Guide to Mortgages

A mortgage is a loan secured against your home. ‘Secured' means that if you do not keep up the repayments, the mortgage lender can sell your home to gets its money back. You would typically repay a mortgage over a 25 or 30 year term, however there are longer and shorter terms available which may either increase or reduce your monthly repayment amounts.

The first step in the mortgage process is to obtain a mortgage Agreement In Principle (AIP). Also known as a Mortgage Promise, this will set out how much a lender may be prepared to offer you by way of mortgage. This is generally a free service offered by most mortgage lenders and you will generally receive a decision in 48 hours.

If you are a single income household you could typically borrow up to 4 times your income before tax and deductions. If you are a 2 income household you could typically borrow up to 3.5 x the main earners income plus 1 x the second earners income. Examples are listed below:

Single Income
Annual salary before tax/deductions
Amount you could expect to borrow (4 x annual salary)
£15,000
£60,000
£20,000 £80,000
£25,000 £100,000

 

Joint Income
Main earner annual salary before tax/deductions
Second earner annual salary before tax/deductions
Amount you could expect to borrow (3.5 x main earner income plus 1 x second earner income)
£22,000 £10,000 £87,000
£28,000 £10,000 £108,000
£32,000 £10,000 £122,000

When calculating how much you may be able to borrow please be aware that a mortgage lender may only count half of your income such as overtime, commission or bonuses unless this income is guaranteed. Lenders will reduce the amount they will lend if you have substantial outgoings such as other loan or debt repayments.

We strongly recommend that you seek independent mortgage advice from a qualified mortgage advisor in order to ensure you choose the right mortgage for you.

When you are receiving mortgage advice, the adviser has a duty to take reasonable steps to ensure that you could afford a mortgage that he or she recommends. Mortgage advisors are required to place mortgages responsibly. This means that they should, based on things like your income, expenditure and other circumstances, consider whether you can keep up the mortgage repayments now and in the future; for example after an initial discount period comes to an end.

Types of mortgages available

There are broadly two types of mortgages available. Each type offers 2 different ways on how to repay the amount which you have borrowed (the ‘capital').

Repayment Mortgage: Your monthly repayments gradually pay off the amount you owe as well as paying the interest charged on the loan. Provided you make all of the agreed payments, the loan will be fully paid off by the end of the mortgage term.

Interest-only Mortgage: Your monthly payments cover only the interest on the loan. They do not pay off any of the capital. You will need to arrange to pay separately into a savings or investment scheme to build up a lump sum to pay off the mortgage at the end of the term. It is your responsibility to make sure you will have enough money to repay the mortgage at the end of the term, otherwise you could lose your home.

Types of Mortgage Lenders

Not all high street lenders are able to offer shared equity or shared ownership mortgages. Unfortunately, we are also not able to accept 'sub prime' mortgage lenders such as adverse credit or off-shore lenders. Things do change from time to time and therefore it is not possible for us provide an exact list of which mortgage lenders you should approach. As a general rule we would always recommend you seek qualified advice from an Independent Financial Advisor (IFA) who will be able to tellyou which mortgage product is best for you.

A qualifying lender is an institution who are authorised by the Financial Services Authority (the FSA) to "accept deposits or to effect or carry out contracts of insurance". This is likely to include most banks and building societies.

If you are in any doubt as to which lender to approach you can visit the Financial Services Authority website at www.fsa.gov.uk/register The register shows which firms are authorised along with a list of ‘permissions' i.e. which activities an authorised firm has permission to undertake, such as accepting deposits. The FSA regulate most mortgage sales taken out on or after 31 October 2004 and the website also provides handy tips for how to calculate which mortgage would be best for you. Alternatively please call us and we will tell you whether a lender qualifies.

Your home may be at risk if you do not keep up repayments on your mortgage or any other loans secured on it.

Guide to Mortgages
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