How to Buy Property Post-Lockdown

There is no doubt that the Coronavirus pandemic has had a colossal impact on every aspect of our lives. The impact from the global pandemic reaches further than just domestic too as we see the ‘new normal’ scaling across the world in order to get the economy and normal life up and moving once again.

It’s safe to say that the property market has also seen a huge dip in sales, enquiries and contract exchanging too but light is being shone at the end of the tunnel as estate agents across the UK reopened on the 13th May 2020. 

But, how should you be approaching buying a house post lockdown? Here are our top 3 tips…

Show Your Enthusiasm

Although there is a lot of speculation at the minute around the idea that the market is very unsaturated, there is additional evidence that contradict this theory. 

It is very unclear at the minute as to what the property market will be doing in terms of house prices as a result of the global pandemic, however there are a multitude of reasons as to why a decrease in the housing market may not be taking place…

  1. Backlog of buyers due to Brexit
  2. Lockdown proving why certain houses are no longer suitable. 
  3. Break down in relationships/employment 

At the back end of 2019 there was quite a significant decrease in the property market as people held off buying due to the long awaited Brexit. People’s uncertainty of buying a property in the midst of Brexit meant that the market almost hit a halt during the winter months of 2019. 

This first began to become apparent in the autumn of 2018; when Marc Carney said that a no-deal Brexit could result in a huge cut in house prices, by up to a third of their value.

Due to this statement, as well as much more speculation from economy experts, people began holding off on the sale and purchase of property. Now we have left the EU and are slowly but surely coming out of the lockdown period, a huge backlog of these buyers and sellers are now eager and ready to play the property roulette once more!   

The number of people eager to buy and sell will also be topped with those who have struggled in their homes during this lockdown period. If you have found the lockdown a breeze, then you’re probably in a suitable home, in a suitable location with the right company for you. However, a lot of people will not have found it quite as easy. Meaning it is anticipated that an increase in people buying and selling simply as a result of lockdown. 

An alternative way that lockdown will be contributing to increased interest in sales and buying new property, will be due to the increase in unemployment. During the coronavirus outbreak, 600,000 have been taken off payroll in between March and May 2020, this figure would not therefore be taking into consideration those that are self employed. These figures are higher than have been for years, meaning those who have taken on mortgages, may need to reconsider. 

Since China began to loosen their lockdown restrictions at the end of March, the increase in divorce and separation rates have also increased. For the property market this means:

  1. Increase in sales of houses as a separate couple may no longer be able to afford a large mortgage single handedly. 
  2. Increase in buying properties and separated couples seek to find a new home without their spouse.

Therefore there are many reasons as to why, if you are serious about purchasing a property, you need to sell yourself as a serious contender.  

Estate agents may turn a blind eye to you if they feel you are not serious about a sale or purchase as they have to go through a much more lengthy process for those who are potential buyers or sellers. Even arranging a house viewing will be increasingly difficult as the wishes of the vendor and or tenant will need to be matched as well as the social distancing rules that have been sent by the government as we proceed into phase 4 of the easing lockdown rules. 

Therefore it is essential that you are clear about what you’re wanting in a potential property as well as your position. Being straightforward and upfront with the estate agent will put you in a really good position for when you find a property you are interested in.

Acquaint Yourself with the Community

Most people will know that buying a house goes a lot further than brick and mortar, as the community your new purchase will be situated in is just as important for most. 

Before lockdown you could quite easily get the a general understand for a community just by going local venues and speaking with your potential neighbours-to-be.

However, now, it is more difficult than ever to do this as the closure of amenities stay that way for a little while longer. Nevertheless, there are a few other alternative methods you can do in order to get to know the surrounding area, what other people’s opinions are of the area and also form your own opinion. 

Go for a walk and talk to the locals. If you are not a keen walker, then alternatively you can drive, but go out and find a local, get their opinion and find out their experiences on living there. It is essential that you respect the wishes of other people in the area however as some may not feel comfortable talking to you beyond a polite ‘hello’. 

It is also a great time to find out about your neighbours, since everyone is guaranteed to be home anyway. Have a quick knock on their door, ask them what you want to know, but again be respectful as some may be isolation or shielding – a phone call will be just as informative, provided that the person is willing to share their phone number.

What might also be a good idea too, if you yourself do not feel comfortable starting conversation with strangers, is to join online community groups. There has been an array of these spring up all over social media, initially created to make people feel less lonely during the lockdown, however, have blossomed into a lovely virtual community in replacement for all of the prior outdoor social activity one undertook on a daily basis. Instagram has become a good online resource, on there you can follow hashtags to see localities as there has been a recent surge in these types of posts. 

It may also be a good idea to ask locals, estate agents and do some online digging on noise levels near your new home. The coronavirus has seen a decrease in road congestion from 50-70% to just 16% over the last few months in some areas. So, what you may see and hear now, may not be a realistic representation of the real noise pollution in that area. 

Save your Money

Another step that you may have found easier during the lockdown is to save a little spare cash. Pubs and restaurants closed as well as local amenities, meaning that we have had to make do with a board game and home cooked meals! 

Therefore if you have been able to save it is a good idea to increase your house deposit if you are able to do so, for no other reason than some banks are increasing their down payments before accepting your loan. Some banks have even said that down payments need to be as high as 15% in order to be granted the loan. This is particularly common for purchases in cities such as London and Manchester. 

This is especially important if you are a first time buyer or are self-employed as banks are quite reluctant to lend out money due to the current state of the economy to these two categories. You might find that they are asking more questions and taking a little more precaution when investigating your financial state and how the pandemic will have affected you.

So, is it completely legal for a sale to go through now in the UK?

Since lockdown was first officially announced at the end of March 2020, proceeding with the sale of a house became illegal. This was due to a magnitude of reasons such as estate agents were not allowed to work, you couldn’t visit a household or any person that was not within your ‘bubble’, and valuations of properties were brought to an abrupt halt. 

Although guidelines suggested that only urgent transactions (those that, if they didn’t proceed, could potentially make someone homeless) should go ahead.

However, as we move into phase 3 of lifting the lockdown rules, we see more and more restrictions in this area being lifted. 

Buying, selling, renting homes and commercial properties are all legal to go through, under the condition that all of the properties are based in the UK and providing that everyone involved in the transaction is abiding by the social distancing rules set out by the government. 

The relaxation of some lockdown rules also means:

  • Some estate agents will be allowed to reopen for face to face meetings 
  • In person viewings 
  • Remortgaging taking place 
  • All aspects of a physical house move are now taking place 
  • Removal companies are now in full operation 

Depending on the estate agent or buyer or seller of a property, the way in which they conduct viewing etc. will be independent to the individual or the estate agent. Some estate agents may have no problems, however some may only be taking virtual viewing for the first viewing and then if a second viewing is requested, then doing the second viewing in person, this may reduce footfall. 

Alternatively if there is a vulnerable person who is shielding, this may mean that the viewing process is postponed or unable to proceed simply to err on the side of caution.

Remortgaging a property, in some instances, may already have been feasible due to desktop valuations which were taking place throughout the lockdown period. This will now be easier as in person valuations are now going ahead. 

What about Scotland, Wales or Northern ireland?

The governments of Scotland, Wales and northern Ireland have decided not to take lead from Westminster meaning that the temporary freeze on the property market is still in place. Therefore it is unlikely that the sale of properties will be going ahead except for very rare circumstances.  

What about the building of new homes?

The government has issued guidelines in regards to the production of new homes. Once again, builders and construction sites have been given the ‘good to go’ giving that they follow social distancing rules and work remotely. 

In the effort to get the new homes property market moving again, the government has also issued a new ‘safe working charter’ to restart the process in order to mitigate any potential long term damage to the housing market.

Have house prices been affected due to lockdown?

Sellers may still well have a very fixed price in their head of what their house is worth and buyers may have a very fixed price of what they would be willing to spend on a property. That being said, the market is not yet in the same position as what it was before the covid-19 crisis hit and therefore this causes concern for property market experts. 

It has been predicted that people will be more likely to negotiate house prices and try to get more for their money after the lockdown which could lead to a little bit of a stalemate further up the property ladder, as those with a house to sell may be reluctant to accept a low offer if they, in turn can’t get a lower offer accepted on their next property and so on. 

This could mean that house prices will decrease slightly, but the UK will not know officially until the market gets moving once more. 

To conclude,

Although covid-19 and lockdown has changed the way in which house sales are being processed and completed, this does not mean you should be put off buying a home post- lockdown. 

Although previously banks may have been quite reluctant to lend as much money if they were lending money out at all. However, now that the economy has started rolling again, more and more banks will begin lending once again. 

As long as you follow our three tips (as listed above) and also be aware of the changes to the market, you should be well on your way to finding (and moving) into your new home or commercial property. 

How to Build Home Equity

Building equity in your home can result in lucrative financial benefits in the long run. You don’t reap the rewards whilst it’s happening, but it does build wealth since you end up with a significant asset. But what exactly is home equity, and how can you benefit?

What is home equity? 

Home equity is the market value of the homeowner’s burdenless interest they have in that property.

This can be easily calculated by looking at the market price of the property and extracting what the loan is left to pay back on the mortgage.

House

Therefore, the more money you invest into your home equity, the less time you will have to be paying it off.

