Mortgages

First Time Buyer

A first time buyer is usually someone that has never owned a property before. However some lenders have a slightly different view on this if you haven’t owned a property recently. If you haven’t owned a property in the last year or 3 years, they will class you as a first time buyer.

You will usually need the following:

  • Proof of income (payslips, or accounts if you’re self employed)
  • Bank Statements
  • Proof of ID
  • Proof of deposit or equity

 

Depending on the application you may require more documents.

Lots of websites have a mortgage calculator on them, however these can be quite inaccurate. If you can spare us ten minutes of your time over the phone we will be able to give you a no obligation idea of how much you can borrow.

You will also need to consider legal fees, stamp duty, moving costs and mortgage broker fees if there are any.

There are many different types of mortgages:

  • Fixed rate mortgage
  • Discount rate mortgage
  • Tracker rate mortgages

First-time buyers will have to consider these costs when purchasing a property:

  • The deposit – this is usually a minimum of 5% of the value of the property you plan to buy, but policies may vary from lender to lender and 10% is not uncommon.
  • Stamp DutyLand Tax (SDLT) – you will need to pay this to HMRC if you pay over £300,000 for the property.
  • Solicitor or Conveyancer fees – they take care of all the legal paperwork involved in a property purchase.
  • Payments to the Land Registry (when your property is registered in your name), Local Authority and various other third parties – these will be handled by your solicitor while they carry out due diligence on the property.
  • You may also need to pay a fee for a mortgage valuation or survey, depending on the deal the lender offers.
  • You may also be required to pay a mortgage adviser’s fee and, depending on the mortgage product, any product-related fees to the lender.

Buy to Let

A buy to let mortgage is what you’ll take out if you plan to buy a property to rent it out, they usually cost more than residential mortgages but you can use them to earn a profit. If you rent out your property, you become a landlord and have legal responsibilities to carry out.

 

Most buy to let mortgages are usually interest only.

You’ll need a buy to let mortgage if you rent your property out or if you already have a residential mortgage, you’ll need to switch to a buy to let mortgage if you plan to rent it out. 

You do not have to switch if you only plan to rent out your home for a set amount of time but you’ll need ‘consent to let’ from your lender instead. 

The types of buy to let mortgage are as follows:

  • Fixed rate mortgage
  • Discount variable rate mortgage
  • Tracker mortgage
  • Interest only buy to let mortgages
  • First time buyer buy to let mortgages

Buy to let mortgages often cost more than residential mortgages this is because: 

  • you need a deposit of at least 25%
  • the interest rate is higher 
  • lender fees are higher

HMO & MUFB

A House in Multiple Occupation (HMO) is a property that is rented to three or more unrelated tenants, that may share facilities such as a bathroom or kitchen. Rather than rent a property to a single household, an HMO allows landlords to rent the property to multiple households.

A multi unit freehold block (MUFB) is one freehold property that is typically split into individual flats with no individual leases.  It can also apply to circumstances such as a row of terraced houses, again under one title.

A regular buy to let mortgage is designed for single household tenants and therefore would not qualify for a HMO. Renting to more than three tenants from separate households would require a HMO mortgage, if a regular mortgage was taken out instead of a HMO legal action could be taken by the lenders for breaking the terms and conditions.

Landlords would need the following before taking out a HMO mortgage:

  • HMO Licence - This can be obtained through the local council and will be needed for each property purchased, as opposed to one licence being applicable to one landlord
  • Deposit – most lenders would require a 25% deposit
  • Experience - Some lenders will also be unwilling to lend to a first-time landlord, and often require at least a couple of years’ experience with managing properties

Self Employed

A self-employed mortgage is a home loan for anyone who trades in a self-employed capacity, whether that’s freelancing, contract work, running your own business or any other variation of the trading style.

Being self-employed can cause some challenges whilst trying to get a mortgage as you’ll need to be able to show you have a regular and reliable income, which is not always straightforward. There are many steps that can be taken to show a mortgage lender your income is reliable, but most commonly this will involve your annual tax return and your latest bank statements to demonstrate the recent income.

The requirements for a self-employed mortgage are as follows:

  • Proof of income
  • Deposit requirement
  • Credit history
  • Age limits

In most cases, you will need to wait until you have between nine and 12 months of trading under your belt before applying for a mortgage, and even then, your choice of lenders will be fewer than somebody with two or three years’ accounts.

Applying via a whole-of-market broker is often the best route. Some mortgage lenders will decline you outright if you’re self-employed and have bad credit, while others may offer unfavourable rates. A broker with the right expertise can introduce you to the mortgage provider best positioned to offer a competitive deal to a customer with your credit history.

Moving Home

Most mortgage products carry a feature which means they are portable i.e. you can carry the mortgage over to a new property should you decide to move. It’s important to check that your mortgage product is portable if you are thinking of moving as it may provide the best option.

