Remortgages

Borrowing money to pay off your mortgage and secure that borrowing against your house, is known as remortgaging – essentially it is swapping one mortgage for another.

If the current mortgage deal that you have doesn't suit you because of for example a change in circumstance or if there are better deals available from other lenders, remortgaging enables you to adjust the terms of your mortgage to better suit you and to take advantage of any better deals that there may be out in the market place.without having to move house.

With interest rates at a record low, remortgaging is growing more and more popular as existing borrowers seek to move their mortgage to a lower rate of interest without having to move house.

Arguments for and against Remortgaging...

Reasons to Remortgage:

There are lots of reasons why remortgaging is the right decisions but each depends on the circumstances of the individual household, however one reason remains universally true - to save money and the amount that it is possible to save, can be considerable.

Moving up the Property Ladder

Some mortgages can be moved from one house to another. As well as transferring your existing mortgage, you may need to top up with additional borrowing to purchase a larger or more costly property in which case it is simpler to take out a new mortgage for everything ( redeeming the existing mortgage and paying the extra money needed).

Your existing mortgage doesn't suit your current circumstances

Your salary may have increased or decreased or maybe you have come into a windfall or an inheritance. Either way you may wish to increase or decrease your monthly payments. You may want more flexibility in how you pay your mortgage and your existing mortgage deal does not offer enough flexibility to suit your current circumstances. Your circumstances may be such that you may need to be able to miss a payment or have a payment holiday (for example a change in employment, returning to education, deciding to go travelling).

It could be that you are tempted by the new types of mortgage products coming on to the market such as the new off-set mortgages. It is important to note though that mortgage packages with extra features may come at a cost in the form of higher fees and interest rates.

You’ve got other debts elsewhere which charge much higher interest rates and you want to wrap all your debts into one.

Often referred to as debt consolidation, the advantage of doing this, is to escape from the high interest rates charged on unsecured loans and credit cards by converting the whole of the debt to the considerably lower rates offered on mortgages and this may enable you to lower your monthly outgoings considerably.

You need to think very carefully before you opt to secure all your debts against the title to your house. If you are unable to keep up with your payments, you may be at risk of losing your home. Another thing to consider is that borrowing more money to pay off debts over the term of a mortgage is likely to cost you more in the long run as 10% over five years is less than 5% over 30 years.

Reasons Not To Remortgage:

Remortgaging is not for everyone and the question as to whether or not to remortgage depends on individual circumstances.

Money, timing and personal circumstances are key factors in considering whether or not to remortgage. When deciding whether or not a remortgage is the right for you, you will need to weigh the savings against the cost. Think carefully if you fall into one of the following categories:

Your existing mortgage is already the best on the market

The mortgage deal that you already have may be the best on the market. However, it is important though, not to get too complacent as there are always new mortgage products coming on to the market so it is important to keep a constant eye on the market.

You may be locked into an unfavourable mortgage deal

The early repayment penalties on your existing mortgage may be so high as to make remortgaging unviable. It may be possible that your existing lender will agree to let you switch to a better deal with a reduced repayment charge

If you own less than 25% of your house

If you have a high loan to value mortgage (meaning that you borrowed more than 75% of the value of the house) the fact that the mortgage on your house is more than 75% of the value of the house may make it difficult for your to get a good mortgage deal with another mortgage lender

The value of the house may have gone down along with the value of your equity in it, so the amount you owe is a bigger proportion or it may be that you owe more on the mortgage than the house is worth - known as having negative equity.

Changing Circumstances

Your personal or family circumstances may have changed, for example you may have changed job or employment status or if a couple one of you may have given up work to start a family. Lenders may not be so ready to lend to you because you no longer fit their criteria. If you have little or no equity in the house you will have to stay with the mortgage that you already have.

Poor Credit History

If you have missed payments on a credit card or loan or defaulted completely, you are unlikely to be able to get a remortgage deal if at all. The criteria that lenders are using to assess the eligibility of borrowers for a mortgage is getting tighter and tighter especially with the recent banking reforms. In the aftermath of the credit crunch, lenders will only lend to those people who have a spotless credit record.

The Size of Your Mortgage is less than £50,000

The cost of remortgaging may mean that it is not worth your while remortgaging especially if the amount you owe is less than fifty thousand pounds. Remortgage fees can be in four figures and may outweigh any savings made on mortgages below fifty thousand pounds.