So, now you know what home equity is we’re now going to expand and give you our best tips for building that equity in an efficient and effective way. 

A large down payment 

If you’re already a home owner and are settled in that property, this may not be as applicable to you as someone on the road to making a property purchase, but it may be helpful when and if you make a new purchase.  

Home-buyers that are taking out a loan to pay for their property, the conventional route, should put down the largest down payment that they can afford.

This will be money that should be seen as investment as you will not have access to this money for years, possibly decades. However, the higher you can make this down payment, the more equity you will have in your home. 

A good down payment would be considered as 20% of the property’s value, however, the larger the down payment the more favourable your position will be.

Renovate your property 

Modernising your property will not only make it aesthetically pleasing but will also increase your home equity, potentially by a significant amount too. This applies to both the interior and exterior of the property. 

This doesn’t necessarily mean that you have to go knocking walls through and converting your garage to a fourth bedroom, this could simply mean a lick of paint in your kitchen, or a new carpet on your stairs.

Renovated Kitchen

Little changes could make all the difference and keep your property modern and up to date will mean its value has the potential to increase, when you come to resell. 

Pay out more than what is asked of you 

We understand that, at times, having a mortgage can put a financial strain on the property owner(s), however to build your home equity we recommend that, if you’ve had a really good month at work, or you’ve saved a little more money then you planned that month to put that money into your property.

With fixed interest rate mortgage products, lenders will typically allow 10% overpayments of the amount outstanding per annum without penalty of early repayment charges. Whereas, with variable interest rates such as Trackers and Discounts, there is often no limit in regards to overpayments.

However, we advise that you check with your mortgage provider to clarify the terms of your overpayment facility

By even slightly increasing your mortgage payments each month you will see a huge difference in your home equity. 

This could knock years from your mortgage repayments if you are consistent so it is definitely worth pushing yourself, if you can afford to do so. 

Focus on paying off your mortgage

Even by just paying your mortgage payments you are increasing your home equity. It is a good idea to find out how much equity you have in your home and how much of your mortgage you have left to pay for you to make reasonable and sensible choices for the future.

If you can stretch for higher amounts to pay your mortgage off each month (see point 3) then that’s great, but if not, just know that you are still increasing your home equity just by paying what is asked of you. 

man writing cheque

By increasing your mortgage payment you could save yourself money in the long run as you will reduce interest over time. It may also be possible, if this is within your budget to pay twice a month towards your mortgage, if you really want to increase your home equity and deduce the period left to pay your mortgage. 

However, always check with your lender, before making any additional payments, that you will not be charged a prepayment penalty. Although most lenders, especially if your loan is FHA, VA, or USDA, will not charge a penalty, it is always best to be 100% certain as you do not want any hidden fees to crop up at a later date. 

Shorter loan terms 

This can be achieved both when you are first applying for your mortgage and if you are already in a fixed mortgage, you can chose to refinance and choose a shorter loan term. 

This will build home equity in a much smaller period of time, all mortgages are different and depending on your financial situation, you may be able to refinance your mortgage to around 15 years.

However, with a shorter time to pay off the same loan, means that the monthly payments will increase to potentially double their previous value. 

It’s also good to consider that this option will not necessarily be available to everyone, you will more than likely have to have good credit, a low debt-to-income ratio and have a home equity over a certain value already.

Therefore it is a good idea to check your credit score ahead of time. You can do this quickly and easily using Experian

If you do qualify however, may we recommend that you stay clear of cash refinancing. You will find this counterproductive as the idea of refinancing is to increase your home equity. If you chose to cash re-finance, you could find that your mortgage will be even bigger than when you first started. 

Wait for your property’s value to rise 

Whilst this point may not apply to all property owners, especially those who are eager to climb up the property ladder, it may be worth considering. 

Like all investments, the market fluctuates on a daily basis, however, history has shown that naturally house prices do increase, and therefore the property owner’s home equity will build if you sit on the property for a while. 

house

Although the market can decline and you could lose money, it is more than likely the value of your property will increase and you would be a few grand better off if you wait for your property’s value to rise before making any moves. 

To conclude,

Let your future self be thankful and begin to build your home equity today. Follow these 6 small steps and see your equity build through the years. Take little steps and we can guarantee that your home equity will grow through the years. 

 

Should You Buy a House During Coronavirus Outbreak?

Despite the UK officially being sent into Lockdown due to the global pandemic of the Covid-19 virus, government guidelines state that there is no need to pull out of transactions despite some people’s concerns around this unprecedented phenomena.

It’s certainly not Business as Usual for real estate agents, however, there are actually some benefits for home buyers.

With that said, it’s important that buyers must be able to accept and adapt to the changes caused by the pandemic and know that the time-frame must be adjusted in line with the social distancing rules which have been introduced as a result of the outbreak.

Social distancing will impact house buying in a variety of different ways, however, let’s begin by explaining some of the key benefits.

Benefit for ‘cash’ buyers

Those who are cash buyers, individuals purchasing a property not reliant on a mortgage, will see huge benefits during the Covid-19 pandemic. They are in the perfect negotiating position to take properties from sellers who are desperate to move.

Cash buyers may be able to whip up properties at a bargain price as people will struggle to get their maximum loan sum, whilst those needing to sell a property will be panic selling, putting cash buyers in the perfect position.

Benefit for first time buyers or people purchasing a new home

A first time buyer or someone purchasing a brand new property reduces the chain significantly and due to the issues that have been raised below, means the less of a chain on a property, the easier it will be to purchase a property during this pandemic.

Property Ladder

If first time buyers can secure a fixed mortgage on the currently very low interest rates, it would mean they are securing a low mortgage repayment cost for the foreseeable future.

So with that in mind, what are some of the disadvantages of buying a home during Covid-19?

House Valuations

House valuations have been put on hold as a result of the Coronavirus. Surveyors, as a result of immediate law enforcement, have halted physical house valuations. Surveyors are at high risk of not just catching the virus but also spreading it through multiple households which are more than likely to be occupied by families.

As physical house valuations have been halted, this has caused a chain of issues for property buyers.

Not only can they not get a surveyor to conduct a property valuation on their potential home, but it is also affecting the chain associated with the home buyer.

If the home buyer is moving up the ladder then they cannot get a surveyor to their house which maybe stunting them from moving out, or additionally, the people in the property to which they are purchasing cannot get a valuation on their next home and so on.

Property valuation is crucial and a necessary for any property owner as a mortgage will not be distributed by a bank or another entity until the valuation has been done. The property valuation is beneficial for the lender and buyer alike as they will determine any issues and risks associated with buying the property as well as estimating what the value of the property is to see if it’s worth the investment of both parties.

Without the property valuation, the buyer cannot complete their property purchase and so it is likely that properties will be unlikely to be completed during the pandemic, but rather than ‘falling through’ you should just see this as a delay.

Signing documents

Unlike most professions, Law is a very traditional sector and it does require a witnessed signature in order to exchange contracts. Although this is good to avoid forgery, it is not ideal during a global pandemic.

lower payments

Many conveyancing solicitors, because of the ‘physical signature’, are either significantly delayed or have stopped working altogether as their job requires physical contact with clients for the completion of documents.

Therefore, regardless of whether a home buyer has a mortgage offer or not, an exchange of contracts is unlikely to go ahead without a minimal delay of 3 months of the expected date.

Other issues that may arise with investment rates…

Base rates

Due to the pandemic, the Bank of England base rates have decreased to a record low and it is now an incredibly good opportunity for investors to capitalise in a property. Unfortunately, however, the banks have also recognised this and are beginning to pull away their ‘Tracker’ interest rate mortgages.

This is something to be aware of which, as a buyer, is a good thing if you can secure a mortgage at such a low rate, especially if you can get it fixed for 2 or possibly even 5 years. However, securing that mortgage maybe more difficult than normal during this period.

Reduced maximum loan sum

Many lenders have reduced their maximum loan sum by a significant amount.

Billions of jobs will be lost and thousands of businesses, small and large, will go bust as a result.

This means that banks and investors will lose a lot of money as a result and so their appetite to lend will diminish.

Investments they have previously made will be at a loss so most will be reluctant to reinvest at this uncertain time.

Those who are in the process of a mortgage application could see their lender being reluctant to lend the amount previously discussed as their affordability changes.

Final words

Although some issues will arise as a result of Coronavirus when it comes to purchasing a home, most issues are mainly due to the ‘social distancing’ rules that have been put in place to stunt the spread of the virus.

This will therefore affect house valuations and witnessed signatures. However, this is more likely to just ‘delay’ a sale, rather than cancel it altogether.

There are benefits to buying during this time such as low interest rates and benefits for cash buyers. Therefore, you should not be put off purchasing a property during the Coronavirus pandemic, rather you should just see it as a delay in the process.

Advantages of Using An Independent Mortgage Broker

A broker acts as an intermediary who connects someone who wants to buy a financial product, such as a mortgage, with an appropriate provider. Mortgage brokers are experts in their field and understand a lot more about the mortgage market than the average homebuyer, so getting their advice can be very beneficial.

