Mortgage Information

Here, we give you just a brief outline of some of the major terms you will come across in mortgages.

What is a Mortgage?

A mortgage is like any other kind of loan - you borrow money, and you pay it back with interest over a period of time. But it has one main difference: it is secured against your home. So if for any reason you can't repay it, the lender can sell your home to recover their money.

A Buy to Let property is a long-term investment, which you hope will generate an income from rents and a capital gain when you sell the property. There is no guarantee that you will make a profit on your investment. The FCA do not regulate some buy to let mortgages, so there is less protection if something goes wrong. The following link will explain all about BTL's and the legalities you need to know, if you are thinking of buying for investment/rental. BTL Information

Shared Ownership, Shared Equity (or Homebuy) and NewBuy are three main types of low-cost home ownership (LCHO) scheme, run by the government to help people who cannot afford to buy on the open market to purchase their own homes.

Shared ownership schemes are usually operated by housing associations. The housing association builds a new property or renovates an existing one and sells a share of the property to the occupier, who pays rent on the remaining share. The occupier therefore, part owns and part rents the property from the housing association. Occupiers can initially buy a 25%, 50% or 75% share and can usually buy further shares of the property over time (this is known as 'staircasing').

Under shared equity (or Homebuy), individuals can buy part of a property with the aid of a mortgage, and the remaining part of the property will be owned by the government who provides an equity loan. This means that when the property is sold, the government will be entitled to receive their share of the value (equity) of the property at the time of sale. For example, an individual might wish to buy a house worth £100,000 but only be able to afford to raise a loan of £75,000. Under a shared equity scheme, the government might give an equity loan of £25,000 - and this would mean that the government owned 25% of the value of the property. If a few years later, the individual wished to sell the house, which was now worth £150,000, the borrower would receive £112,500 (75%) of the sale price, and the government would be entitled to receive the remaining £37,500 (25%).

Recently launched NewBuy is available in England on all the properties offered by home builders participating in the scheme up to and including a sale price of £500,000. Separate schemes are under consideration in Scotland and Wales. Only new homes built by house builders signed up to the scheme will qualify, but most major and many smaller builders are in the process of registering. Under the scheme, individual home builders will partner up with one or more mortgage lenders who will offer 90-95% loans on their properties. New home buyers wishing to take advantage of the scheme will need to qualify for a mortgage with a mortgage lender in the usual way and be subject to the lender’s normal assessment criteria. However, whereas in recent years lenders have generally required larger deposits, the scheme will allow loans to be secured at 90-95% of the property’s value, meaning the purchaser only needs to find a 5-10% deposit.

Types of Mortgage

There are two types of mortgages: Repayment and Interest Only.

Repayment - every month, your payments to the lender go towards reducing the amount you owe as well as paying the interest they charge. So each month you are paying off a small part of your mortgage.

Positives : It is a simple, clear approach - you can see your loan getting smaller.
Negatives : In the early years your payments will be mainly interest, so if you want to repay the mortgage or move house in the early years, you will find that the amount you owe will not have gone down by very much.

Interest Only - your monthly payment only pays the interest charges on your loan, you are not actually reducing the loan itself. This is why it is very important you should arrange some other way to repay the loan at the end of the term; for example, through an investment or savings plan.

Positives : Because you are only paying off the interest, and not the loan itself, your monthly payments will be lower.

Negatives : That debt is not going to go away. Throughout the life of the mortgage, you'll need to check your investment or savings plan is on track to repay your loan at the end of the term. If you cannot repay it at the end of the term you could lose your home.

Types of Mortgage Rate Deals

There are five main types of interest rate deals, these are fixed, tracker, discounted, capped standard variable.

Fixed rate mortgages are one where for a period of time the interest rate is set and will not be affected by changes in interest rates. At the end of the period the interest rate will become the variable rate applicable at that time (see variable rate). Usually the rate is fixed between 2 and 5 years, although longer or shorter periods could be available.