Buying a Home

Download "Buying a Home - Guide"

Buying a Property is both an exciting and a stressful experience and the decision as to what property you buy will have a far-reaching impact on your life and that of your family

The purchase of a property is a major financial commitment which may be with you, in the form of mortgage payments for the next 30 years or so.

Buying property for the first time is a very daunting process and appears to be a maze of procedures, paperwork and different professionals and agents vying for your time and giving advice all at the same time.    There are a lot of dos and don’ts and making the wrong decisions become very costly.  It is easy for a first time buyer to very quickly become confused, stressed and generally bewildered without the right guidance from the start.

In this blog we aim to help you through the maze using the most straight forward route and in a jargon free manner.

In this Step by Step Guide, we break the process down into four parts:

I.     Deciding on the Property you want to buy

II.    Looking for the Property you want to buy

III.   Selecting a Property

IV.   Buying the Property

By following a clear structured approach, you will be able stay in control and your property purchase is likely to not only proceed more quickly but also be relatively stress free.

I - Deciding on the Property You Want to Buy

It is important to be clear from the start as to what Property you want to Buy. Changing your mind halfway through the process can be costly and may cause significant delay.
When deciding on the Property to buy you need to consider the following:

1.    How much can you afford to spend on a Property?

A.    Getting a Mortgage
B.    Deposit
C.    Financing the Purchase from other sources

2.    The are you want to live in

3.    The type of Property you want to buy:

A.    Freehold
B.    Leasehold
C.    Shared Ownership
D.    New build

1. How much can you afford to spend on a Property?

How much you can afford to spend on a property will depend how much money you are able to obtain to buy the property and this will in turn, depend on the level of your income and savings. 

You have sufficient savings to purchase a property without having to borrow money, however, the majority of house buyers need to borrow money to purchase the Property. How much money you will be able to borrow will depend on the level of your income, your age and your employment status.

A.   GETTING A MORTGAGE
Unless you have significant savings or another ready source of money, you will need to raise a mortgage in order to purchase a property.
 
A Mortgage is a type of loan which is secured against the property you buy. The mortgage lender will lend you a sum of money to enable you to purchase the property and in return will have to repay the lender in instalments, usually monthly and over several years ( typically 25-30 years).
 
The most common sources for mortgages are banks and buildings societies. 

Applying for a Mortgage
You can apply for a mortgage either by approaching the bank or buildings society direct or by engaging the services of a mortgage broker.

A mortgage broker will advise you on the process and will be able to match your needs and financial profile to the most suitable lender.

It is important to get your mortgage application right first time as more than one application to different lenders can have a detrimental effect on your credit scoring making it more difficult to get a mortgage. 

Factors that determine whether you can get a Mortgage
When considering whether or not to offer you a mortgage the lender will check the following:

Affordability Can you afford to make the repayments? The lender will look at: Your current income and whether that income is from steady employment or relies partly on commission, overtime or benefits. Whether you are employed as P.A.Y.E or are self-employed.  Your day to day expenditure for example, regular bills, food, energy and so on. Any other loans or credit cards you may have. It is important that you do not over commit yourself when taking out a mortgage.  If you are unable to keep up with your mortgage repayments, the Lender may repossess the property and you will lose not only the property but also all the money you may have spent on the property. Credit Worthiness The lender will conduct a credit check with credit agencies to check: Whether you have ever been late paying a financial commitment such as a loan or payment on a credit card Whether you have ever been made bankrupt or received a CCJ made against you. The credit agency will give the lender a credit score which they will use to decide whether or not to offer you a mortgage. Deposit The lender will want to know what sort of deposit you are able to pay towards the property – usually a minimum of 10% of the purchase price will be required.  As a general rule greater the amount of deposit, the more favourable mortgage terms you will be able to get from the lender.   Age In order to get a mortgage, you must be at least 18 years old.  Lenders generally require you to be able to finish paying the mortgage by the time you are 75.   Character References Lenders may require references from for example, your employer and your current landlord (if you are in rented accommodation).

B.    DEPOSIT
As a general rule, you will be required to pay 10% of the purchase price as a deposit reach the Exchange of Contracts stage of the conveyancing procedure.
   
As mentioned above, your mortgage lender will usually require you to finance the deposit from your own resources.

