Mortgage FAQs

Please see below a list of common questions we get asked in relation to mortgages and the house purchasing process. If you have any further questions then please get in touch and we would be happy to help.

What types of mortgage are there and which is best for me?

There are many types of mortgages on the market to suit differing needs and situations. The best one for you will depend entirely on your circumstances.

When selecting a mortgage, you first choose your method of repayment, and then choose an interest rate plan.

The main methods of repayment are:

Repayment mortgage – also known as capital and interest mortgages. Your monthly payments include paying the interest and some of the loan. This means that assuming you keep up with all payments, your mortgage will be repaid in full by the end of the term. At the start of the term, you are paying off mostly interest and some capital, because the interest is calculated on the full amount of the loan. As the term progresses, you are paying off more of the capital because the interest is being calculated on a lower amount.

Interest-only mortgage – you only pay off the interest via your monthly payments, meaning the actual amount of the loan does not decrease. Your monthly payments are lower but you must repay the loan at the end of the term. You will be required to show you have a credible repayment plan in order to get one of these mortgages.

The different interest rate plans are:

Fixed rate – the interest you are charged is fixed for a set period, normally 2, 3, 5 or even 10 years. This means you know how much you will be paying each month. At the end of the fixed term, you revert to the Standard Variable Rate set by the lender. This is then a good opportunity to remortgage so that you can benefit from a fixed rate again, especially as the rates are usually significantly lower than the Standard Variable Rate.

Discounted – your interest rate is variable but is set at a certain percentage under the Standard Variable Rate for a fixed period of time. This is usually 2, 3 or 5 years. After this period, your discount ends and you revert back to the Standard Variable Rate for your particular lender.

Tracker – the rate of interest is variable and changes depending on the Bank of England base rate. When there is a change in this, you should see your rate change to reflect this within 15 days. For example, your mortgage may state that you will pay interest at 2% over the Bank of England base rate, meaning if the base rate is set at 0.5%, you will be charged 2.5%.

Capped rate – this is another variable rate but with an added price ceiling. This means that your interest rate will change with the Standard Variable Rate but cannot go above a certain predetermined level.

Standard Variable Rate (SVR) – your interest rate changes as the lender amends their Standard Variable Rate. This could go up as well as down and depends on the rates the lender is able to achieve as well as the Bank of England base rate.

Flexible – under this regime, you are generally able to make more or less than 12 payments per year if you would like, as well as making one-off repayments. This is suited to those with sporadic income.

Nowadays, it is less common to take out an interest only mortgage because there are strict requirements in terms of having a credible repayment strategy at the end of the term. Most new mortgages are now repayment mortgages and on a fixed basis. This suits someone with a stable income as they are aware of the level of monthly payments and can plan ahead or budget more easily.

Expected changes in interest rates would also be a factor when deciding which mortgage to take out. Since the financial crisis of 2008, interest rates have been extremely low but there is no guarantee that this will remain the case. If you believe that the interest rate will increase in the near future, then a fixed rate mortgage would be suited for you. Should you believe that the rates are going to decrease, perhaps a discounted or tracker mortgage would be best so you can benefit from the falls in rate.

Standard Variable Rates are generally the most expensive, and many people will remortgage to a new product once their initial fixed or discounted plan comes to an end.

What costs are involved with purchasing a house?

Buying a house is never cheap, and there are many different costs involved. We like to ensure that clients have full visibility of the future costs they will incur so that these can be planned for.

Mortgage costs

Arrangement fee – this is charged by the lender to setup your mortgage. The amounts vary depending on the lender but would usually be approximately £1,000. You can either pay this upfront or add it to your mortgage. Adding it onto your mortgage would mean paying slightly higher interest due to the additional loan amount.

Booking / Application fee – another fee charged by the lender, generally used to hold your loan while the application is processed. This is not normally a significant amount, usually around £100 and is not refundable if you decide not to take the mortgage out after the application.

Valuation fee – this is not to be confused with the survey that you will arrange in addition to the lender’s valuation. The lenders arrange this valuation and charge you for it, which can typically be around £300-£600 depending on the property value but is sometimes free of charge. They require this valuation to ensure that the property is worth roughly what you are paying so if you fail to repay the mortgage they will be able to recover their loan by selling the property for you.