There are many reasons that people choose to use a broker, whether they are first time buyers looking to get their first step on the property ladder or landlords with a property portfolio that they are looking to expand. Here are some of the key benefits of using a professional broker service:

 

To get access to the whole of the market

Mortgage applicants will only have access to the standard mortgage lenders, but most brokers have access to the whole of the market. This means that the applicants can use the deals and types of mortgage lenders that they would not usually be able to access or would struggle to find. 

broker with clients

Most good, reputable brokers will have spent years working with a wide range of lenders and have a deep understanding of the different mortgage deals that are available. This enables applicants to get the best type of deal for their circumstances and the broker is able to work quickly to find the right deal for them.

The difference between one mortgage deal that seems like it is a good deal and another that a broker could find you with a slightly better interest rate could save you a significant amount of money over numerous years, so it is worth making sure that every available deal on the market is checked to see which one works out better.

 

Access to specialist lenders

For those mortgage applicants that have special circumstances such as adverse credit or are self-employed, for example, they are more likely to be able to find the relevant lenders by working with a broker. If an applicant has issues on their credit report, this could impact their ability to get a mortgage application accepted, as the lenders would categorize the applicant as a higher risk. 

In these situations, some lenders will still offer a mortgage to the applicant but they will apply a much higher interest rate. This means that the applicant will be paying thousands of pounds more over the length of the mortgage term than if they were able to find a more favorable interest rate with the help of a broker.

mortgage broker

In 2014 there was a Mortgage Market Review that resulted in lenders being required to be stricter with their affordability checks. Since this point, more evidence is required to prove income, for example, and it has become harder for some people to get mortgages for higher values. This also impacted people who were self-employed who were unable to provide six month’s payslips or similar evidence to show their income.

If these applicants with special circumstances were to just apply for mortgages with the standard lenders, then it is likely that their application would be declined. Having a declined mortgage application will further impact an applicant’s credit report, so it should be avoided wherever possible. A broker who understands their client’s financial situation will be able to identify the best lender on the market to be able to provide the applicant with a mortgage deal.

 

Expert Advice

The mortgage market changes quickly, so it takes an expert in the mortgage field to understand what the best current deals are and who is providing them. The key role of the broker is to use all of the specific information related to the applicant and find a deal that is completely tailored around that. So, information such as credit history, income, outgoings, outstanding debts, amount of deposit and employment type are all factored into working out which is the most appropriate lender to give them the best deal.

Due to their strong understanding of the market, a broker can also help applicants to find a lender that matches their priorities. For example, if an applicant needs a house purchase to go through quickly, the broker will be able to advise on which lenders usually offer a speedy service. They can also ensure that the applicant has everything in place that the lender will ask for before they request it, which will further speed up the process.

expert advice from brokers

Brokers must have relevant qualifications such as the CeMAP (Certificate in Mortgage Advice and Practice) which means they have undertaken the relevant training to enable them to provide people with mortgage advice. They are also regulated by the FCA and should be on the FCA register, which is easy to check. 

If someone receives incorrect mortgage advice, they are protected and can raise a complaint to seek compensation, so this is another reason that people choose to work with a broker, for the added protection.

 

Exclusive Deals

Some mortgage deals are only available to brokers, as the lender only operates through a broker. These can often be some of the specialist deals that applicants with certain circumstances can be accepted for when other lenders won’t take them on. 

exclusive deal

Brokers also access some exclusive deals that can save an applicant a lot of money over the course of the mortgage term. Many lenders will only offer exclusive rates to brokers and not directly to borrowers.

 

Convenience

Working with a broker takes a lot of the hassle out of applying for a mortgage. Searching through the different types of mortgage deals and lenders can take up so much time and then there is the financial terminology and calculations that people often struggle to understand. A broker will be able to explain all of the details to applicants and there is less necessity for an applicant to understand it all in-depth, as the broker will advise the best deal based on their expert knowledge. 

broker with clients

A broker knows the application process inside-out, so an applicant does not need to think about what they need to do or research what the process looks like. A broker will walk their clients through the whole end-to-end mortgage application, answering any questions where necessary and acting in the applicant’s best interests. So, the applicant won’t need to worry about when they need to instruct a solicitor, or what documents are required, because the broker usually takes care of that side of the work for them.

 

Conclusion

Using a broker provides mortgage applicants with so many benefits, from saving money over the course of their mortgage to speeding up and taking the complexity and hard work out of the application process. The expertise of a broker will help to identify the most appropriate lender for each specific client and find the best deals that are available on the market.

Talk to Boon Brokers today to see how we can help you to find the right mortgage deal for your circumstances.

 

How to Get a Mortgage with a New Job

Getting a Mortgage with a New Job

When you start a new job, it can be a very exciting time, embarking on a new career and meeting new work colleagues. Whether you are changing career completely, or switched to a similar job with a new company, there are plenty of reasons to look forward to the future. 

However, if you are in the process of applying for a mortgage, or are thinking about doing so in the next few months then starting a new job could impact your application. This information should help you to understand how your mortgage application could be affected by starting a new job and how to work around potential problems so that you can go ahead with purchasing a property.

 

Providing proof of income through payslips

For many lenders, part of the lending criteria is that the applicant will provide payslips for the last three or more months to prove their income. If you have not been in work for a few months and are unable to provide three recent payslips, then this could cause a problem when you are applying for your mortgage. You could wait until you have been in the job for six months, so that you can provide the proof of income through payslips, although some lenders will accept a letter from your employer that confirms your salary instead. 

payslip

Some people choose to delay their mortgage application if they are due to switch jobs or try to get a mortgage agreed before they start the job application process. However, if it is necessary to change jobs and buy a home at the same time, there are still solutions for this.

 

Getting a mortgage when you have just started working

If you have just recently started your new job, then you will not have the payslips to prove your new income. Many mortgage providers will only lend to an applicant that has been in a job for some time, as they see this as a more secure employment and therefore a lower risk of not being able to pay back their mortgage loan. 

When you start applying to standard mortgage lenders, you might find that your application is declined because they are not prepared to lend to you until you have been in your job for longer. Each mortgage lender has different criteria, so it is worth checking with any lender before you start the application process.

If you get a declined mortgage then this could affect your credit report, so only apply for a mortgage if you are confident that the lender will accept you based on the length of time you have been in your role. 

credit score report

Mortgage lenders will also want to know whether your job involves a probationary period, such as where your contract could be terminated after the first six months, for example. Another reason that lenders are less happy to provide mortgage loans to people in new jobs is because when redundancies are made, it is often the case that the newest employees are the ones who will be made redundant first.

A specialist broker should be able to identify the lenders that are most likely to accept your application when you have started a new job, factoring in all of the other relevant information that you provide them with.

 

What if your salary goes down?

Similarly, if your new job means that you are taking a pay cut, you might find that lenders will not lend you as much as they would have been prepared to when you were on a higher salary.

If your new job involves different types of financial incentives like commission, bonuses or any other financial benefits then you should inform your mortgage lender to see if they include those arrangements when they are calculating your affordability.

Whilst some lenders might not count bonuses in your affordability calculations, other lenders will.

Other factors, such as how much deposit you are able to put down for the property will also be taken into account when a lender is deciding how much to lend to you, so saving up a bigger deposit will improve your chances of getting accepted.

 

If your salary has increased

If your new job means that you will be earning more money, then this will increase your affordability calculation, so you could be able to buy a house that is priced higher than you could previously with your lower salary.

People often wait until they start a job where they have a bigger salary before they apply for a mortgage, so that they can afford a more expensive house, or they may need to wait until they earn a certain amount before they are able to afford a property at all.

larger house

When a mortgage lender is calculating your affordability to pay the loan, they will take into account your salary, age, outgoings, outstanding debt and they will also look at your credit history. 

 

Self-employed and applying for a mortgage?

For people that are self-employed, this often means that they need to find a specialist mortgage lender that provides mortgages to self-employed people and will accept evidence other than payslips as proof of income, such as their accounts.

It can be quite difficult for self-employed people to get a mortgage as their income is often harder to prove and does not have payslips to show the monthly salary. Some lenders require several years of accounts as proof of income before they will be prepared to lend to self-employed workers.

self employed man

If you are considering moving from being employed to starting up your own business, then you should consider the impact of doing so on your future mortgage applications. It is sometimes a good idea to take out a mortgage before you become self-employed to make the mortgage application process more straightforward.

However, if you are already self-employed, there are still many lenders that offer mortgages to self-employed people, but you would need to find a good broker such as Boon Brokers to help you to find the best mortgage lender for your situation.

 

Getting a mortgage when you have just gone self-employed

There are certain factors that will impact whether a lender will be prepared to lend to a newly self-employed applicant. As it is difficult to project your potential future earnings, the other details that will usually be taken into account are:

  • Your previous salary when you were employed
  • How long you were employed for previously
  • Whether you are a skilled worker with relevant qualifications/experience
  • Your business strategy i.e. where your earnings will come from
  • How long you have been self-employed for

If you have not been self-employed for long then a standard mortgage lender is more likely to decline your application, so finding a specialist broker is the best option in this situation. A specialist self-employed broker will be able to find the lenders that are more likely to accept you, based on your age, deposit, house value, employment status and credit history.

 

Switching your current mortgage when you change jobs

When you already have a mortgage but you want to change mortgage, either because you want to move home, or because you want to try and arrange a better mortgage deal, your position will change if you start a new job. If you have a different salary, this could affect the value that you can get a mortgage for. An increased salary could allow you to move to a more expensive property.

large house

However, if you have any of the issues above, such as not being able to provide payslips, or changing to be self-employed then you will be in the same position and could find it more difficult to have a new mortgage accepted.

