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All About Mortgages

Want to learn everything there is to know about mortgages? Well, look no further - we've got a full break down on:

  • Buy-to-Let Mortgages

  • Remortgages

  • First Time Buyer Mortgages

 

If you're looking for advice, let us know below!

Types of Mortgage

Buy-to-Let Mortgages

Buy-to-let is one of the most popular ways to invest, and there are an estimated 2.7 million landlords in the UK. Most people who purchase a property with the intention of letting it out do so with a buy-to-let mortgage.
 

Our specialist partners will cover everything you need to know about getting a mortgage for your buy-to-let, including how they differ from residential options, the types available, criteria, tax implications and much more.

They’ll also cover the key parts of finding and letting a buy-to-let property.

How do buy-to-let mortgages work?

Buy-to-let mortgages are similar to residential options, just with a few differences. Their primary reason for existing is so you can borrow a portion of the money required to buy a property and then let it to a tenant via the rental market.

A buy-to-let mortgage usually requires a higher deposit than a residential mortgage, and the interest rates associated with the loan also tend to be higher. Most buy-to-let mortgages are borrowed on an interest-only basis, meaning you pay back the interest but not the capital (more on that later). The fees are usually more expensive than a conventional mortgage.

Most buy-to-let mortgages have a term of 25 years, though it can be longer or shorter depending on your requirements. Within that length, there is a fixed or tracker term, which usually lasts for two, five or even 10 years. We’ll cover the differences between fixed and tracker mortgages in a bit.

It’s worth noting that buy-to-let mortgages aren’t typically regulated by the Financial Conduct Authority (FCA) unless you’re renting the property to a family member or you plan to live there yourself. Essentially, you should get a buy-to-let mortgage if you want to purchase a property and rent it out to tenants, earning passive income from the monthly rental while benefiting from the property’s value increasing over the long term.

First Time Buyer Mortgages

A first time buyer is just that - someone looking to purchase a home for the first time. That means they haven’t previously owned a house or any type of bricks and mortar used for the purpose of living in.

 

First time buyers can be sole or joint applicants and there are, on average, a little over 300,000 first time buyers in the UK each year, with an average age of around 34. That’s six years older than the average age in 2007, which just goes to show how hard it’s becoming to get on the property ladder.

 

Banks and building societies tend to have different rules on who they regard as a first time buyer. Although, they all tend to agree that it’s a person who has not previously owned a home and therefore does not have one to sell.

 

The definition of a first time buyer can become more of a grey area if you’re buying as a couple and only one of you is buying for the first time. Again, in such a scenario, it would come down to the lender’s own FTB criteria. Most of them, however, wouldn’t class you as first time buyers if you or your spouse already owns or has owned a property.

 

A buy-to-let landlord who rents out a property, but doesn’t own the home where they reside also isn’t classed as a first time buyer. While they don’t own their home, they do own a property. Essentially, being a first time buyer means you have never owned property before, whether it’s for business (landlord) or residential (living there) purposes.

How big a deposit does a first time buyer need?

Banks and building societies have different rules over the amount of deposit you need. Previously, most lenders required you to pay for about 15% of the home’s value. Therefore, you would find 15% of the property yourself, with the lender covering the remaining 85%.

 

However, due to the rising cost of property (and rent, which impacts your ability to save) new legislation from the government has seen the encouragement of a 5% deposit with lenders. A 5% deposit sees you paying just 5% of the home’s value, with the lender covering the remaining 95%.

You can get your deposit in a few different ways:

  • Savings. While rent is climbing, it is still possible to save if you budget carefully or even move back home in the short-term in order to save more.
     

  • Support from parents (the 'Bank of Mum and Dad'!). More and more people are reliant on gifts from parents to help them hit their deposit goal.
     

  • Inheritance. Most lenders accept inheritance money as a form of deposit without any issues.
     

  • Sale of other assets. While you won't have a large asset like a property to sell, you could have a car or a valuable collection that could help you boost your budget.
     

  • Unsecured lending. Technically, there’s nothing to stop you from taking out a loan or using your credit card to fund a loan. We do not recommend this, as you will then have to pay your mortgage and thot only will you be liable to pay back the borrowed amount on top of the mortgage repayments, but loans and credit cards usually have high-interest rates, with some reaching 36%.

Next Home Mortgages

Once you’re on the housing ladder, when you want to size up or down or just change locations, you are likely to still need a mortgage to do so.

This will be a little more complicated than your very mortgage, as you will be in a chain. This means that you will be reliant on selling your home in order to get the next one. However, as with all mortgages, while it’s a complex process, a broker knows exactly what they’re doing and will help you through it all.

How do I get my next mortgage?

There are two options available to you, both of which your broker will be able to talk you through in more detail so you can make the right choice for you:
 

  • Get a new deal. You will need to pay off your current mortgage deal with the sale of your home and start a new deal. This opens you up to new lenders and potentially better deals or lower interest rates. 
     

  • Port your mortgage product. Essentially, you’ll pay off the existing mortgage, but then take out a new one with the same lender on the new property, with the same terms. This would allow you to keep your current interest rate and other related product features. However, it’s important to understand that you are not transferring the mortgage loan, you are only transferring the mortgage product.

Remortgage

Remortgaging is the process of changing your mortgage product, either with the same lender or moving it to another one, which you usually do at the end of your current mortgage term (otherwise you move automatically onto a standard variable rate). 
 

Basically, it means that you choose a different deal than the one you initially got when you bought your home. Your new mortgage will replace the old one and have new terms. These are likely to include:
 

  • A different interest rate

  • New monthly repayments

  • A different length for the initial period

  • Repayment or interest-only 
     

The amount you pay is transferred to another mortgage policy, effectively starting a brand new mortgage deal. When you move onto a new mortgage deal, the money borrowed pays off the old one. 
 

How do I remortgage?

There are three primary ways to get a remortgage: another deal with your current lender, using a broker or finding a new lender and applying with them directly. Each choice has its advantages and disadvantages.

  • Using your current lender. The most straightforward option on the table involves using your current lender and changing to another deal with them. They will write to you a few months before your mortgage expires, reminding you that the initial period is coming to an end and asking if you’d like to renew. If you remortgage like-for-like with your current lender, there’s usually no need to go through the affordability process as they already have your details from the first application. There are caveats to this, however. If a lengthy amount of time has passed, say, five years, they may wish to recheck your affordability to see if anything has changed. If you’re borrowing more, they could also perform an affordability check to see if you meet the criteria for the higher borrowing amount.

 

  • Using a broker. Should you decide to look for a new lender offering the best rate, your best advised to instruct a broker. Mortgage brokers will scour the market and come back with the best options based on your requirements and the information provided to them. Before enlisting the broker’s help, it’s essential to check their terms and conditions. Some brokers charge a fee or take a percentage for their services. Other broker options are completely free of charge as they earn their money from the lender directly. Brokers tend to have access to more mortgage options than those available on the high street or comparison websites.

 

  • Using the lender. Of course, there’s always the option of approaching the lender directly for your remortgage. In this scenario, you will need to find the lender through online research using comparison websites or by going straight to the lender’s website (or high street bank or building society). If you’re reasonably comfortable with the process, you may decide to go with a new lender directly. Using a comparison website allows you to measure each lender and see which offers the best interest rates and overall mortgage product. Just remember that you’ll be treated as a new customer and will be required to provide the necessary documents. This means showing proof of ID, payslips, income and expenditure and having a hard credit check performed on your credit report.

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