Our fee (broker fee) – this is to cover our costs of supporting you and our time in searching the market for the best deal and preparing all the paperwork. We believe our fee offers fantastic value as we aim to not only save you money but provide a comprehensive service that takes the strain off you during this difficult and long process. Our typical fee is £495 and £295 of that is paid on application with the remainder due once you complete. If the mortgage does not work out through no fault of your own, we would be happy to refund the £295. We may charge more than this for complex cases but this would be agreed with you prior to commencing work. We will also receive a small fee from the lender as a percentage of the loan, but this will be detailed on the illustration when we get to that stage.

Legal fees

Conveyancing – this is charged by your solicitor or licensed conveyancer and covers the cost of their legal work. Conveyancing itself is the legal transfer of ownership, and there are also other aspects included in this fee such as the land searches and administration. The amount will depend on the value of the property but typically range from £500 – £1,500. Some lenders will include legal fees as part of a package, but only if you agree to use a solicitor that they choose.

Land registry fees – this covers the cost of the ownership of the property being transferred to you on the official land register. Generally this will be linked to the property value and most likely in the region of £200-£300.

Other fees

Survey – this is not a requirement when you are buying a house, but is highly recommended. It will be one of the biggest transactions you ever make so it makes sense to ensure you are fully aware of what you are buying. Whilst the lender valuation is carried out for their benefit, this survey would be done for yours so that you know the condition of the property and if there are any structural or underlying issues. Finding problems in the survey could mean you eventually decide to pull out of the purchase or you can negotiate a lower price with the sellers. It is worth checking with the lender if they could upgrade the basic valuation that they will carry out and instead conduct a full survey, then you would pay the difference. There are different types of survey available to you and the best one for you to choose depends on the condition and age of the property. Costs range from £400 to £1,500.

Stamp Duty Land Tax – this is the tax you pay to the Government upon purchasing a property. Generally, your solicitor will pay this to HMRC on your behalf and you will repay them as part of their fees. The amount depends on the purchase price of the property but there are lower rates for first time buyers and higher rates for those purchasing a second property (ie. they already own one and are buying another). The table below shows the rates, and note the bullet points below to clarify the special rates.

Purchase Price	Rate of tax
Up to £250,000	0%
The next £675,000 (from £250,001 to £925,000)	5%
The next £575,000 (from £925,001 to £1.5 million)	10%
Remaining amount above £1.5 million	12%

Example – You are purchasing a house for £350,000 – the Stamp Duty Land Tax will be calculated as follows:

0% on the first £250,000
5% on the next £100,000 = £5,000
Total Stamp Duty due = £5,000

Special Rates

First time buyers pay no stamp duty on the first £425,000, and then 5% from £425,001 to £625,000. If the purchase price exceeds £625,000 you cannot claim any special rates.
When purchasing an additional property, there is a higher rate of 3% added to the usual rates (eg. 3% up to £250,000 and 8% on the next £675,000 etc)

How much can I afford to borrow?

This varies depending on the lender, but there are rough guides that you can use to get an idea for how much you could borrow. The amount depends on your income and expenditure, with other loans such as credit cars and personal loans also being taken into consideration.

As a general rule, lenders will look at your household income and use a multiplier of between 4 and 5 (often 4.5) to calculate the maximum they would lend to you. Please note that this is a very simple estimate and actual amounts can vary depending on other factors as mentioned above.

For example, if you and your partner earn £30,000 per year then your household income is £60,000 per year. This means that you could borrow approximately £240,000 – £300,000 depending on the lender.

The other main driver behind the amount you could borrow is the Loan to Value (LTV) of your mortgage. This is the ratio of mortgage compared to the value of the property. If you are borrowing £100,000 for a £200,000 property then your LTV would be 50%.