As with your first house purchase a deposit will also be needed when you look to purchase a new home. If you have been in your current property for some time then the chances are your property will have increased in value, and your mortgage balance will have decreased from your monthly repayments. The difference in the new value and the current mortgage balance is called your equity and can be used as your onward for your new home.

Moving home could incur the following costs:

  • Legal fees
  • Stamp duty
  • Buildings insurance
  • Contents insurance
  • Removal
  • Storage
  • Redirecting mail
  • Home improvements

It can take anywhere between 8 and 22 weeks to move house, this all depends on your individual circumstances.

 

Things that can affect how long it takes to move house include:

  • finding a property
  • the mortgage process
  • if you're in a chain
  • the legal work
  • any work you want to do before you move in

Remortgages

A remortgage is when you swap your current mortgage for another one. You can remortgage with your current lender or choose a different one.

 

The reasons for wanting to remortgage are as follows:

  • get a better rate
  • get a deposit to buy another property 
  • pay off other debts
  • make home improvements

The types of remortgage are as follows:

  • Buy to let remortgage
  • Remortgage to buy another house
  • Remortgage for home improvements
  • Remortgage with bad credit
  • Remortgage to equity release
  • Remortgage for debt consolidation
  • Remortgage when you own your home outright

Lenders will look at your current financial situation as well as how well you’ve handled debt in the past. In addition to this they will want to know what your home is currently worth compared to how much of it you own, this is known as the loan to value (LTV).

You’ll get cheaper rates for a lower LTV as the risk to the lender is smaller.

Dependant on your individual circumstances remortgages can take from a few weeks to a few months so it is best to start looking for a new deal around five months before your current one expires. The following steps should be taken before taking out a remortgage:

  • Check for early repayment charges
  • Review your credit report
  • Find out how much your property is now worth
  • Get a new mortgage either via the current provider or via a whole market mortgage broker

Large Mortgages

A large mortgage is typically one that is worth one million pounds or more, although this amount may vary from one lender to another. Typically, high street lenders do not lend these large amounts so it is best to seek specialist advice.

The criteria for assessing large mortgages is exactly the same as average small mortgages, lenders look at the applicants credit worthiness and make an assessment as to whether the amount borrowed can be repaid. If you have enough income and deposit, the process isn’t really any different if the mortgage amount is £1 million or £100,000. 

Large mortgages are not necessarily more difficult to get, the same principle of affordability criteria applies, the only difficulty which arises is that there are fewer lenders who lend on a large mortgage. It is best to speak to a mortgage broker as some lenders place a cap on the maximum mortgage amount they will offer regardless of the circumstances.

It is common for those who are self employed to have fluctuating income which is higher one month but lower the next, it is still however possible to secure a mortgage for these types of applicants. It is best to speak to a whole market broker to secure this type of mortgage.

Foreign National

A foreign national mortgage is a type of mortgage for the following:

  • If you are a non-UK resident or don’t have permanent residency in the UK
  • If you are born outside of the EU but have indefinite leave to remain or permanent residency
  • Sometimes if you are an EU resident too

The types of mortgages foreign nationals can get are as follows:

  • New purchase residential mortgage
  • Remortgage a current residential UK property

The following factors are considered when applying for a foreign national mortgage:

  • The location of the property
  • The size of the deposit
  • The source of funds
  • Your employment status
  • Net worth and net assets
  • Borrowing over a million

When assessing your application for a foreign national mortgage, lenders will take into account the following factors when determining your suitability:

  • Remaining time on your visa to stay in the UK.
  • The type of visa you hold.
  • How long you have been in the UK.

Secured Loans

Using your property as security when borrowing money is known as a secured loan.

By ‘securing’ the loan, you are proving to the lender that you can pay them back, even if you struggle to find the money. But you need to be aware of the risks. If you fail to repay, the lender can take the property in lieu of repayment.

The types of secured loan are as follows:

  • Fixed for term
  • Short term fixed rate
  • Variable rate
  • Check Your Recent Credit History
  • Rebuild Your Credit Profile
  • Calculate Amount of Loan/Deposit
  • If You Have Bad Credit Don’t Make Multiple Searches, Talk to the Experts

With a secured loan, the debt is secured against something you own whereas with an unsecured loan there is no security. 

A secured loan reduces the risk for the lender and therefore you can sometimes borrow more with a lower interest rate, whereas with an unsecured loan the risk for the lender is higher and therefore the amount you can borrow may be lower with a higher interest rate.

If you have defaults your maximum borrowing may be limited as the lenders who take on higher risk for those with adverse credit like to minimise the risk elsewhere, therefore they may require a higher deposit in the majority of cases.

If the adverse credit issue is over 3 years old, it may be possible to borrow up to 4.5, maybe 5x income, but usually maximum loans sizes are around 4x income. Generally, the more severe the adverse credit, the higher the risk is perceived to be and so lenders accepting a higher risk will limit loan to income to a greater degree.

