101 MORTGAGE BROKER SECRETS TO GET THE BEST MORTGAGE. From the award-winning whole of market Mortgage Brokers Capital Fortune.

Transcription

1 101 MORTGAGE BROKER SECRETS TO GET THE BEST MORTGAGE From the award-winning whole of market Mortgage Brokers Capital Fortune

2 1 Capital Fortune Legal Disclaimers & Notices All contents copyright 2012 by All rights reserved. No part of this document or accompanying files may be reproduced or transmitted in any form, electronic or otherwise, by any means without the prior written permission of the publisher. This ebook is presented to you for informational purposes only and is not a substitution for any professional advice. The contents herein are based on the views and opinions of the author and all associated contributors. While every effort has been made by the author and all associated contributors to present accurate and up to date information within this document, it is apparent technologies rapidly change. Therefore, the author and all associated contributors reserve the right to update the contents and information provided herein as these changes progress. The author and/or all associated contributors take no responsibility for any errors or omissions if such discrepancies exist within this document. The author and all other contributors accept no responsibility for any consequential actions taken, whether monetary, legal, or otherwise, by any and all readers of the materials provided. It is the readers sole responsibility to seek professional advice before taking any action on their part. Readers results will vary based on their skill level and individual perception of the contents herein, and thus no guarantees, monetarily or otherwise, can be made accurately. Therefore, no guarantees are made. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE The overall cost for comparison on residential mortgages is 4.5% APR. The actual rate available will depend on your personal circumstances. There will be a fee for our mortgage advice, the precise amount will depend upon your circumstances but we estimate that it will be 995, payable 495 at the outset but refunded if your mortgage application is declined upon initial underwriting based on the information you give us. The balance of our fee is typically paid on completion. Your fee will not be refunded should you withdraw from the process or not accept our recommendation. Ask your Advisor for confirmation of our fees which we will to you in an Initial Disclosure Document (IDD). You can find further information on our Terms of Business here. Capital Fortune Ltd is an Appointed Representative of Pink Home Loans. Pink Home Loans is a trading name of Advance Mortgage Funding Limited which is authorised and regulated by the Financial Services Authority. Capital Fortune Ltd Registered office address: 14 Nicholas Lane, Bank, London, EC4N 7BN. Registered in England and Wales No The Financial Services Authority does not regulate some forms of buy to lets, commercial mortgages, secured loans, unsecured loans, bridging loans, trusts, overseas mortgages, conveyancing or debt management. The guidance and/or advice contained in this ebook is subject to UK regulatory regime and is therefore restricted to consumers based in the UK.

3 2 Capital Fortune Introduction Buying a house or flat is the biggest investment you re ever likely to make, so it s important to get all the information you need on mortgages and legal matters before you start. After all, if you choose the wrong mortgage, you could end up paying thousands of pounds more than you need to. All too often, people go to their existing bank or building society for advice, not realising they will probably be shown a limited number of mortgages and could therefore miss out on a deal that would have suited their budget and lifestyle much better. The mortgage you choose is going to have an impact on your monthly finances for many years so it s important to shop around for the best mortgage deal. This guide is intended to give you a great introduction to the mortgage market so that by the time you are ready to start looking, you ll know the different kinds of mortgages that are available, which kind of mortgage is likely to suit your circumstances and budget, the questions you need to ask a lender or broker, and the fees you re likely to be expected to pay. You ll also discover some handy money and time saving tips as well as some invaluable pointers to help you avoid making the wrong kind of investment. Having a great credit score is hugely important so you ll also find plenty of information about what mortgage providers look for, what can affect your credit score and, of course, how to improve and maintain your personal credit score. If you re like many of our clients, you probably don t have the time or expertise to compare all the many mortgage deals that are available so we ve also given you plenty of information about why using a mortgage broker makes sound financial sense. You ll find out how to find the very best mortgage broker so that you save time, energy and money and obtain the best possible mortgage. We wish you the very best! Capital fortune