Lenders will generally consider the maximum amount you can borrow to be the LOWEST of the below figures:

Maximum LTV – varies depending on lender and product considered but could range from 60% – 90%
Multiple of income – as previously mentioned, this would be a multiple of the household income, typically a multiple of between 4 and 5 is used

Another example to demonstrate this – assume you are making a single application. The property you like is valued at £200,000 and your income is £40,000 per year. The lender you choose uses an income multiple of 4.5 and a maximum LTV of 80%.

The maximum LTV from the lender is 80%, so that would work out as £160,000 for the property you are looking at.
The multiple of income is 4.5 times your income of £40,000, giving £180,000.

Since the lower figure is taken, the maximum this lender would loan to you is £160,000.

What is a repayment mortgage?

These are also called Capital and Interest, or Capital Repayment mortgages. In this arrangement, your monthly payments cover the interest due as well as a repayment from the original loan. They usually operate over a fixed term, with a typical term being 25 years.

Towards the start of the term, most of the monthly payments you make are covering the interest and only a small amount contributes to paying off the capital amount. As you gradually pay off more of the loan, the interest payments become less and therefore your monthly payments pay off more of the loan. The graph below reflects this:

The above means that for the first 5 or 10 years of your term, you may feel disheartened that your mortgage balance is not going down much. But don’t worry, because this will be made up for in the later years.

Furthermore, as your equity increases over the years, you will have access to better mortgage deals when you look to remortgage because your Loan to Value (LTV) will be lower.

This is the most common type of mortgage, and the good aspect is that as long as you keep up with your monthly repayments, the mortgage will be repaid at the end of the term. Compared to interest-only mortgages, the monthly repayments will be higher but this is because you are paying off the loan as you go, rather than leaving the lump sum to be paid off at the end.

What is an interest only mortgage?

With this type of mortgage, your monthly repayments cover the interest on your loan, whilst the total debt is repaid at the end of the term. This means that your repayments are generally less than with a repayment mortgage, but you still have the entire loan to pay off when the term comes to an end. Nowadays, these are more rare than they used to be and are generally only used to buy-to-let mortgages.

To give an example of monthly costs compared to repayment mortgages, a mortgage for £200,000 over 25 years with an interest rate of 3% would give the following monthly repayments:

£500 per month for interest-only (with the £200,000 to be repaid at end of 25 year term)

£948 per month for repayment (and mortgage will be fully repaid at end of 25 year term)

In order for a lender to approve an interest-only mortgage, they will need to know that you have a credible repayment strategy for the loan, and in most cases using the property sale to pay off the mortgage will not be sufficient.

Possible repayment strategies include:

Individual Savings Account (ISA) – this would involve regularly contributing to a Cash ISA or Stocks and Shares ISA, with the plan being that the total value of the ISA is sufficient to repay the mortgage. Your lender will regularly check in with you during the term to ensure you are on target to pay off the loan. One slight limitation of this method is that the maximum contribution per year to an ISA is currently £20,000.

Pensions – some lenders will allow you to use a lump sum withdrawal from your pension to pay off the debt, but again, they will regularly check in and forecast whether your pension will be sufficient. The limitation to this is that you can only access your pension from age 55 (rising to 57 shortly).

Endowments – these are insurance products that would pay off the mortgage if you died during the term, but also pay out a lump sum at the end of the term. There are different types, and not all lenders will allow these as historically they have proven to be insufficient.

Lenders will not consider possible future inflows such as inheritance and bonuses.

What information do I need to give when applying for a mortgage?

In order to review your affordability and prove your identification as well as your income and expenditure, there are lots of documents that you will need to provide.

Proof of identity:

Either passport or driving licence
Ensure that all your documents are up to date with your latest address details

Proof of address:

You will need two documents to prove your address, and these must be dated within the last three months. Examples of acceptable documents include:
- Bank statement
- Utility bill
- Council tax bill
- Credit card statement

Bank and credit card statements:

Bank statements from the last 3-6 months will be required to prove your outgoings
Any car finance or car purchase hire agreements
Details of existing loans
List of regular expenditure such as childcare or travel costs
You will need to show how you have built up the funds for your deposit. Unusual transactions may be questioned and any lump sum gifts will require a letter from the person who gave you the money