Therefore, it can be better to wait until you are in the new job for longer, or to apply for a mortgage well before you change job/move into self-employment.

 

Conclusion

Starting a new job will always make applying for a mortgage or any other type of credit more complicated. Moving jobs can be seen as a risk for lenders, as they want to see a history of employment and income to assure them that you will be able to repay your mortgage loan for the term that you arrange. 

Whether you are starting a new career, or joining the many other people moving into self-employment, the best way to make sure that your mortgage application is accepted, is to work with a specialist broker.

If you would like to discuss your current job situation and find out how it will impact your ability to get a mortgage deal accepted, you can speak to Boon Brokers, a specialist mortgage broker with years of experience in helping people with new jobs to get the best mortgage deals.

 

All You Need to Know About Buy-to-Let

Although the principle of taking out a mortgage is fairly similar whichever type of mortgage you take out, there are some significant differences between a residential mortgage and a buy-to-let mortgage. From the eligibility criteria, to the different terms on lending, this article should provide you with all of the information you need regarding buy-to-let mortgages.

What is different about a Buy to Let Mortgage?

A buy-to-let mortgage is taken out by a landlord when they buy a property to rent it out to a tenant. Typically, this will be where a landlord buys property in order to make a profit from renting it out. However, there are lots of costs that a landlord is responsible for that must be taken into account if they are considering renting out a property.

The criteria for being accepted for a buy-to-let mortgage is stricter than for a residential mortgage and generally involves higher interest rates and a larger deposit. These are the key differences you will usually find:

  • Higher deposits required for buy-to-let mortgages.

Whilst residential mortgages can be provided with a minimum of 5% deposit, buy-to-let mortgage lenders will usually require at least a 25% deposit. This is because a buy-to-let can be seen as a higher risk to lenders, with issues such as landlords not being paid rent by their tenants, or the property being vacant for times.

  • Interest rates are higher for buy-to-let.

Interest-only mortgages are more common with buy-to-lets but with repayment mortgages, across the market the interest rates are higher than the residential mortgage interest rates. At the time of writing this article, the lowest residential interest rates were coming out at around 1.50% initial rate for fixed mortgages, whilst buy-to-let were around 2% at least.

  • Higher fees for buy-to-let.

People looking at buy-to-let mortgages should also expect to see higher fees for setting up the mortgage, many lenders apply charges of £1,500 to £2,000, whilst residential mortgage fees will usually be half of that.

buy to let differences

What should I consider if taking out a buy-to-let?

There are many costs, risks and responsibilities that a landlord takes on when they decide to rent property out. To start with, there are the tax rules that you must consider, including tax on profits. There will usually be a stamp duty when you purchase a new property, and if/when you sell the property, you will need to pay capital gains tax.

You will also need to decide whether you want to rent the property through a letting agent, or deal with the letting yourself. Agent fees can vary depending on how much they are responsible for, as some will arrange maintenance, some will just find a tenant and then you manage the letting, so you must work out which one is the best option for your circumstances.

Buildings and contents insurance will be required to protect the property, with specific landlords insurance being an option that provides further levels of cover. As a landlord, you are responsible for the costs of repairs to the property and this can be very costly, especially if boilers need replacing or other large outlays. 

You also need to consider whether you can afford to pay the mortgage if your tenant misses payments, or if there are periods of time when there is no tenant in the property. Whenever the property is vacant, you are responsible for paying council tax and any bills that arise in that time.

Buy to let house mortgage

Another consideration is that interest rates can change, as can landlord’s tax responsibilities, so getting tied into a long buy-to-let loan might not be the best option if you want the flexibility of selling the property without an early repayment charge.

Further to this, you have to think about the possibility of not being able to sell the property at the time that you need to or want to. The demand for houses in that area could drop, the housing market could crash etc.

How big can the loan be?

The amount of the loan will depend on a variety of factors but mostly calculated based on the amount of rent that the property will be able to command, which will vary depending on the type of house and the area. The amount of deposit will also be taken into account and mortgage lenders will look at an applicant’s credit report too when deciding how much to lend.

Typically, lenders will require the rental income to be around 20-30% more than the monthly mortgage payment for them to take on the risk of the loan.

Who can get a buy-to-let?

A buy-to-let mortgage will only be available to people that match a certain set of criteria, this generally includes that the applicant:

  • already owns their own home (even if there is an outstanding mortgage)
  • is investing in houses and flats
  • earns over £25,000 per year
  • can afford the risk
  • has a good credit record 
  • is under a certain age i.e. most lenders will not loan to an applicant that will be over 70 when the loan finishes.

When the mortgage lender is looking at whether to accept a buy-to-let mortgage application, they will conduct a thorough check of credit history and affordability. They will usually require some kind of evidence of the amount of rent that the property can expect to receive, through a letter from a surveyor.

Planning ahead

It is really important that anyone considering buying a property to rent out and taking on the commitment of a buy-to-let mortgage is well prepared for the different scenarios that could happen. 

One of the biggest concerns for landlords is when they do not have any rent coming in and needing to find the money to pay for the mortgage, usually on top of their own mortgage if that is outstanding. Therefore, it is advisable to have cash set aside for that type of scenario. 

As well as having the property vacant for periods of time, there is also the possibility that the tenant doesn’t pay their rent. This could be a one-off scenario, or you could even face a tenant not paying for several months and you then need to take legal action to evict them and to try and get your rent payments back.

house for mortgage

You must also plan for events such as big repair costs. As a landlord, you are responsible for paying for repairs to the heating system and other maintenance. A big cost like replacing the boiler, replacing windows or other costs can come along when you least expect it, so again having a pot of money to cover those unexpected issues is a good idea.

Tenants can also cause a lot of wear and tear and damage to your property, which might mean replacing the carpets and decorating is required more often than you would have anticipated. Your tenancy agreement should include tenants paying for any damage to property and you should also obtain a deposit from tenants before they move in, in case they do cause any damage to the property.

Another element of getting a buy-to-let mortgage that requires planning for, is the event that you may not be able to sell the property when the mortgage ends, or you cannot get the value that you want when you sell the property. 

What happens when the mortgage ends?

If you opted for an interest-only mortgage then you will need to pay the outstanding cost of the property from when you bought it. In most cases, landlords will sell the property so that they can pay off the mortgage but there can be problems with this, for example if you cannot sell the property for the cost of the mortgage.

Conclusion

Whilst many landlords are still able to make good profits from renting property out and taking out buy-to-let mortgages, there are a lot more considerations to take into account. Difficult tenants, regular maintenance and repair costs, as well as covering the mortgage payments when no rent is coming in are some of the main problems that landlords face but there are many more.

If you are considering taking out a buy-to-let mortgage to rent property out as a landlord, you should do plenty of research into all of the responsibilities and costs that you are liable for. Taking out the right level of insurance is one way to protect yourself but speaking to a specialist buy-to-let mortgage broker will also help you to decide whether it is the right option for your circumstances. 

A good mortgage broker will be able to find you the best buy-to-let deals and talk through all of the options, discussing the financial factors that you should take into consideration before making your decision. If you would like to speak to a professional broker service with buy-to-let expertise, call Boon Brokers.

How To Choose a Mortgage Broker: The Essential 2020 Guide

There are many different reasons that mortgage applicants can benefit from using a mortgage broker, from saving money to helping them find the right mortgage deal to suit their specific circumstances. In this guide, we take a comprehensive look into the services that mortgage brokers provide, as well as the numerous benefits of choosing to work with a broker.


In this article

What is a mortgage broker?
Why use a mortgage broker?
Why is it a good idea to get advice from a mortgage broker?
Risks of getting no advice
When to see a mortgage broker
What types of mortgage brokers are there
Mortgage broker fees and commissions
Key questions to ask a mortgage broker
How to choose a mortgage broker?
Your rights when using a mortgage broker
What to look for in a mortgage deal
Conclusion
Jargon Buster


What is a mortgage broker?

A mortgage broker is an intermediary that helps to match mortgage applicants to the right type of mortgage lender and deal for their circumstances. The broker will often charge a fee to the applicant, or to the lender, or both to pay for their role in the mortgage arrangement process.

In return for that fee, the broker will provide the mortgage applicant with expert advice, which can be particularly useful if the applicant has special circumstances that require specialist advice that a standard lender would be unable to provide.

A mortgage broker will usually be able to access a larger selection of different mortgage deals than a mortgage borrower would be able to find without their help. The mortgage broker will also have a really in-depth knowledge of the mortgage market, meaning that they can quickly identify suitable deals, saving the applicant a great deal of time trying to research the deals and speak to different lenders.


Mortgage brokers

Why use a mortgage broker?

One of the key reasons for using a mortgage broker is utilising their expert knowledge to find you the most suitable mortgage deal. The difference between taking out one mortgage deal compared to another can be enormous in terms of the overall costs. A mortgage broker will be able to find a mortgage deal that offers the best financial solution for their client, using their knowledge of the market.