People usually get a secured loan because:

  • They are easier to get
  • It is possible to get a loan for higher amounts
  • You can borrow over a longer period

Expat Mortgages

An expat is someone who’s currently residing in a country that they’re not a national of. For example, if you’re from the UK but live abroad that would make you a UK expat.

An expat mortgage is a mortgage you’d take out on a property in the UK while you’re a UK expat. This is different from an overseas mortgage, which is where you take out a mortgage for a property that’s not in the UK but overseas.

Expats can get mortgages and remortgages for residential and buy-to-let properties. They’re available on repayment and interest-only bases, as well as with fixed, tracker and discount rates.

The rates for expat mortgages tend to be slightly higher than a standard mortgage as the lenders face higher risks from borrowers who live abroad compared to lenders who live in the UK.

Equity Release

Equity release is the release of tax-free cash from the value of the home of homeowners aged 55 and over. The amount you can release is based on your age and how much your home is worth.

Depending on the equity release product you choose, you can claim your money as one big lump sum or as a series of smaller lump sums.

Equity release can be used for many things, some examples are as follows:

  • To help your children purchase their own home
  • To travel the world
  • To pay off any loans/debts
  • To make home improvements

The two types of equity release are:

  • A lifetime mortgage - lets you take a loan secured against your home whilst still owning it.
  • Home reversion scheme: You sell all or part of your property for less than the market value and then stay in your home, but as a tenant.

The minimum age is usually 55 and there is no maximum age for equity release, although the rules may differ between providers.

This can differ between providers but the time it takes is usually 8-12 weeks.

Self Build Mortgages

Where traditional mortgages will release funds in one lump sum upon completion a self build mortgage usually releases funds at stages throughout the build.

There are two types of self-build mortgages:

  • Arrears - payments are handed out after each stage of the build is completed. This type of mortgage is better for people who have a lot of cash on hand to help pay for the project.
  • Advance - payments are released at the beginning of each stage. This type of mortgage helps with cashflow and is better for people who have less money on hand to fund their project.

The following paperwork would usually be required by Lenders:

  • Planning permission
  • The construction drawings and specifications
  • Your Building Regulations approval
  • Proof of site insurance and structural warranty
  • Information on your architect’s professional indemnity cover

Some self build mortgage lenders – although not all – will be happy to lend on the initial land purchase for your project.

In the context of applying for a self build mortgage, ‘land’ must come with some form of current planning consent to qualify.

Do you need a deposit for a self-build mortgage?

Just as with a residential mortgage, you do need a deposit for a self-build mortgage. The deposit amounts vary depending on the lender, but the average deposit needed at the time of writing is between 20 and 25%.

JBSP

A Joint Borrower Sole Proprietor mortgage helps people who don’t quite have the income or financial capacity to get a mortgage on their own, get onto the property ladder with the support of a trusted person’s income on the application. 

You, as the homeowner, still benefit from 100% ownership of your home and the non-legal owners don't have the rights to sell the property.

A JBSP application is similar to that of a standard mortgage application as All borrowers are scrutinised by the lenders, with expenses and income taken into account to measure affordability.

The main difference between a standard mortgage and a JBSP is that only one of the borrowers – the proprietor – is named on the property’s ownership deeds and lenders often insist that this person lives at the property. 

The key difference that separates a JBSP mortgage from a joint mortgage is that not all the borrowers are property owners. When you are the property owner, your name is listed on the title deeds. f you are just a borrower, you have no claim to the property, but you will have responsibility for the loan debt.

Instead of a JBSP the following options could be used for borrowing:

  • Guarantor mortgage
  • Tenants in common mortgage
  • Shared ownership
  • Rent to buy

Zero Hour Contract

A zero-hour contract mortgage is a home loan specifically for those who don’t have a full-time contract of employment but do have a zero-hour contract. Zero hour contracts are unpredictable and the amount of work and hours worked can vary making it more risky for the lenders.

It is possible to get a mortgage with just a 5% deposit however, larger deposits can work in your favour. Larger deposits often mean there’s less risk for lenders. As you’ll already be considered high-risk due to working on a zero-hour contract, it’s a good way to reduce risk around your application.

Income and affordability assessments can be trickier if you have a zero-hour contract, especially if your earnings regularly fluctuate. To get an idea of your monthly repayment potential, lenders will usually calculate an average of your income over time.

You will need to provide evidence of your historic earnings via payslips and corroborating bank statements. For zero-hour workers, some mortgage providers require two to three years’ history, but some will consider lending based on 12 months’ trading.

Zero-hour contractor mortgages won’t necessarily cost you more, but because it’s more difficult to be accepted by mainstream lenders, this can impact the rates which you are offered.

It is definitely possible to get a mortgage using a zero hours contract income and at the same time have a less than perfect credit profile.

It would however depend on the severity, frequency and type of any past or current credit issue and this should be discussed with a specialist broker.

Do you need some advice or help?

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