Please note: copies of these documents may need to be certified – find out more about certified documents here

Proof of income:

If employed, you will need your latest P60 and at least 3 months worth of payslips
For self-employed, it is more complicated – you will need:
- Tax assessments from last 3 years
- Accounts from last 3 years including the current tax year
- Evidence of these will be required in form of statements from your accountant, tax return form SA302, bank statements and receipts.
For additional sources of income:
- P60 and payslips for evidence of bonuses
- HMRC letter for proof of child benefits and tax credits
- Recent Department for Work and Pensions letter for evidence of state pension and other state benefits
- Letter from local authority for proof of income from fostering

What is the house buying process?

You can see our Home Purchase Process here, and our Remortgaging Process here. We have made this comprehensive so it not only covers our aspects of the process but all stages you will take.

What is an Agreement in Principle (also known as Mortgage in Principle, Decision in Principle and Approval Principle)?

This is a very important part of the homebuying process. An Agreement in Principle is a document from a lender that shows how much they would be willing to lend to you. It is not a commitment from the lender, but allows you to work out your budget when viewing houses. Furthermore, most estate agents will require this document before allowing you to view properties.

In order to obtain one, we would need details from you such as income, expenditure and address history. A soft credit check is run by the lender, meaning there is no stamp against your credit score, and a response is usually given in 24 hours. Typically, an Agreement in Principle lasts 90 days.

What is exchange of contracts?

This part of the process is extremely important because exchanging contracts is legally binding. Once the contracts have been exchanged, you must buy the property.

Therefore, it is important that you make sure you are happy with everything. The below checks can help you ensure you are ready to exchange contracts:

Searches complete
Do you have life insurance in place?
Mortgage offer in writing
Funds for deposit are ready
Completion date agreed
Check contract from solicitor – ask them if unsure of any conditions or terms – then sign and return to solicitor
Ensure you know what is included with the house eg. Fixtures and fittings
Organise buildings insurance to commence from your exchange date

During the exchange of contracts, you will be required to pay an exchange deposit. This is normally 10% of the purchase price but can be negotiated down if you are taking out a 95% mortgage. If you are putting down more than 10% equity, you will pay the remainder of your deposit when you complete.

Exchanging contracts usually takes place over the phone, with both your solicitor and the seller’s solicitor reading out their contracts to ensure they are exactly the same. The contracts will then be sent to one another so that they are ‘exchanged’.

What happens on completion date?

The completion date is typically around 1 week after the exchange of contracts. Setting a date can be complicated if there is a large chain because all members of the chain will need to agree on the same completion date.

On this day, you must wait to hear from your solicitor that the transactions are complete and that you can collect your keys. It can become quite stressful if there are many transactions in a long chain and there is always a possibility that your transaction doesn’t complete by the end of the day, so ensure you have a plan in case you have potentially moved out of or sold your house and cannot enter your new home on the same day.

Hopefully, if all goes smoothly, you will receive the phone call you are waiting for and can then collect the keys and begin moving your belongings.

What is a mortgage survey?

This is a valuation arranged by the lender when you are applying for your mortgage. The purpose is to make sure that the value you are paying is reasonable so that if you default on your payments the lender can recover the debt by selling the property. In most cases, this is paid for by you but some lenders will offer free valuations for certain products.

A mortgage survey is not to be confused with a property survey because it involves a short inspection of the house and does not consider structural defects or major repairs that are needed. Lenders will use a company of their choice, and if they are willing to offer their survey free of charge, it is worth seeing if you can ask for a more detailed survey to be conducted with you paying the difference.

What is a property survey?

A property or home survey is carried out by a surveyor and analyses the condition of your house. Depending on the age and current state of the home, there are varying levels of detail that a survey can go in to. There is no obligation to get a survey done when buying a home but it is highly recommended since this will be one of the biggest transactions you make in your life! You would not be happy if you moved in and found that the floor is sinking or there are major electrical wiring issues. The surveyor will look for structural problems such as unstable walls or subsidence and can identify any major repairs that may be needed.