Mortgage borrowers who have special circumstances, for example, adverse credit often choose to use a mortgage broker so that they can find a lender that will be suitable for their situation. Instead of approaching standard lenders and having an application declined, the specialist broker will know exactly which lenders will be able to provide them with a mortgage. Because brokers regularly work with a range of lenders, they get to understand the preferences and criteria of each one, which helps in finding the right one for a client’s situation.

Other special circumstances where an applicant might choose a specialist mortgage broker is when they are self-employed and providing payslips to prove income is not an option. There are numerous lenders that specialise in providing mortgage loans to self-employed workers and brokers can link their clients up with them.

handshake mortgage broker

Dealing through a mortgage broker also speeds the process up. Buying a property and all of the work involved in getting a mortgage, working with solicitors etc. can take a long time and if a mortgage takes too long to go through, you could potentially lose out on buying your property. Brokers have software that enables them to quickly find deals that match the borrower’s criteria, this is much quicker than doing other types of searches for mortgage deals. The mortgage broker takes a lot of the hassle out of finding a mortgage, reducing tasks like paperwork and speaking to different lenders, which can be very time-consuming.

Using all of the information that lenders use to determine whether they will lend to a borrower, the mortgage broker will be able to identify the best options and present them to the borrower. A declined mortgage application can affect the applicant’s credit report, so using a broker that will find the right mortgage lender will avoid that possibility. The mortgage broker factors every detail into the search, such as credit report, loan amount, LTV (Loan-to-Value), income, employment, and any other information that lenders use.

The financial aspect of calculating whether one mortgage deal is a better deal than another is not straightforward, so working with a broker to use their expertise can help to ensure that any deal works out financially beneficial compared to others.

calculating mortgage deal

Mortgage brokers should be regulated by the FCA and therefore this protects the borrower by providing an option for them to escalate complaints if something goes wrong. When you are looking for a broker, you can check whether they are authorised by the FCA to ensure you are protected.

Why is it a good idea to get advice from a mortgage broker?

The advice that brokers are able to provide is really valuable in choosing the best mortgage. Most mortgage brokers will have been working in the industry for a long time and will have a team of experienced mortgage advisors that know everything there is to know about the mortgage market.

Every mortgage borrower has a unique set of circumstances which suits a certain type of lender, the job of the broker is to match those unique circumstances to the most appropriate lender. The brokers can explain in detail how a specific lender is the best option, based on the borrower’s finances and situation.

Giving advice mortgage broker

Due to working in the mortgage industry for years, mortgage brokers will have access to a huge selection of lenders and some mortgage brokers offer whole-of-market services, or in other words, access to every single mortgage lender available.

Since the Mortgage Market Review in 2014, the mortgage industry has become more tightly regulated. The affordability checks are now tighter, which means that some borrowers find it harder to get a mortgage deal, or cannot lend as much as they would like to. This is to protect both the borrower and the lender and the broker will be able to conduct a full assessment of your affordability to find out which deals you will be eligible for.

Risks of getting no advice

Mortgages are complex and there are many different factors that influence the type of deal that is best for the borrower. Without the advice of knowledgeable mortgage broker, the borrower is at risk of paying more for a mortgage than they need to. Non-mortgage experts are unable to analyse the options in the detail that a broker is able to, so the borrower could end up paying a higher interest rate, or getting tied into a deal with a high early repayment charge or other disadvantages that could have been avoided.

A mortgage is usually the biggest financial purchase that a person will ever make, so seeking professional advice makes good sense to make sure that your decision on your mortgage deal is an informed one and all of the options have been carefully considered.

Risk of no advice

Another big risk that a borrower will face if they do not work with a broker is not being able to complain that they have been provided with an unsuitable mortgage, as they have selected the mortgage lender themselves without taking any advice.

When to see a mortgage broker?

If you are thinking about taking out a mortgage or looking to remortgage, then a mortgage broker can help you to assess the best options that are available to you. A broker can provide you with expert advice to help you make one of the biggest financial decisions in your life. Instead of doing all of the research yourself, if you talk to a mortgage broker about your requirements and finances, they will be able to advise you on the mortgage or remortgage process and find the best deals.

What types of mortgage brokers are there?

There are three main types of broker, some only offer a limited set of deals, some are tied to specific lenders and others are whole-of-market brokers. There are some brokers that say they are whole-of-market, but they won’t check the deals that are direct only, so it is important to find out which lenders the mortgage brokers will check on your behalf. You may also want to check direct mortgage deals that are missed by brokers.

what types of mortgage brokers

Mortgage broker fees and commissions

The broker may charge you a fee for their services, or they may just apply a fee to the lender.
The average mortgage broker fee will be around £500 but different brokers work in different ways, some will apply a fixed fee, others charge for their time at an hourly rate, there are also brokers that charge based on a percentage of your mortgage.

Brokers such as Boon Brokers do not charge the mortgage borrower and they receive commission from the lender instead. Then you also have brokers that will charge both the lender and the borrower a fee. It is important to find out what charges the broker will apply, if any. The mortgage broker must be clear about their fees to their clients under the requirements of the FCA and borrowers must be aware of unethical mortgage brokers that are not clear about their fees.

Key questions to ask a mortgage broker

When you are choosing a mortgage broker, there are some key questions that will help you to ascertain whether they are the best one to suit your needs. These questions include:

Are you whole-of-market?

If your mortgage broker is whole-of-market they will have access to all of the available mortgage deals on the market, so they are more likely to find you the best deal.

Will you tell me about mortgages that are only available directly from lenders?

If you don’t ask them this question, then they probably won’t tell you whether or not they check the deals that are directly from lenders. So, make sure you ask this question, as you could be missing out on deals that are only offered direct from the lender.

lenders fees

What are your fees and charges?

As explained in the earlier section, mortgage brokers operate differently in regard to their fees. They should tell you exactly what they will charge, whether that is a flat fee, a percentage of your mortgage or whether they charge a commission to the lender. You should be able to find a good, reputable mortgage broker that will not charge you any fees for their service, as they will get paid by the lender instead.

What is included in the service you offer? Will you handle all admin and chase lenders?

One of the main advantages of using a broker is that they will take on the legwork like the admin elements and also do the chasing of lenders on your behalf. When you are deciding which broker to work with, clarify what services they offer and see how much of this work they will be prepared to do for you. Some mortgage brokers only offer the very minimal, whilst others will do as much as they possibly can for you.

When will you be available?

This is another critical question, especially if you want to get your mortgage in place relatively soon. Don’t assume that the broker will be able to start working on your mortgage search straight away, as they could have a lot of other clients that they are working for and therefore you could be waiting some time to get started with finding a mortgage deal.

mortgage broker availability

How to choose a mortgage broker?

The main factors that you should consider are whether they are a whole-of-market broker like Boon Brokers, and also look at details such as whether they charge any fees and what sort of reputation and experience they have. If you ask all of the questions listed above, then this should give you a better idea of the service they will provide.
Some mortgage brokers operate with a web-based service only, so you should also decide whether you are happy to work on that basis, or if you prefer being able to talk to someone face-to-face about your mortgage details.

A good way to see whether a broker provides good service is to check any customer reviews that have been provided. Brokers will probably have testimonials on their websites from happy customers, but this does not give the full picture, as they will cherry-pick the best testimonials to upload onto their website.
reviews
Finding independent reviews on sites like Google will give you a more accurate and unbiased set of reviews that will hopefully reveal what the brokers are like to work with, or what to look out for if someone was disappointed with the service they received from a particular broker.

You should also check what qualifications a mortgage advisor has. In the UK the qualification that is approved by the FCA is the Certificate in Mortgage Advice and Practice (CeMAP). The brokers should also be authorised by the FCA, so you can check that they are by searching on the Financial Services Register.

Your rights when using a mortgage broker

When you work with a mortgage broker, they should complete a detailed review of your circumstances in order to establish the best deals to suit your specific situation. They should also be able to explain in detail the key information such as the different types of mortgages that there are.

Your broker should be able to advise you on the pros and cons of taking on different types of mortgage and advise which one you are better suited to. Their recommendations should be fully justified with a breakdown of the finances of the deal and they should explain why the deal is a better option for your circumstances.

There is a lot of jargon in the financial industry, so if you are not sure what LTV ratio is or why it matters, your mortgage broker should be able to help you to understand it and see the importance of it on getting a good mortgage deal. We have also included a jargon buster section at the end of this guide to help understand some of the terminology.

man and woman advice

What to look for in a mortgage deal

  • APRC

The Annual Percentage Rate of Charge shows you the total cost of a mortgage based over the full term, including all associated fees. By providing you with the APRC for different mortgages, you can see the financial difference from one lender to another over the period of time you choose to take the mortgage over.

  • Deposit size

The higher the amount of deposit that you are able to put down, the better mortgage deals will be available to you. The Loan to Value ratio (how much your mortgage loan is compared to the value of the property) is really significant in accessing different types of deals, as some deals are available for 80% LTV, others are for 70% LTV, etc.

  • The standard rate

If you are choosing a fixed rate for a number of years, it is also important to look at what the standard rate of the deal is when the fixed term comes to an end. Whilst you will usually be in the position to switch mortgage deals at the end of your fixed-rate, you don’t know what will happen to the mortgage market, so it is best to choose a deal with a competitive standard rate if available to you.

