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.
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:
The different interest rate plans are:
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.
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.
|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:
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:
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%.
Since the lower figure is taken, the maximum this lender would loan to you is £160,000.
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.
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:
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:
Lenders will not consider possible future inflows such as inheritance and bonuses.
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:
Proof of address:
Bank and credit card statements:
Please note: copies of these documents may need to be certified – find out more about certified documents here
Proof of income:
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.
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:
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’.
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.
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.
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.
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.
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.
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.
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.
When your initial fixed period runs out on your mortgage, you have 3 main options:
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.
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.
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.
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:
Therefore, in order for you to qualify for a 95% mortgage, the below would need to be true:
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:
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:
Therefore, you could purchase a £200,000 house using finances from:
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:
Yorkshire and the Humber
East of England
For more information regarding this scheme, visit the Which? page that includes a calculator by Which page clicking here.
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.
Customer feedback is important to us. Here are some of our recent reviews