In terms of the homebuying process, it is recommended that you order the survey once you have had your offer accepted on the house and are submitting your mortgage application.

Which survey should I choose?

The survey you select depends on the age of the property you are buying, the condition, and your budget. There are a number of different types with varying costs involved and offering varying levels of detail:

Condition Report (Level One) – £300+

This is a basic survey and costs the least. The approximate cost is £300 but could be more with bigger homes. You will not receive a valuation of the property, but it will provide details of major defects and possible risks that could affect the house. Findings will be given in traffic light format, with red aspects needing immediate attention.

Homebuyers Report (Level Two) – £450+

This can be carried out with or without a valuation. Adding the valuation would increase the cost.

In addition to the level one survey, you would find out if there are any factors affecting the property value, and any necessary repairs or maintenance. This may include damp or subsidence.

The survey is non-intrusive, meaning that the surveyor will not look behind or under anything, only at the surface of the house.

This is the most common survey chosen as it is recommended for homes in a reasonable condition.

Full Building Survey (Level Three) – £750+

This is the most comprehensive survey and is recommended for homes over 50 years old, with unusual features or those in poor condition.

The surveyor will be very involved, looking under floorboards and in all rooms to provide you with a report detailing the condition and structure. Any defects will be listed along with advice on repairs and maintenance.

Who carries out the property survey?

Surveys are conducted by qualified surveyors. Ideally, you will use a surveyor who is a member of the Royal Institute of Chartered Surveyors. They hold a higher professional qualification and will have professional indemnity insurance. It is recommended to use a local surveyor where possible as they will have a deeper understanding of property values in the area, so their valuation will be more accurate. Please note that the more basic surveys will not include a valuation. Read the question titled “which survey should I choose” for more information.

What are fixtures and fittings?

These are the terms used to describe items that are in the house.

Fixtures are attached to the building and therefore fixed in place. Examples include radiators, showers, sinks and dishwashers.

Fittings are not attached, or possibly only using a screw or nail. Examples of these are pictures, hanging mirrors, free-standing furniture and shower curtains.

It is generally assumed between buyers and sellers that the fixtures are included with the house purchase and the fittings are not. This should be agreed before exchanging contracts so that you are clear on what to expect in your new home.

How long does it take to buy a house?

The length of time can vary greatly due to factors such as finding the correct house, finding potential buyers for your current house, relying on a ‘chain’ to complete and receiving your mortgage offer. This is generally around 6 months on average but can take much longer.

What options do I have when my fixed period runs out on my mortgage?

When your initial fixed period runs out on your mortgage, you have 3 main options:

Do nothing and move to lender’s Standard Variable Rate (SVR) – if you continue with your existing mortgage you will automatically move to the lender’s Standard Variable Rate. This is an interest rate set by the lender based on various factors such as the Bank of England Base Rate and the interest rate the lender receives on their own borrowing. In times of low interest rates, the SVRs can be reasonable but are generally above the fixed rate you will have been on until now. As suggested by the name, this rate is also variable so will change regularly, meaning you can not be sure how much you will be repaying each month. Most clients would be looking to the other two options below rather than settling with the SVR.

Remortgage – this involves taking out a new mortgage against your home where you would benefit from a new fixed or discounted period. There may be initial charges to set this up but it is likely to benefit you in the long run if you secure a competitive interest rate below the Standard Variable Rate of your current lender. We offer a Remortgaging service and would shop around for you for the best deal on the market at that time.

Product transfer – this involves commencing a new mortgage product with your existing lender. Whilst remortgaging generally involves changing lenders to whoever offers the best deal, a product transfer means you stay with your current lender and simply move to a new product with a new fixed or discounted term. The benefit of this is that there is less paperwork involved and affordability and valuations are generally not required. However, not all mortgage products and providers will allow a product transfer, so you will need to check with your specific provider.

Can I move my mortgage to my new house?

Having the ability to move your mortgage to a new house is known as mortgage portability. Most mortgages have this feature and it should be listen in your mortgage illustration you received when taking out the loan or in the documentation related to your mortgage. If you have any queries about your specific situation, please get in touch and we would be happy to help.