  • How often is interest charged

Most lenders charge interest on a monthly basis, calculating the average monthly payment over the term so that all monthly payments are the same. Other mortgages might charge a daily interest, meaning that the monthly payments vary depending on the number of days in the month.
explaining interest rates

  • Flexibility 

If your circumstances change, having flexibility around your mortgage payments can be really important. You may want to take a break from making payments if you need to at some point, or you may want to overpay so that you can pay your mortgage off quicker and reduce the overall interest. Check for any penalties or limits that the lender applies if you want to overpay on your mortgage. You should also check any early repayment charges that apply, to make sure that you don’t end up staying locked into a mortgage deal for longer than you need to be.

  • Length of fixed or variable rate deal 

Deciding on the length of the fixed rate can be a difficult decision, as it is difficult to predict how the interest rates will be affected over a three or five-year period. Some people prefer to lock themselves into a fixed rate for a long period so that they know exactly what their payments will be for that term. However, if circumstances changed, for example the borrower needed to move house, they might be subject to an early repayment charge to get out of the fixed term they agreed.

Your mortgage broker will be able to talk through your possible scenarios to identify more flexible deals if it is likely that you will need flexibility or the peace of mind that you can get out of your mortgage without a high penalty.

Conclusion

There are so many reasons for using a mortgage broker when buying a home but the key argument is that your mortgage is a huge purchase and one mortgage deal varies significantly to the next. Without taking expert advice from a broker, you risk paying thousands of pounds more than you would have if you had been shown a better deal from a broker.

As brokers have access to many more lenders than you would be able to access yourself, it makes sense to use them to access these other lenders that could save you a lot of money. With the majority of brokers not charging mortgage applicants for their services and instead working on commission from the lender, there is usually no additional cost for the applicant. So, you can access better deals, get free professional advice and have a lot of the hard work, such as admin, taken care of by the mortgage broker.

Jargon Buster

Understanding mortgage terminology is not always easy, so here is some of the terminology and jargon that brokers may use in more simple terms:

  • Affordability check

Where the lender checks how much you can afford to borrow based on income and expenditure. The calculations for this can vary from one lender to another.

  • AIP (Agreement in Principle)

A document that confirms the mortgage lender will allow you to borrow a specified amount. An AIP document is often used as evidence to the seller that the potential buyer will be able to afford their property.

  • APRC (Annual Percentage Rate of Charge)

The APRC shows the entire cost of the mortgage and includes all interest and any fees from the lender. The cost is based on paying the mortgage over the term agreed, so can be used to compare deals over the same length of term.

  • Arrangement fee

The fee that the lender charges you for setting up your mortgage. You will usually have the option to pay it upfront or for it to be added onto the loan and paid as part of your monthly payments. When it is added onto your loan, you will be paying the interest on it.

  • Arrears

If you miss any mortgage payments, these are classed as arrears. Your lender will have a set process of actions they take depending on how many payments are missed, which can result in your home being repossessed if payments are not made.

  • Base rate

This is the interest rate that is set by the Bank of England and affects tracker rates and standard variable rates. The base rate sometimes changes, it was as low as 0.25% in 2016 and was as high as 15% in 1989. In recent years it has not been higher than 0.75% but factors such as the inflation rate influence the decision made by the Bank of England’s Monetary Policy Committee on whether to change the base rate.

  • Buildings insurance

The insurance policy that pays for any damage to your property’s structure. A mortgage lender will require you to have taken out buildings insurance to protect their loan.

  • Buy-to-Let

A type of mortgage that is taken out when the property owner is buying the property but letting it out rather than living in it themselves.

  • Capital

This is the overall amount of money you borrow from a lender to buy a property.

  • CCJ (County Court Judgement)

If you have failed to pay an outstanding loan, the lender will usually register a CCJ court order against you. Having CCJs affects your credit profile and can mean that some lenders will not be prepared to provide you with a mortgage.

  • Conveyancing

When you buy a property the legal process involved is called conveyancing.
Deposit
The deposit is the amount of money that you are putting towards the cost of the property. Most lenders will ask for a minimum of 5% deposit before they will provide you with a mortgage loan. To access the more competitive loans with lower interest rates, a larger deposit is required.

  • ERCs (Early Repayment Charges)

If you want to pay off your mortgage early (i.e. when you sell your house or change mortgage deal) then you may need to pay an ERC. Usually ERCs only apply for the fixed rate part of the deal.

  • Equity

The equity is the amount of the property that you actually own. This is calculated by subtracting the amount you have paid (in deposit and repayments) from the mortgage loan.

  • Fixed rate mortgage

This type of mortgage has a fixed interest rate for the amount of time agreed, which will typically be two, three or five years.

  • Freehold

A freehold property is where you own the land rather than a third party that you lease the land from.

  • Gazumping

Where another buyer puts a higher offer in on the property that you have put an offer in for and the buyer accepts their offer.

  • Guarantor

A guarantor can act as a guarantee to the lender that the monthly payments will be made. A parent or guardian is able to act as a guarantor on some types of mortgage.

  • Help to Buy

A government scheme that aims to help more people to afford homes. There are different types of Help to Buy schemes and a Help to Buy Isa.

  • Homebuyer’s Report

This is the survey that is completed before buying a property that will check for any issues such as damp, subsidence, out of date electrics etc.

  • Interest-only mortgage

A mortgage where just the interest is paid and not the capital. This means that at the end of the term of the mortgage, the mortgagee will not own the property and will need to then buy the property.

  • Intermediary

An intermediary is a third party such as a mortgage broker who helps to arrange a mortgage, usually taking commission from the lender for their services.

  • Leasehold

The land that your property is built on is owned by a landlord and you must pay rent for the land, usually once a year.

  • LTV (Loan-to-Value)

The ratio calculated between the property value and the amount of your mortgage. Better deals are available for people with a better LTV ratio (for example, borrowing 60% or less).

  • Mortgage deed

The mortgage deed is the legal document to confirm the mortgage agreement.

  • Mortgage Illustration

The document supplied by the mortgage lender that details the mortgage offer and enables you to compare the product to others.

  • Mortgage term

The length of time that you take the mortgage agreement out over, often 25 or 30 years but this can vary.

  • Negative equity

Where you owe more on your mortgage than your property is worth. This can happen where property values drop.

  • Overpayment

Where you pay more of your mortgage than the amount agreed. Some lenders will penalise for doing this but it generally allows a borrower to pay their mortgage off faster and pay less overall interest.

  • Porting

Where you transfer your mortgage from one property to another, without the need to take out another mortgage agreement.

  • Remortgage

Taking out a new mortgage without moving house. There are different reasons for remortgaging, including moving to a better deal and releasing equity in your property.

  • Repayment mortgage

The standard type of mortgage where you pay both the interest and the capital repayments, as opposed to interest-only where you only pay the interest off.

  • Stamp duty

A tax that is paid when buying a property. This is currently applicable to properties with £125,000 or more.

  • SVR (Standard Variable Rate)

The rate that the mortgage reverts to once the fixed or tracker rate period finishes. People usually look for a new mortgage deal once the deal reverts to the SVR, as it will usually be higher than the interest they can get on a new deal.

  • Title deeds

A document that shows the ownership of the property.

  • Tracker mortgage

A mortgage with a variable rate that tracks the base rate, i.e. if the base rate goes up by 0.25%, so does the monthly mortgage payment.

Everything you need to know about Equity Release

Throughout different times in life, homeowners might explore the idea of remortgaging to release equity in their home. By accessing the money, they can then spend the money on home improvements, clear any loans, or maybe even purchase a caravan or a once-in-a-lifetime holiday. 

In recent years, there has been an increase in the number of homeowners aged 55 and over that are looking into the possibility of equity release by taking out a lifetime mortgage or a home reversion.

Choosing to release equity in your property is a huge financial decision, so it is important to be fully clear about the process and understand all of the drawbacks, as well as the advantages. In this guide, we look at everything you need to know about equity release to help you to make the decision that is right for your specific situation. 

What is equity release?

Equity release enables homeowners to access money based on the value of their property without selling it. Equity release is a financial product that mortgage providers offer to homeowners aged over 55, so that they receive a lump sum of money (or smaller, regular payments) in exchange for a repayment agreement. 

The different types of equity release explained

There are two different types of equity release products available on the market and one might be more suitable for your needs than the other, so we’ll explain the key differences:

Lifetime mortgages

This is the more common form of equity release and it is based on an agreement that you are provided with a sum of cash and the amount, plus interest is paid back either when you pass away or go into care. Like with most mortgages, different rates and fees are available from different companies. 

Some lifetime mortgages offer the opportunity to make interest repayments rather than let the interest accumulate, which might suit people that are worried about how much a lifetime mortgage will reduce their family’s inheritance. You also have the choice to set the amount of the property’s value that you want to be paid as inheritance, to ensure that your family gets that sum when you pass away.

Home reversion

This type of equity release involves selling part or all of your property to the provider in exchange for a lump-sum payment. You can alternatively agree to take regular payments, rather than a lump sum. You are still able to live in your home but it will be owned, or partially owned, by the home reversion provider. Where you choose to sell part of your property, this will be agreed as a percentage and that proportion remains the same, despite any value fluctuations.

releasing equity

Similarly to the lifetime mortgage option, you are able to set an amount of the property value to be attributed to inheritance. When you pass away, the property gets sold and the money will be split according to the agreement.

How much equity can be released?

