at a satisfactory level.

It is worth checking your current mortgage affordability before applying to port your mortgage. If you find that you won't qualify then it is best to boost your affordability before applying to port to avoid a rejection.

You can always port your mortgage to a cheaper property or a more expensive one but this will be all based on if you pass the affordability check for the amount you want to mortgage.

If you want to move to a more expensive property and your lender refuses to loan you any more than you currently borrow you might need to find the extra amount and pay it down as a deposit.

There are other reasons why you may not qualify for porting, they include:

  • The lenders affordability criteria has changed

  • The lender cannot borrow you more as it has reached its individual lending limit

  • The lender can port you but you will have to get a second mortgage to fill the gap on the more expensive home you want to move to. Be aware that if the introductory periods of both mortgages end at different times; your monthly payments will sharply increase at different times.

  • You might be able to borrow from your current lender but at a higher rate due to economic situations changing since your initial mortgage.

When porting your mortgage it is always advisable to seek the services of a credible Digital mortgage broker.

What happens after my fixed rate mortgage ends? (Mortgage management)

So what is a fixed rate mortgage?

A fixed rate mortgage is essentially a mortgage where the interest rate is locked in for a set period of time.This is usually done as an introductory rate discount to attract new first-time buyers and provides certainty on monthly payments if interest rates rise. However if interest rates fall you will not benefit from this reduction in costs.

Fixed rates are different from tracker rates which move in line with the bank of England rate.

What you should do when your fixed rate mortgage ends:

Once a fixed rate mortgage ends you will usually move on to a standard variable rate. This rates are usually 3% higher than the fixed rate and can be increased or decreased at a lender's discretion.

Remortgaging at the end of a fixed rate will usually get you to a cheaper rate by shopping you out to all current lenders who will see you good history of mortgage repayments over the past few years and be eager to lend to you.

You can contact your lender first to see if they will offer you a better deal but you will be better served with a mortgage management platform which will analyse your possibilities and the best lender to switch to for the ultimate savings.

Mortgage management platforms will look into your equity in your property, if your property price has increased and the LTV ratio you will be using to approach mortgage lenders. A lower LTV will give you cheaper mortgage rates and hence less monthly payments.

It is worth noting that you will have to pass a mortgage lenders affordability test again and this will heavily affect on what sort of rates you are offered. A good mortgage management platform will ensure your complete affordability always stays at its best to ensure you are always eligible for the best mortgage rates.

In some cases your lender might wave the mortgage fees associated with a remortgage as a way to get you to get a new mortgage with them.This might not always be best for you and a good mortgage management platform will be able to analyse your total savings by comparing all possible outcomes.

What is a mortgage management platform?

A mortgage management platform is an AI powered hub which monitors your current mortgage to ensure you never overpay on your mortgage. It looks into factors such as your property price, your equity in your home, the cost of switching, your early repayment charges if any, your current mortgage including term & rate and provides insights on several possible outcomes where money can be saved in monthly mortgage repayments.This is a free service provided by your digital mortgage broker. This is an AI assisted service where a broker will notify you as soon as savings can be made.

In conclusion

You should always be on the lookout for mortgage savings to avoid overpaying on your mortgage but this is something you should properly leave to the machines.

What is Japanese knotweed?

Japanese knotweed was introduced into the Uk as an ornamental shrub but soon began destroying properties by destroying tarmac, destroying other plants, blocking or breaking drains etc. It can grow up to 7 meters high and 3 metres deep.Due to its very destructive nature it can reduce a property value immensely.

What does Japanese knotweed have to do with mortgages?

Due to its nature as a property wrecker.Japanese knotweed can drastically reduce a properties value, grow into neighbouring properties and cause damage which you may be liable for and hence lenders tend to steer clear of properties with japanese knotweed for these reasons.

The damage a japanese knotweed could cause to a property will reduce a lenders appetite for it as cost of repairing the damage might put a borrower in debt and worse off devalue the property if the damage becomes substantial. This ofcourse means the asset a lenders mortgage is based on might be worthless.