What are the 'searches'?

This is the collective term for a series of property searches that will be organised by your solicitor. The purpose of these is so that you know everything you can about your property and the surrounding area before deciding to commit to the purchase.

One example is whether any building work is planned nearby, perhaps HS2 (new high speed rail line) will pass near your house. Another example is how likely your house is to flood, or how structurally sound the ground is in your area.

Searches are not compulsory for every house sale, but when buying a house with a mortgage, the lender will require certain searches are carried out before they release the funds.

To find out more about the searches for your particular property, speak to your solicitor.

How long does a Mortgage in Principle last?

They generally are valid for between 30 and 90 days, but this depends on the lender. We will let you know how long yours is valid for to make sure it does not run out. After the expiry, it can be possible to renew the terms of the agreement otherwise you will need to apply for a new one.

Can I get a 95% mortgage?

First of all, what is a 95% mortgage? This is a mortgage where you only put down 5% of the purchase price as a deposit, and take out a mortgage for the remaining 95%. This means on a £200,000 house you would have a mortgage of £190,000.

As explained in the answer above to ‘How much can I afford to borrow?’, the maximum a lender will give you is the LOWEST figure of:

Maximum Loan to Value (LTV) – your mortgage amount as a percentage of the purchase price – different lenders offer varying LTVs for their mortgage products, most vary from 60-90%
Multiple of income –this would be a multiple of the household income, typically a multiple of between 4 and 5 is used

Therefore, in order for you to qualify for a 95% mortgage, the below would need to be true:

95% LTV would need to be offered by the lender – this is extremely rare nowadays, but the Government has recently launched the 95% mortgage guarantee scheme so the number of lenders involved should increase – Find out more about 95% mortgages
When the multiple of your household income is taken, it must exceed 95% of the purchase price of your property – otherwise this figure will be lower than the maximum Loan to Value and therefore your maximum mortgage amount will be this figure

Let’s look at an example – assume you and your partner are looking to purchase a £400,000 house. Your total household income is £60,000 and the multiple of income used by the lender is 4.5. This lender happens to offer a 95% mortgage product.

The maximum mortgage they will offer you is the LOWEST of:

Maximum Loan to Value (LTV) – in this case they are offering 95% so this is the maximum – 95% of the £400,000 house is £380,000
Multiple of income – a multiplier of 4.5 is being used, so for you this comes out at £270,000

Therefore, the lowest of those two figures is your multiplied household income of £270,000 so this is the most you can borrow. As a Loan to Value, this works out as 67.5%.

Help to Buy Equity Loans

This is one option for those struggling to save enough as a deposit. They enable you to take a loan from the Government meaning you could afford a mortgage lower than 95% of your property price.

Help to Buy Equity Loans are available to first time buyers purchasing a new build property. The amount of the loan depends on where you live, and you will need to cover at least a 5% deposit. You can borrow:

Up to 40% in London
Up to 20% in the rest of England and Wales

Therefore, you could purchase a £200,000 house using finances from:

5% deposit (£10,000)
20% Help to Buy Equity Loan (£40,000)
75% mortgage

Please note that the below price caps apply – meaning these are the maximum property purchase prices that are eligible for the scheme in the given areas:

Region	Price cap
North East	£186,100
North West	£224,400
Yorkshire and the Humber	£228,100
East Midlands	£261,900
West Midlands	£255,600
East of England	£407,400
London	£600,000
South East	£437,600
South West	£349,000

For more information regarding this scheme, visit the Which? page that includes a calculator by Which page clicking here.

What is conveyancing?

Conveyancing is the transfer of legal title to real property from one person to another. In simple terms, it is when a house purchase takes place and the ownership passes from the seller to the buyer. Solicitors or conveyors carry out this legal process and it occurs in two stages – exchange of contracts and completion.

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Consilium Asset Management are Independent Financial Advisors (IFA) based in Bristol and are authorised and regulated by the Financial Conduct Authority. More information can be found on the Financial Services Register under Number 469507. Registered Office: Vayre House, Hatters Lane, Chipping Sodbury, Bristol, BS37 6AA.