Generally, the amount of equity that people arrange to be released is between 20% and 50% of the property value. The lender will get your property valued by a surveyor and use your age and health as indicators of your life expectancy to decide how much they are prepared to lend to you.

What are the benefits of equity release?

There are many different reasons that homeowners decide to release equity in their home but generally, it is to provide them with more financial freedom. Just like the purposes of taking out loans varies greatly from one person to another, equity release can benefit people in a number of different ways such as:

  • Providing financial support to your family instead of them waiting to receive an inheritance.
  • Paying off loans and any other debts.
  • Being able to live a higher standard of life, for example, taking more holidays.
  • Making improvements to your home, such as an extension, new kitchen, or a bathroom that is more suitable for using as you get older.
  • For a big purchase like a car or a caravan.
  • To live without worrying about paying bills or any other financial concerns.
  • Reduction in inheritance tax.

For those who want to make sure that they are able to enjoy their retirement years and not feel any financial burdens, equity release provides that opportunity. Financial advisers often recommend equity release as a way to avoid paying huge amounts of inheritance tax but must provide calculations on the projected interest over different lengths of time.

In the UK, people are currently taxed 40% on any inheritance above the threshold of £325,000, so by taking out a lump sum before you pass away, rather than leaving that amount as inheritance, the tax is avoided. However, you must also think about how much interest you will end up paying and whether it could end up being more than the tax.

What are the fees involved with equity release?

Fees vary massively from one company to the next but at Boon Brokers there is a client fee of £595 to arrange the equity release service. As shared by moneyadviceservice.org.uk arrangement fees can reach between £1,500 and £3,000, so Boon Brokers’ fee is in the lower end of the market. 

fees of equity release

As an example, Age Partnership charges 1.95% of the amount released, which on an amount of £100,000 would be £1,950. Working with a broker will generally give you access to more deals and there is quite a bit of work involved in finding deals through different lenders, so using a broker makes the process much easier and stress-free. You should also make sure that any company that you work with is a member of the Equity Release Council, for your protection.

The typical rate that you will pay, according to Martin Lewis, is 5%. However, this amount depends on your circumstances, just like with standard mortgage rates. You will find rates ranging from about 3% up to 7% but only a small percentage of people will qualify for the really low rates.

Factors that influence the rate that you will be entitled to include your age, health, property value and lump sum amount. Other costs that are applicable are legal work, advice and surveyor fees. 

Why would you want equity to be released?

As mentioned above, the avoidance of inheritance tax is a big motivation for many people but that must be weighed up in relation to how much the interest fees could amount to over many years. The benefits we listed above, such as paying off debts, having financial freedom or making a big purchase are all reasons that people want equity to be released.

With pensions not as favourable as they were historically and people living for longer, many people need to access money to support their later years once they have retired. Many mortgage lenders have age limits that prevent people from taking out remortgages as they get older, so equity release is the most suitable alternative. 

Releasing equity enables homeowners to stay living in their home, as opposed to needing to sell their property and buy somewhere smaller and cheaper. It is common for retired people to downsize once their children have moved out of the home but not everyone wants to leave their family home, so equity release is a better solution for them. Moving home can be a very distressing process, especially as people get older or have health problems, so equity release prevents them from going through the upheaval.

Moving home

Moving home may also leave pensioners needing to pay stamp duty when they buy a new property if it is over the stamp duty threshold of £125,000. Therefore, some will prefer to stay in their current home to avoid paying the stamp duty.

For homeowners that do not have any children, other relatives or people that they want to leave their estate to, equity release is a way of getting hold of money that would otherwise be left to the government. It means that they get to spend the money that they worked hard for when paying off the mortgage.

Many lenders also offer a ‘no negative equity guarantee’, which means that if property values drop and a house value drops into negative equity, the lender takes the hit and not the homeowner. The current low rates that are available also make this option more appealing in this financial climate. 

If you release equity to provide financial support to your family, you will get to see the impact it has on their lives and the happiness that it brings. Having that money available earlier in their life could mean that they get to live a better quality of life for more years, maybe paying off their own mortgage, or paying education/tuition fees, for example. 

Where there is an illness in the family, being able to provide private healthcare could significantly improve the person’s healthcare options, rather than being on a waiting list for an operation. 

You could choose equity release as a solution to having in-home care rather than going into a care home if that is a scenario that you want to avoid. The money could be used to adapt your home as well, to ensure that you can comfortably live there. 

Being able to enjoy life to a fuller extent and take holidays may extend your life by improving your health, living without the stress of paying bills and by having no financial worries. If you have always wanted to go on a specific holiday to a certain destination then you can realise that dream before you pass away.

Who can have equity released?

Homeowners over the age of 55 are eligible to release equity and whilst some companies will want you to have paid off your mortgage completely, not all providers do. Also, some lenders will only lend to people over 60 years old and it is the age of the youngest homeowner that is taken into account.

Who can have equity released

Your home must be in the UK and homeowners in the Isle of Man are not eligible for equity release. Most lenders will only provide their equity release service for properties that are valued over £70,000. There are also maximum property value limits imposed by some lenders.

The minimum amount that you are able to loan on a lifetime mortgage is £10,000, so if you only require a smaller amount, you will need to look at other options. Many lenders will perform credit checks and may not provide services to those with a poor credit history, despite the fact that your property is the security for their loan and monthly payments are not required.

When shouldn’t you release equity?

The big disadvantage of equity release is that it involves compounding interest, so the amount of interest escalates very quickly. Over a period of 15 years, debt will generally have doubled, so it can end up being very costly.

As you are not paying off interest monthly as you would with a standard mortgage, the interest just builds up until you pass away or go into care. Whilst it will not be you that is paying back the interest, as you will no longer be around, your will beneficiaries could lose out on a lot of inheritance.

People that are entitled to certain benefits can be affected by taking a lump sum of equity. For example, pension credit and any other means-tested benefits could be lost or reduced.

It is important to remember that this is a permanent agreement and that trying to switch to better rates is not an option due to the typical early repayment charges of around 25%. There is also the issue that once you release equity, you are not able to take out any other loans against the property.

The average life expectancy in the UK currently stands at 82.9 years for females and 79.2 years for males. Therefore, if you take out a lifetime mortgage at 55, the average person will live for at least another 25 years. The interest that compounds over that length of time will be very significant, so you need to take that into account if your main reason for considering equity release is for inheritance tax avoidance.

If you opt for selling your home to a reversion company and your property value rises in the future, it would be the lender that profits from that and not you or your beneficiaries.

Is equity release the right option for you?

Like any financial decision, you must weigh up all of the pros and cons before deciding whether it is the right option for you. If you stand to lose benefits then it could be the wrong move for you and it is a decision that is very difficult to reverse without huge financial penalty.

If there is a specific need for money, for example, to pay for private medical bills, or another unexpected cost arises then equity release may be the most suitable option. If you are in good health you could live for many years, with the interest accumulating all of that time and potentially reducing the amount of inheritance that your family receives.

home and equity

You should consider all of the available alternatives, such as taking a short-term loan out or downsizing and moving into a smaller property to release some funds. You could even consider selling your property and renting a home so that you can access the money tied up in your property.

Sometimes expenses that you never planned for will appear and you simply need to get some money to deal with them. If your options are limited because you are retired, equity release might be your only way to get by.

If your main priority is to live as comfortable a life as possible, rather than leave an inheritance, then equity release is definitely a way to achieve a better quality of life. For some people, working all your life to pay off a mortgage and then not being able to enjoy retirement to the extent they could, feels unfair. They are then able to release equity and live their dream retirement, filled with nice holidays, hobbies and other lifestyle costs.

Tips for equity release

If you are considering equity release then here are some tips to help make the right choice for you:

  • It is better to borrow smaller amounts over time, rather than take one full lump sum, as the interest that accumulates will be less.
  • You might want to consider an equity release option that allows you to make monthly interest payments to prevent the escalating interest costs.
  • Working with a broker will help you to find some of the best available rates.
  • Only borrow the amount that you need, don’t be tempted to take the maximum just because you can.
  • Do the necessary research to check whether any of your benefits will be affected, or take independent financial advice to help you to check this.
  • If possible, go for an equity release product that does not have an early repayment charge, so that you are not tied down forever.
  • Only consider lenders that are members of the Equity Release Council, to ensure you are covered by their protection.
  • Shop around for the best rates, as even a small difference in percentage rate will make a big difference over many years.
  • Remember that even though equity release can avoid or reduce inheritance tax, the actual cost of the interest could end up being more than the amount your estate would have been taxed.
  • Consider all of the alternative options, as equity release is more permanent than most other solutions.
  • Remember that this will impact the beneficiaries of your will, so it might be a good idea to discuss it with the people affected, to avoid confusion and to explain your decision. However, it is your money and you are entitled to do what you wish with it.
  • Choose a company that provides a no negative equity guarantee.
  • Check that you are able to transfer the arrangement onto another property, in case you move in the future.

Conclusion

Equity release is becoming more popular as people over 55 are choosing to take up the opportunity of complete financial freedom and the opportunity to enjoy the money whilst they are alive. Whilst it is a very good option for many people, it is important that you fully consider the implications of choosing to release equity. You must consider the impact that it will have on your will beneficiaries before you make the decision. 