4 3 Capital Fortune 101 Mortgage Tips 1) Understand the basics Before you start looking at mortgage deals, it s important to understand some basic principles. The most important of these is to understand how you will repay the capital you are going to borrow and how you will pay the interest on the loan. This will help you to decide which mortgage deal will suit you best. To choose a mortgage that is right for you, your budget and your lifestyle, you ll need to decide such things as the type of loan, how long you want it for and what type of product would be suitable for you. a) Types of repayment You can either pay the capital off a little at a time (repayment mortgage) or all in one go at the end (interest only with a valid repayment vehicle e.g. PEP, Endowment, ISA, Pension, Property etc). i) Repaymentmortgages (also called a capital-and-interest loan) With these kinds of mortgages, you make monthly repayments to your mortgage lender, which gradually pay off the interest and capital on the loan. This way, you gradually reduce your mortgage debt. In the early years, you will be paying mainly interest, so if you re planning to sell in the short term, you might not significantly reduce the amount you owe. One way to lower your mortgage debt is to make overpayments. If you think you ll be able to make over-payments, make sure your mortgage lender allows this and that you understand any of the restrictions that are in place. Being able to overpay can mean you clear your debt a lot faster, which means you pay less overall interest. Quite often, the restrictions mean you can overpay by a maximum of 500 a month or 10% of the outstanding mortgage a year. However, the penalties for going above the overpayment limit can be steep. ii) Paying back the interest-only With an interest-only mortgage, your monthly payments will be lower, but you ll only be paying off the interest on the amount borrowed. This means the amount you owe remains the same. After 25 years of paying the interest on a 100,000 loan, for example, you will still owe 100,000. With this type of mortgage you ll need a repayment vehicle in place such as a saving or investment plan, to build up money to repay the loan by the end of your mortgage term. You should regularly track the progress of this repayment vehicle to ensure it will pay off the amount borrowed. b) Types of Interest Rates There are two main types of mortgage interest rate deal: fixed or variable. i) Fixed rate With a fixed rate mortgage deal, whatever happens to interest rates, your repayments are fixed for as long as the deal lasts typically two, three or five years. You effectively take out an insurance policy against interest rates going up. If rates fall, your payments will not drop. Most fixes revert to the standard variable rate (SVR) on expiry. ii) Variable rate With a variable interest rate mortgage, your mortgage rate can and usually will change over time. It tends to relate to the country s economic conditions. There are three categories of variable rates: tracker mortgages, standard variable rates (SVR), and capped rate mortgages. iii) Tracker mortgages The rate of interest and therefore the amount you pay each month can vary depending on the rate the lender s follow. Some lenders track the Bank of England base rate, while others track their own base rate. The base rate is usually set every month. Some trackers only run for a couple of years but you can get one that lasts the life of your loan. iv) Standard Variable Rate (SVR) The Standard Variable Rate (SVR) is typically the rate you will go to at the end of your current mortgage deal. With most lenders, the SVR will follow the lender s base rate anything from a half to a few percent above it. And while your mortgage payments can change along with the base rate, some mortgage lenders don t always pass on the cuts, or set a lower limit on your payments. v) Discounted rate mortgage With a discounted rate mortgage, the lender offers you a lower SVR for an agreed period. So if the bank s SVR is usually 5%, you may be offered a rate of 3% for the first two years. The rate will still change with the lender s base rate, but you ll benefit from the cut, regardless of whether it goes up or down. With this kind of mortgage, it s important to be prepared for the rise in payments when the introductory period ends. If your mortgage carries no penalties for doing so, that might be the time to look for a better deal.

5 4 Capital Fortune vi) Hybrid Capped rate mortgage Capped rate mortgages are like variable rate mortgages but the rates are capped at a certain level. This means that it will track changes the lender s base rate, but if this starts to rise it won t go over the agreed capped rate. The benefit is that you can make the most of interest rate drops, but still be in control of your budget as you know the maximum amount your payments could rise. Other options you might consider include the buy-to-let mortgage and the offset mortgage c) Buy-to-let mortgage A buy-to-let mortgage can be repayment or interest-only and is for people buying property to rent out. To qualify for a buyto-let mortgage, you ll need to satisfy your lender that the property will achieve the rental income you ve specified and you will usually need to have a larger deposit compared with a residential mortgage. d) Offset mortgage An offset mortgage can pool your finances including your current account, savings and mortgage, into one. It adds up your pooled assets, savings and money in your current account, and offsets them against your mortgage on a daily basis. 2) Contact your bank or building society to find out about their mortgage products If you already have a mortgage with your bank or building society, you may be offered an exclusive or attractive rate as a reward for your loyalty. Before you sign anything however, do take the time to compare what you re being offered with all the other deals on the market. 3) Use the internet to find good deals Many comparison sites and mortgage brokers such as www. capitalfortune.com publish rates on their site and provide you with search tools to help you find the best deals. 4) Use mortgage comparison tables Besides looking at the different interest rates you ll be charged, consider the Annual Percentage Rate (APR), which takes into account the cost of fees on top of the quoted interest rate (which may include booking and arrangement fees, etc.). Other factors which you should consider include: a) The end date of any fixed, capped or discounted rate b) The rate your mortgage converts to once the initial rate ends c) How the interest rate is calculated (daily, monthly or annually) d) Flexibility (whether or not you will be penalised for making over-payments) e) The maximum loan to value (LTV), which is the maximum percentage of the property s value that the bank or building society will loan. If, for example, you put down a 10,000 deposit on a 100,000 property, the deposit would be 10% of the purchase price and the LTV would be 90%. Generally, the higher the deposit you can save, the lower the mortgage rate you ll be offered. That s why it s best to save as much as you can for your deposit. 5) Speak to the major banks and building societies Contact Barclays, Nat West, Santander, Nationwide and Lloyds who between them have nearly 75% of all available products on the market. Do be aware however that banks and building societies will only tell you about their own mortgage products. For that reason, it s best to compare any rate you re given with what else is available on the market. 6) Request the Mortgage Made Simple guide from the Financial Services Authority (FSA) The FSA is the regulator of all providers of financial services in the UK. To obtain its free Mortgage Made Simple guide, simply go to 7) Speak to a mortgage broker and ask them to recommend the best deal Mortgage brokers have specialist knowledge of the lending market. They guide potential buyers like you, who need to find a mortgage to purchase a property, through the huge range of deals, interest rates and incentives available. Some mortgage brokers offer advice and some offer information only it s best to choose one who offers advice. A mortgage broker must make it clear to you exactly what kind of advice he or she is able to offer. The easiest way to find out this information is simply to ask a potential broker whether they are able to offer access to whole of market (able to arrange a mortgage with any UK lender).this information will also be detailed in the Key Facts document a mortgage provider will give you at your first meeting. There are two kinds of mortgage brokers that offer advice: a) Whole of the market brokers