Discounted rates, gives you a guarantee that for a period of time your interest rate will remain at a fixed percentage below the variable rate. Therefore, if the current variable interest rate is 7% and your rate is discounted by 2%, your mortgage would be on a rate of 5%. If the current variable interest rate were then to increase by 1%, your rate would increase by 1% in line with it.

Tracker rates are set above or below the Bank of England (or some other) base rate, it tracks (moves up or down with) that rate. For example, the rate you pay may be 0.25% above the Bank of England base rate, whatever it may be, for say a period of 2 years.

Capped rate mortgages, puts a ceiling on the rate for a period of time. This means that the payments cannot go above the rate set during that time. Payments will reduce if the interest rates go down.

Variable rate mortgages are one that changes when the lender announces interest rate changes. So unlike a fixed rate, if the mortgage rate goes up then you will be paying more each month. Equally, if it goes down then you pay less. Usually less restrictive, but the rate could be higher.

The Costs

There are a number of costs associated with mortgages and moving home:

Stamp Duty - government tax levied on the purchase price of the property you are buying. Some areas qualify for exemption. Old tax bands were:

£0 - £125,000 = 0%;     £125,001 - £250,000 = 1%*;     £250,001 - £500,000 = 3%;

£500,001 - £1million = 4%;     £1,000,001 to £2 million = £5%;     £2 million+ = 7%.

Over £2 million (purchased by certain persons including corporate bodies) from 21 March 2012 = 15%.

As from 4th December 2014 Stamp Duty rates:

  • No tax on first £125,000 paid
  • 2% on the portion up to £250,000
  • 5% up to £925,000
  • 10% up to £1.5 million
  • 12% on everything over that

Example properties  Tax paid under old rules  Tax paid under new rules  Change in tax paid  Effective tax rate under new rules 

  £125,000

    No stamp duty

    No stamp duty

 No stamp duty

      No stamp duty

  £185,000

    £1,850

    £1,200

 Saving £650

      0.7%

  £275,000

    £8,250

    £3,750

 Saving £4,500

      1.4%

  £510,000

    £20,400

    £15,500

 Saving £4,900

      3%

  £937,500

    £37,500

    £37,500

 No change

      4%

  £2,100,000

    £147,000

    £165,750

 Increase £18,750

      7.9%

The duty is paid on completion of the mortgage. For more information on Stamp Duty click here.

Legal Fees - a charge for legal and administrative work to transfer the ownership of a property from one party to another, work includes searches for Land Registry, Bankruptcy and Local Authority. Fees vary from firm to firm, paid on completion.

Valuation Fee - a mortgage valuation is usually paid for (upfront) by yourself on behalf of the mortgage lender, providing a valuation and current condition of the property you are buying. A more detailed and costlier Homebuyers Survey/Report can be obtained, and sometimes a Full Structural Survey for much older properties.

Lenders Fee - a fee to apply for the mortgage paid to the lender. It can be paid up front or usually be added to the mortgage debt ( by adding any fees to the mortgage, over the long term this will increase the amount/fee to be paid, as you will pay interest on this over the term of the mortgage).

Higher Lending Charge - an insurance policy that covers the lender, should they take possession of your property, following non-payment of your mortgage. Protects the lender but the borrower pays the premium, usually over 90% loan to value. Can be added onto the mortgage, but again, interest charged and increases the debt over the term of the mortgage.

Broker Fee - A.N.A. Associates Ltd may charge an arrangement fee depending on your circumstances of up to £300, and usually paid on Mortgage Offer only - so no mortgage offer, no fee payable. This fee is for work undertaken and to support your application. This will be discussed with you by your adviser and contained within the Key Facts, about your mortgage letter and in the Key Facts Illustration.

Click here for Mortgage Calculator

ANA Mortgages is a trading style of A.N.A. Associated Ltd which is an appointed representative of Ingard Financial Ltd, which is authorised and regulated by the Financial Conduct Authority (450731). Your home may be repossessed if you do not keep up repayments on your mortgage. Think carefully before securing other debts against your home. There may be occasions where we may charge a fee, which may depend upon your circumstances. In these situations we will inform you at an early stage, the fee being no more than £250, and usually paid on Mortgage Offer. Please call to discuss your requirements further.

 

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