There are many alternative options that you should give consideration to, from downsizing and moving into a smaller property, to taking out a different type of loan. What people tend to overlook is that compounded interest quickly mounts up, which can sometimes end up costing more than inheritance tax would have been. Therefore, it is a good idea to calculate the amount that it would cost when you live beyond the average life expectancy to evaluate the impact on your family.

Unlocking the value of your property could completely change your life, or bring significant improvements to your family’s future, so it is easy to see why so many people are choosing to release equity.

If you do choose equity release, it is really important to select a lender that is in the Equity Release Council, to ensure you are protected by their code of conduct. Finally, never rush into this important, long-term decision, take your time and get expert advice before you commit to any arrangement.

Getting a Mortgage with Bad Credit

Getting into a situation where you have bad credit doesn’t just affect whether lenders will provide you with more credit, it also means that you will have to pay higher interest fees on a mortgage. Mortgage lenders apply higher interest rates to applicants that have poor credit because the credit history shows that there is a risk of missed payments when lending to the borrower.

What is bad credit?

Bad credit refers to when a person has a credit record that shows they have missed payments, had high levels of debt or even bankruptcy and CCJs (County Court Judgment registered where a person has not repaid the money they owe).

When someone applies for credit, companies will run a credit check on them to assess the risk of lending to them. People with a good credit history rarely have problems getting credit, whilst those with bad credit will find they get refused or must pay higher levels of interest on credit cards, mortgages and other loans. 

Lenders use credit record agencies to view a loan applicant’s credit history, which will also provide them with a credit score. Different credit record agencies use different scoring systems, Experian for example, goes up to a maximum of 999.

credit information form

Their full scoring chart is as follows:

0-560 = Very Poor

561-720 = Poor

721-880 = Fair

881-960 = Good

961-999 = Excellent

The higher the credit score, the more attractive you are to lenders and more likely to get accepted for credit (and higher amounts of it).

Can I still get a mortgage with bad credit?

The lower your credit score is, the less options you will have for mortgage deals, but it does not mean that you will be unable to get a mortgage at all. With bad credit, you will have less lenders to choose from and you can expect to pay significantly higher interest rates on your mortgage. 

On the current mortgage market, the fixed rate interest rates vary from 1.48% up to around 6%. Applicants with poor credit are unlikely to be accepted for the lower rates and will instead have to apply for a mortgage lender that is happy to lend to people with bad credit. Over three years, the difference of paying interest at 6% compared to paying interest of 1.48% on a loan of £150,000 is significant, so choosing whether to apply for a mortgage with bad credit is a big decision.

It is important to carefully research the different mortgages that are available to try and find the best deal. You may even consider whether it is worth waiting a bit longer to take out a mortgage and in the meantime, you can work on improving your credit records. Even just having six months of meeting payments on time can greatly improve your credit score and there are other ways you can improve your credit score, which we go into further detail in below.

mortgage application form

Some people with bad credit who are looking to get onto the property market decide to rent for a while so that they can improve their credit rating, therefore saving the extra interest that they would pay if they were taking the mortgage out immediately. 

How does a bad credit mortgage work?

A bad credit mortgage is mostly the same as a standard mortgage except the interest rates will be higher, they will generally have a lower borrowing limit and the lender may also ask for a higher deposit amount compared to a standard mortgage. You may also be subject to higher fees for taking out the mortgage and a broker (if you use one) could add further fees.

If you have what is considered to be very poor credit, then you will have to find a specialist mortgage lender that is prepared to take on the higher risk that is presented to them. One of the big issues with applying for mortgages when you have bad credit is that if you get refused for a mortgage, this can further impact your credit score. Therefore, instead of applying for a mortgage that you are unlikely to get approved for, you should research your options based on your credit history.

If you decide to take out a bad credit mortgage, you should try to find the one with the lowest interest rate and the lowest fixed term, as you will hopefully be in a better financial position in two years’ time, in which case you can find a better mortgage deal. 

The first step when considering taking out a mortgage should be to review your credit record, so that you get an idea of what types of mortgages you are likely to be accepted for. To do this, you can use any of the credit reference agencies such as Experian, Equifax and TransUnion. Once you have an idea of the situation you are, you can talk to a broker to see which deals are available and avoid the scenario of applying for a mortgage that you will get declined for.

Can I remortgage with bad credit?

Yes, in the same way that there are lenders that will provide mortgages for first time buyers with bad credit, there are companies that will allow you to remortgage with bad credit. However, there will be certain criteria that could impact the possibility of getting a remortgage, such as negative equity or not having a good enough LTV ratio.

Lenders prefer to provide mortgages where the LTV (Loan to Value) ratio is 80% or better, as there is less risk for them. In the event that a homeowner stopped making mortgage payments, the eventual scenario would be for the mortgage lender to take the case to court and repossess the property so they can sell it to get their money back. Having some equity in the home will decrease the chance of the lender losing money if the borrower stops paying their mortgage.

If the LTV is not an issue then a remortgage should be possible, although the disadvantages such as higher interest rates and higher fees will apply and there will be limited options available for applicants with bad credit.

What can I do to improve my credit score and get a better mortgage deal?

Before you apply for a mortgage or a remortgage, get a full understanding of your credit report and how your credit history impacts your score. For example, a CCJ stays on your credit record for six years, so if you are not far off that period then it would be worthwhile waiting until it has been removed. Recent missed payments carry more impact on your score than older ones, so making sure that you meet all of your recent payments is a good start to improving your credit score.

The best ways to improve your credit score are:

  • Always make your credit payments on time.
  • Register on the electoral roll at your address.
  • Reduce the amount of credit you are using.
  • Don’t make any credit applications.
  • Close any unused accounts.
  • Regularly check your credit score for changes.
  • Pay accounts in full instead of minimum payments.

There are other factors that will impact your ability to get a better mortgage deal, including your income, equity value in your home and your outgoings. Having a very limited credit record (or none at all) can result in you having bad credit, so if this is the case you should build up some credit before applying for a mortgage.

How to improve your chances of getting accepted for a mortgage with bad credit

The best way to get yourself in a position to get accepted for a mortgage is to have all of the details that you need about your financial situation. Spending time to improve your credit score by following the guidance in the section above will help you to make significant improvements to your credit score and have more mortgage deal options.

In some cases, mortgage applicants ask a relative to be a guarantor so that they are able to get a mortgage but for the majority of applicants with bad credit, finding a good broker that can find the right deal for them is the best option. Being open with the broker regarding credit score is also important, so that they are looking at the right deals for the applicant, which are most likely to be accepted. Applying for a mortgage that gets declined will further impact poor credit, so should be avoided.

remortgage handshake

Conclusion

There are plenty of mortgage companies that are prepared to lend to people with bad credit, but this is generally because they stand to gain from taking on the risk by charging inflated interest rates. Before applying for a new mortgage, work towards improving your credit score and then find a reputable broker who you can trust to find the best deal for you, as many on the market will be looking to make money from you with high fees.

If you would like to speak in more detail about getting a mortgage with bad credit, Boon Brokers have been providing advice to clients with bad credit for many years and will be happy to help.

 

6 Benefits of a Commercial Mortgage

When you are buying a commercial property, you have the option take out a commercial mortgage that provides a number of benefits to your business, as opposed to renting the property or taking out alternative finance arrangements. Here are some of the top advantages of getting a commercial mortgage:

Lower interest rates

In comparison to unsecured borrowing, commercial mortgages tend to be more favourable i.e. they are available with lower interest rates compared to other types of loans. When you are calculating your business outgoings, having fixed monthly payments for your commercial mortgage will enable more accurate forecasting. When you agree a good commercial mortgage deal, the monthly payments will usually work out financially better than rental payments, so you will be saving money over the term that you are occupying the building.

offices

Capital gains

Property prices have been on an increasing trend for a long time, so there is a good chance that the value of the commercial property you buy could rise. This could provide you with a lump sum when you sell the property, which you could invest or use as a retirement pot. However, you will be liable to pay capital gains tax on your profit from the property sale.

Not wasting money on rent 

Renting a property, whether it is for residential or commercial purposes is generally seen as ‘dead money’. Instead of paying off the outstanding amount on a property and taking ownership of that property, with renting you are just handing over your money to the landlord. Whilst renting commercial property suits a lot of situations, getting a commercial property will leave you with something to show for your monthly payments.

Make money through renting part of property

If you own the property then you are able to rent additional space or land that is attached to the property. You could make significant additional income by renting out offices, car parking spaces, storage space etc. If you are renting a property then you are generally not allowed to rent out space unless agreed with the landlord.

More control over building presentation

Your business premises can play a big part in the reputation of your business, particularly if your customers and clients are coming into your premises either to buy products or for meetings. If you have control of the building in terms of exterior displays, decorating, landscaping etc. you have full control over how professional your business is seen to be. If you are renting a property, the landlord has control over key aspects like decor, facilities management, external upkeep and everything else visual about the business. You might not get permission to display your signage how you would like to or customise to your brand colours, for example. 

It is easier to get out of

If you own the property and no longer want it, selling it can be much easier to get out of than some commercial leases. Commercial leases are often lengthy and you will find it hard to leave a lease early.

If you are contemplating whether to take out a commercial mortgage rather than renting or taking out another form of finance, these six benefits should help you make your decision.