First Time Buyers, Remortgages and Buy to Lets

The size of your mortgage will be determined by a few things:

1. Your income & commitments
2. The size of your deposit
3. The purchase price of your home

1. Your income & commitments

To decide how much you can borrow lenders will look at your income and apply a multiple of it. This could be about 4.5 times your income. Then they’ll look at your credit file to see how much money you are committed to paying each month in things like car loans, student loans, credit card balances, maintenance payments and anything else you couldn’t stop paying even if you wanted to. Lenders then reduce the amount they’ll lend based on this.

Having a £50 per month gym membership shouldn’t reduce the amount you can borrow as you can cancel it, but paying back a loan at £50 per month will probably reduce what you can borrow as you can’t cancel that.

The amount you can borrow could potentially be reduced if you have children to care for or pay maintenance for children.

2. The size of your deposit

The bigger your deposit the smaller mortgage you will need for the same purchase price. A bigger deposit, say 15% instead of 10% or 5%, will usually get you a lower interest rate as the bank sees you as less risky.

3. The purchase price

The more you are paying for your home the more money you will need to purchase it. This ultimately this is limited by the value of the property and your income which we can assess on your behalf prior to making offers on potential properties to purchase.

There are lots of different types of mortgages. Fixed rate and tracker mortgages are the most common. The majority of First Time Buyers choose a fixed rate mortgage.

Fixed rate mortgages allow you to know what your monthly payment will be for a set number of months. This is called the initial period (see Initial Period section). Fixed rate mortgages often have a higher initial interest rate than tracker mortgages, but come with the safety of knowing exactly what your payments will be. The downside is if you want to redeem your mortgage during the initial period then early repayment charges may apply to the mortgage.

Tracker rate mortgages can be useful as they often offer more flexibility, like being able to make large over-payments without a penalty. This can be really useful for people who are thinking of moving shortly.

Most mortgages have an initial period typically 2, 3 or 5 years where the interest rate is lower than the lenders standard variable rate for the remaining term of the mortgage.

The longer the initial period, the higher the interest rate is likely to be. There are often penalties for paying off a mortgage during the initial period.

Usually after the intial period you will automatically go onto the lenders standard variable rate (SVR). The lenders SVR normally is higher which would mean an increase in your monthly mortgage payments. To avoid this we can help you switch to a new deal with the same lender or apply to remortgage to a better deal with another lender.

When choosing an initial period it is important to consider what could change in your life in the next few years. Once you’re settled in your first place things can move fast.

If your home increases in value, as well as your outstanding balance falling each month, the loan to value ratio may reduce enough that you qualify for a lower interest rate after only a couple of years. You wouldn’t be able to take advantage of this if you had fixed for a long time. This works in the same way that buyers with bigger deposits get offered lower interest rates.

There’s no one answer to how long you should fix your mortgage for. That’s why  we will assess your need and provide you advice on the initial period in line with your needs and circumstances. 

The term of a mortgage is how many years it will be paid over. The shorter the term, the higher the monthly repayments will be. A shorter term may mean higher monthly payments however it would mean your mortgage would be paid off quicker and reduce the total interest paid over the life of the mortgage.

You can find mortgages with a term of up to 40 years. Just because the first mortgage you take out is for 40 years though does not mean you will have it for that long. At the end of your initial period you may be able to remortgage and reduce the term if you wanted to. You can also reduce the term by making over-payments which are additional payments on top of your committed monthly mortgage payments.

There is no ‘normal’ term for a mortgage. The right term changes from person to person hence we will take all your circumstances into consideration and advice you on the right term for you.

The interest rate is the amount you are charged for borrowing money. Interest rates are currently at record lows!

The lowest interest rate is not necessarily the cheapest mortgage though (see Fees section).

Lenders usually charge higher interest rates to people who have smaller deposits as a percentage of the property’s value.  That means somebody with a 15% deposit may get a lower interest rate than somebody with a 10% deposit regardless of the size of the mortgage or how much they earn.

Interest rates can be fixed or variable (see Fixed or Tracker section).

Different lenders may view the same applicant(s) differently based on the lenders own criteria.  You can see details of some of the main criteria’s and how lenders may view them differently:

1. Income

How much you can borrow will vary lender to lender as they have different rules on income from overtime, commission and bonuses. If you get overtime, bonus, or commission income the amount that different lenders will lend to you can be huge.

Self-employed people are treated very differently by different lenders. Most lenders want to see multiple years of being in business, but a couple of lenders will consider granting a mortgage with just one years proof of income. They then calculate what you can afford differently. Some take the lowest earnings, some the highest and some average.

2. Deposit

Lenders will ask you how your deposit has been funded. They have differing rules on gifted deposits, builders incentives etc.

3. Property

Lenders also treat different types of properties differently.  Lender’s will carry out their own checks and valuations to ensure the property being mortgaged provides sufficient security to enable them to offer a mortgage. Not all lenders allow help to buy or shared ownership.

Remember…

Just because a mortgage appears at the top of a list does not mean it is one you will qualify for as there are many other factors and criteria that need to be taken into consideration before applying for the right mortgage for you.

With all these different criteria, that’s why mortgage advisors exist and is why there is no ‘best mortgage lender’ only a best mortgage lender for you based on your personal circumstances.

There are lots of potential fees that mortgages can carry. This is why the mortgage with the lowest interest rate is not necessarily the cheapest or best mortgage available.

Potential fees include:

• Arrangement fees
• Booking fees
• Product fees
• Valuation fees

Lenders might have a mortgage product with fee and a without fee option. There may be a mortgage with an arrangement fee of a £1,000 which comes with a lower interest and alternatively another product with a £0 fee but with a higher interest rate.

When choosing the Mortgages Centre we will consider all the associated fees with the mortgage and will advice on the best mortgage once all these factors have been taken into consideration!