C.    FINANCING THE PURCHASE FROM OTHER RESOURCES
Financing the purchase from other resources means buying without the need for a loan from a financial institution and is often referred to as a ‘cash purchase’ or a ‘cash buyer’.
Being a cash buyer may mean using your savings, or money from the sale of an existing property or borrowing the money from family or friends.   You may be able to finance the whole of your purchase from other resources or just part, splitting the finance between part cash and part mortgage.
 
If you are financing your purchase from other resources your conveyancer you will be asked to provide evidence as to the source of the money you are using to purchase the property. This is required under the statutory Anti Money Laundering Regulations. Your conveyancer will also carry out checks on anyone else that may be making a financial contribution to the purchase.

Another factor to consider, is that any other person that provides money towards the purchase, may obtain a legal interest in the property. 
If you intend to fund the purchase of the property partly by mortgage, you will need to obtain the consent of the mortgage lender to any contribution from any friends or relatives.

2.     The area you want to live in

Choosing the area in which to buy a property is the second biggest factor to consider.

The area in which you buy the property will have a significant impact on your quality of life.  

It is important to choose the right area, not just for your own peace of mind – it is an important factor when considering the saleability of the property when you come to move on.

Factors to look at when choosing an Area to buy a Property:

• Is the area near or within reasonable travelling distance from your place of work?
• Long commutes can reduce your quality of life and push up your cost of living. Good travel links may also enhance the value of the Property.
• Check out the local population –
• Are they the type of people that you would feel at home with? For example, if you have a busy social life, or have lively children you may not fit in with a street with pensioners.
• There are several websites that you can use to find out about an area, these give you data on the average age of the population, employment, income level, crime figures and so on.
• Local papers will give you an overall feel of the area.
• What is the centre of the town like?
• A town centre with lots of charity shops and empty units is an indication of a declining area, whereas a centre with new businesses indicates an upward shift.
• Check out the  Local Council’s plans for the area  (‘the Town Plan’)  on their website
• Is there development planned near the Property?  Examples could be industrial estates, factories or infrastructure projects such as HS2.   It would be a pity to buy a property with a view only to have a new block of flats built, blocking that view a few years after you move in.
• Think of the future
• Will the property still be right for you in five years’ time?  For example, if you plan to start a family a one-bedroom flat may prove to be constraining ; a larger property in a  child friendly area (not on the main road and with play parks) may be more suitable.
• Check out the local schools
• A good school is usually an indication of a good area, not only for those with children in mind but also for the value of the Property in general.
• Don’t dismiss the surrounding areas
• Areas within close striking distance of a popular up and coming area will usually see the value of their properties rise as part of a ‘ripple effect’.
• Visit the area at different times
• An area which is peaceful during the day may turn into a noisy hotspot at night.    There may also be certain days in the week that are quieter than others
• Environmental Issues
• Check the area out on the Environment Agency’s site - is there a landfill site or sewerage works nearby?  Is the area prone to flooding?

 

3.    Type of Property   

A.    Freehold

When buying a Freehold you are buying the property and the land on which it is built.  There is no legal limit of time to your ownership of the property. 

Owning the Freehold title to a property means that you can do as you please to the property subject only to any covenants and restrictions (that may have been placed on the title by previous owners and your mortgage lender) and the statutory planning laws

B.    Leasehold
When buying  a Leasehold property  you are buying the legal right to occupy the property (to the exclusion of the owner of the Freehold) for a set period of time.  When you buy a leasehold property you become a ‘Leaseholder’.

The length of the period of time for which you can occupy the property is known as the ‘Term’ and the right to occupy the property  is granted (or ‘demised’) to you by the owner of the Freehold (‘the Landlord ’) under the conditions set down in a deed known as  the Lease. The property and the land that you are allowed to occupy and use is known as ‘the demise’ and this is set down within the lease.  

Unlike Freehold properties, you cannot do as you please to the property.   The Lease will set down rules as to what you can and cannot do.

Although there are leasehold houses, leasehold properties are typically individual flats in blocks of flats or in houses that have been converted into flats.

When living in flat, you will have to pay a service charge to the landlord to pay for the maintenance of those parts of the building and grounds that are not part of your flat or demise for example, common hallways, stairs, roof, foundations, grounds and pathways.  You should factor these costs when deciding whether or not you can afford the property.

Typical Terms for the grant of a lease are 99 years, 125 years or 999 years, though a different term can be agreed between the Freeholder and the Leaseholder.

