Mortgages and Remortgaging

WHO PROVIDES MORTGAGES?

Mortgages are offered by banks, building societies and specialist lending institutions (together, these are referred to as lenders).

HOW DO I APPLY FOR A MORTGAGE?

You can apply directly to a lender or you can seek advice from a mortgage intermediary (someone who acts on your behalf to look across the market to find the most suitable mortgage for you). A mortgage intermediary will help you to select the right loan and the most appropriate lender for your needs.

HOW MUCH CAN I BORROW?

The amount you can borrow depends on three factors: the value of the property; your income(s); and your credit history.

Lenders will undertake an assessment and only let you borrow an amount that they believe you can afford. It will therefore depend on not just your earnings, but also your spending and other committed expenditure. Typically, lenders may let you borrow between 2 and 4.5 times your income, although other income
multiples may be available from some lenders.

Borrowing over 95% of the property value can be more expensive. It is sometimes possible to borrow over 100% of the purchase price of a property, although most people have a deposit and borrow less than this.

WHAT ARE HIGHER LENDING CHARGES?

If you borrow a large percentage of the value of your property, typically over 90%, some lenders charge a Higher Lending Charge. This is a compulsory charge that is often added to your mortgage debt and therefore incurs interest. Not all lenders charge a Higher Lending Charge. A bank, building society or mortgage intermediary will be able to advise you on this.

WHAT IS THE BEST TYPE OF MORTGAGE?

There is no best type of mortgage; the type of mortgage suitable for you depends on your individual circumstances and your attitude to risk. However, it is important not to take out any mortgage if you cannot afford the monthly payments. If you have any questions, the organisation that arranges your mortgage should explain the terms and conditions that apply.

WHAT IS MORTGAGE PAYMENT PROTECTION INSURANCE?

Mortgage Payment Protection Insurance (MPPI) is an insurance that pays your monthly mortgage payments for a defined period in the case of redundancy or illness. The terms of MPPI polices vary and you should always check exactly what it offers and whether you would be eligible to claim.

WHAT OTHER INSURANCES ARE AVAILABLE?

There are a number of other insurance products you may wish to consider when buying a property. These include life insurance, critical illness cover and income protection. An intermediary or lender will be able to advise you on the most appropriate cover for your situation. You are likely to require buildings insurance, and you should also consider contents insurance too.

WHAT IS ‘REMORTGAGING’?

Remortgaging is when you decide to change lender. Your new lender pays off your old mortgage and you make payments to the new mortgage lender instead.

WHAT ARE THE BENEFITS OF REMORTGAGING?

Banks, building societies and other mortgage lenders compete with each other to provide the best deal, so it is possible to save money by periodically seeking the best mortgage deal. Some mortgages may charge you a penalty if you repay them early, particularly in the first few years, so if you are considering changing
your mortgage you should check for Early Repayment Charges with your current lender first. You should also take into account the cost of remortgaging to  ensure that it is worthwhile doing so. If you need money for home improvements or to consolidate other loans or bills, you can sometimes remortgage. This will only be allowed if you have sufficient income to pay the monthly payments.

WHAT IS A SECOND MORTGAGE?

A second mortgage is a further loan on a property which is already mortgaged and where the loan is also secured against the property. This can be used to raise capital for a wide variety of purposes if the property has significantly increased in value and usually involves finance companies rather than banks or building societies. The first mortgagee (lender) will be paid first should the borrower default.