For these reasons most lenders will decline a mortgage application if japanese knotweed is found during a property survey or in a neighbouring property from the property you want to buy. They will request a full evaluation of the property and assurances that the japanese knotweed is gone and at least by 7 metres away from the property before they lend.

They will also want a minimum term(e.g 10 years) insured guarantee from a suitable professional eradication specialist. Each lender has their own policy on Japanese knotweeds so it is best to speak to an established digital mortgage broker to get suitable advice on what lender will most likely accept a property with Japanese knotweed. So yes, you can get a mortgage with a property infested with Japanese knotweed.

Your conveyancer may request you to take out indemnity insurance to help the mortgage complete if the property has a history of Japanese knotweed. The indemnity insurance will provide protection for you and could cover the cost of any legal defense against neighbours, the cost of a survey report and cost of treatment and eradication of the japanese knotweed.

Treating Japanese Knotweed

Treatment for Japanese knotweed can be incredibly expensive.You should report Japanese knotweed as soon as you report it and inform your neighbours so they might assess their properties too for any signs of the knotweed. Home insurance which includes Japanese knotweed will be very useful in scenarios where they knotweed continues to persist and would have cost you thousands in eradication costs. Some lenders who lend on properties with a history of Japanese knotweed may choose not to give you a mortgage if you can't find suitable building insurance which covers Japanese knotweed.

What is Negative equity(Mortgage) and what does it mean for you?

Negative equity is simply when you owe more on your property than its worth.This can be for a variety of reasons but it’s usually caused by falling property prices.There are over 500,000 properties in negative equity in the UK, especially in Northern Ireland where 2 out of every 5 bought after 2005 is in negative equity.

What does Negative equity mean for you and your mortgage?

You won’t be able to move houses or buy a new house on a mortgage when your current one is in negative equity. Except you can generate the shortfall in equity by increasing your sale price or using your savings to cover the shortfall.

A typical Lender will also not offer you a remortgage on the property as at things stand you are already in negative equity and essentially in debt.

However there are some Mortgage lenders who will accept borrowers with negative equity. A few mortgage lenders will accept borrowers with negative equity by lending over 100% LTV against your property. This will be incredibly costly.

Negative equity and LTV(Loan to Value)?

Firstly Loan to value simply means how much you owe on your property in regards to its value. E.g you owe £500k on a £1m property. The loan to value is 50%. In negative equity you owe more than the property is worth so e.g you might owe £600k and the property is worth £500k therefore your loan to value is 110%.LTV is always more than 100% for negative equity.

What causes Negative equity?

Negative equity can be caused by a few things(even when you are paying your monthly mortgage payments every month), they include:

Dipping house prices:

Unfortunately even when you are doing everything right, a dip in house prices could leave you owing more on your mortgage than your property is worth. This is especially true for borrowers on interest only mortgages as they do not repay the capital but just the interest on the mortgage over the mortgage term.

If property price dip slightly these borrowers are at more risk due to their huge debt not being repaid. Borrowers who borrow the maximum amount and pay a minimum deposit which in turn leaves them with a high loan to value e.g 95% are of course at a great risk of negative equity if property prices fall.

Missed mortgage payments:

Missing payments can ofcourse put you at risk of negative equity but you will need to have an already high LTV and be doing either of the above or below for any real risk.

**Borrowing on your mortgaged property: **

Taking a second charge mortgage or a home improvement loan secured on your home could put you in negative equity by pushing your LTV up.

How to get out of negative equity mortgage?

Wait it out:

You can simply continue paying your mortgage and wait t out if your negative equity came as a direct result of your property price falling and not you missing payments or taking on extra borrowing.Negative equity will only become a real problem when you want to move homes and sell your current property or remortgage.