When you buy the property you may find that some of the term of the lease has been used and you may be buying only the remaining years of the term – an example in the case of flat where the term of the lease is 99 years and the seller has owned it for 19 years – you will be buying 80 years of the term.

The longer the term left on the lease the more valuable the property for example, a property with 990 years left on the term is more valuable than one only 90 years left.

It is possible for a leaseholder to get the term of the lease extended by the landlord and there are statutory rules that give leaseholders the right to have the lease extended.

It is possible for the tenants or leaseholders in the building to buy the Freehold from the landlord and again there are statutory rules governing this.

If you are buying the property with a mortgage, you need to be aware that lenders will have a minimum term of lease that they will accept.  As a general rule of thumb, lenders are unlikely to accept a lease of less than 70 years remaining on the term.
 
C.    Commonhold
Common-hold  is a type of landownership which is a middle-ground between Freehold and Leasehold.    Under Common-hold the individual flats in a building are owned as individual Freehold properties and the rest of the building and grounds  which is not within any of the flats( being the hallways, stairs, roof , foundations, pathways, gardens and so on (‘the Common Parts’) )  are owned by a Common-hold Association.   Each owner of a flat within the building will be a member of the Commonhold Association.

The advantage of Common-hold is that because each flat is Freehold the period of time in which they can be occupied and used by the owner is not limited which means that the value of the flat will not decrease .    At the same time, the owner of the flat can ensure that the Common Parts are maintained.

Common-hold property is relatively rare and a significant number of mainstream banks and buildings societies will not provide mortgages to purchase common-hold property.

D.    Shared Ownership
Shared ownership properties are where you only buy a share of the property and rent the remainder of the property from the Freeholder/ landlord, an example would be to purchase a 50% share and rent the remaining 50% share from the landlord.   These properties are usually sold by local authorities and housing associations.

Once you have purchased your initial share, you can purchase further shares usually in increments of 25% over how many years you occupy the property.   This is known as Staircasing. Once you have purchased 100% of the property (known as Final Staircasing), you will own the property outright.

Shared ownership properties are subject to strict rules governing their sale.  Generally you will need the consent of the landlord to sell the property and will have to sell it to a person nominated by the landlord. 

With Shared Ownership properties you  will not be able to let the property out until you have achieved Final Staircasing (100% ownership).  

Once you have you have achieved Final Staircasing, there is usually  a ‘ Pre-Emption Period’ of 21 years during which time  you have to offer the property back to the housing association or local authority from whom you purchased the property, before you can sell on the open market.

Some housing associations will charge a transfer fee typically of 1% of the Sale Price when you sell your share in the Property.

Shared ownership properties are a less costly way to purchase a property, however they are more complex to deal with and attract higher legal fees.     .

The rules restricting their sale may also have a detrimental effect on their resale value.


E.  Newbuilds
Newly built properties can be Freehold, Leasehold, Commonhold or Shared Ownership.

Newbuild properties often come with incentives to entice you to buy.  These incentives  range  from  discounts off the sale price, the developer paying the stamp duty land tax, to new carpets and white goods (dishwasher, washing machine and so on).

Newbuild properties generally come with a newbuild warranty which covers the owner of the property for at least 10 years from the cost of repairing any structural defects in the property.

People often like to buy newbuilds because there is no work to do on them, no repairs required or decorating – the owner can move straight in and live comfortably.  Others do not like them because they are bland and lack the character of older properties; all the properties on the estate are the same and there is less scope to ‘put your own stamp on them’.

Depending on the development, new builds are generally smaller inside than older established properties.  In 1920 the average four bedroomed house was 1,647 square feet whereas today the average three bedroomed house is 925 square feet.  

The developers’ need to build as many properties  as possible on a piece of land to get maximum financial gain from the land and this  will govern the size of the properties built.  On a more exclusive development where the properties are more expensive the rooms within the property are likely to be bigger.

There are schemes available to help first time buyers purchase a newbuild property. The most well-known scheme is the Government’s Help to Buy Scheme whereby the Government provide a loan of up to 20% of the property which means that the buyer only has to find a 5% deposit.  

Some of the bigger developers have other schemes to help first time buyers and it is worth visiting the developer’s website to find out details.

New build properties do lose value in the early years after their construction.  If you have purchased at a discount or with the help of one of the schemes mentioned above, you may have less money left (after paying off any mortgages secured against your property (known as ‘equity’), to buy your next property.  This can cause a problem if your family is outgrowing your property or if you need to relocate for work.