Pay it off:

You can simply use your savings(or borrow- but do get financial advice before taking on any extra debt commitments) to make overpayments on your mortgage to prevent negative equity. Check with your lender to see if you will be allowed to make overpayments. In any case if you find yourself in a serious debt position you might want to contact the citizens advice bureau. You wont necessarily have to pay it all of in one go, IN some cases lenders will allow you to sell your home and make regular payments towards the negative equity still owed on the previous mortgage.

Negotiate with your lender:

Some lenders will agree to extract the negative equity and bundle this in an unsecured loan which you can then payoff without it affecting your property by being secured against it.The lender might even write of the debt but be sure to inquire about the consequences of this for you and any future borrowing. Some lender actions such as this will be negatively marked on your credit score.

Rent out your home:

You can rent out part of your home to generate more income to pay off the negative equity. Be sure to advise your lender as this could violate the terms of your mortgage.

Freehold vs leasehold; A deep dive

There are several means of home ownership, these include freehold, leasehold or leasehold with a share of the freehold.
So What is freehold?

A freehold is where you own the property outright and are completely responsible for its maintenance. If your property is mortgaged, you ofcourse don't own it outright as the mortgage lender still has an interest in it.

Advantages of having a freehold property:

  • You own the whole property
  • You have no lease holder cost such as ground rent or maintenance
  • You don't have to deal with a freeholder (a landlord) because you are the freeholder!
  • You don't have to pay ground rent, service charges or other landlord charges.

Buying a share of a freehold

You can own a share of the leasehold if at least half of the leaseholders agree to buy in.

This will mean you can extend your lease with much ease and control costs.

To do this you will need to serve a section 23 notice to your landlord.Be mindful as this might be quite an expensive process and you might need legal advice.In most cases you will need to set up a company or have a managing agent to manage the building. For more specific information about buying a share of the freehold see The Leasehold Advisory Service website.

If the majority of leaseholders in the building get together, you can collectively exercise your ‘right to manage’ – i.e. to appoint new managing agents. Or you can collectively try to buy the property from the landlord.This is known as ‘collective enfranchisement’. Each flat then owns a ‘share of freehold’. You manage the maintenance and insurance of the building yourselves, and there is no need to ever again renew the lease.

What is a leasehold?

With a leasehold you essentially own the property for a fixed amount of time and when this ends the ownership is then transferred back to the freeholder except you can extend the lease.

Before you buy a leasehold property you should consider how many months are left on the lease and how this might affect you getting a mortgage. You should also consider any costs such as service charge.

Mortgage lenders will prefer to lend on a property where there is another 25 years after your mortgage term will finish or the intended finish date of your mortgage term.Mortgage lenders will usually stay away from leasehold properties that have less than 70 years left to run.

Benefits of a leasehold property:

There is less responsibility with this tenure type because the freeholder has to maintain the common parts of the building which can include entrance area, staircases, lifts, exterior walls, roofs and gardens.
You can extend the lease by up to 90 years after you have resided in the property for 2 years and are a qualifying tenant.To be a qualifying tenant your original lease would have had to be for 21 years or more.If any issues arise during this process you can take your case to the leasehold valuation tribunal.

Disadvantages of a leasehold property:

●There are costs such as maintenance fees, ground rent and other charges which you must consider. You can lose the lease( the property) f you do not pay these charges.
●The leasehold property ofcourse diminishes in value as th term of the lease decreases.
●You must seek the freeholders permission before making any changes to the property.You will also not be allowed to sublet and may be guided b a set of rules throughout your tie at the property.

What is the difference between a Freehold and a Leasehold?

With a freehold you own the whole property and the ground beneath it whilst with a leasehold the ownership reverts back to the freeholder after your lease term expires.

Final thoughts

You can extend the lease or buy the property from the freeholder. This is not cheap option and you may require legal advice.

Flying freehold

Flying freeholds are a bit more complicated. For example, if part of your home extends, because of the way the properties were divided, over land owned by your neighbour, this could result in a flying freehold. Take legal advice from a conveyancing solicitor on how this might affect you.

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