6 5 Capital Fortune 7) Speak to a mortgage broker and ask them to recommend the best deal continued They offer advice from the entire market. The FSA suggests you opt for brokers who can offer whole market advice as they will provide advice about the widest range of products on the market. Whole of the market mortgage brokers usually charge a flat fee upfront. b) Tied brokers They offer a restricted service based on products from a limited number of vendors. They might offer a smaller selection of products than whole of market brokers, because they will be linked to one, or a few lenders. This may mean, however, that they are able to offer lower interest rates or better incentives because of this affiliation. Whole of market brokers typically charge fees of around 200, whereas tied brokers charge commission but may also work on a fee charging basis. This is often a percentage of the amount you want to borrow for your mortgage or a percentage of the value of the home you want to purchase. Alternatively, your mortgage broker may earn commission from the mortgage lenders for mortgages sold on their behalf. If this is the case, your mortgage broker should state clearly how much commission they will receive from selling you the mortgage. As well as the mortgage broker fee, you may also need to pay mortgage arrangement fees, valuation fees and possibly other fees such as a Higher Lending Charge. Again, your mortgage broker should explain all the costs involved with a recommended mortgage. Before deciding on a mortgage broker, you should find out how much you will be expected to pay, and what service you will be getting for your money. This of course, is in addition to making sure your mortgage broker adheres to the rules of the FSA. You should ensure too that the mortgage broker you choose has suitable professional indemnity cover. Finding these things out upfront is likely to indicate whether you have chosen a good mortgage broker. Your mortgage broker will act as a go-between for you and the lender. He or she should be able to answer any questions you have and take some of the stress out of applying for a mortgage. They will save you time by following up phone calls, chasing up documents and posting forms. This is really useful if you have a full-time job and find it difficult to get time off. Brokers may also be able to recommend a solicitor to use for your property purchase. Unlike independent financial advisers, whole of market mortgage brokers will only be able to help you with mortgages and mortgage related products. Mortgage brokers will not be able to help you with other financial services such as pensions and investments, so if this is something you need to sort out you will need to find an independent financial advisor as well as a mortgage broker. 8) Check your credit rating before making any application Mortgage lenders want to know that you can afford to manage any new borrowing, so they calculate a credit score that helps them to assess the chances that you will be able to repay what you owe. To do this, they take information from two main sources your credit report and your mortgage application form. If you are an existing or past customer, they will also use their experience of how you ve managed repayments in the past. Credit scores are a single number, usually between 0 and 1,000. A high score usually represents a low risk that repayments will not be made while a low score suggests a higher risk that an account will fall into default. So, in general, a higher score makes it more likely that you ll be able to get the deals you want. A low score, on the other hand, may make it difficult for you to get credit or mean that your lender charges you higher interest rates. From your application form, lenders may ask for data such as your salary, how long you ve been in your job, whether you are a homeowner and how many dependents you have. Key items in your credit report include your credit accounts, your repayment history, recent applications for credit, whether you have missed repayments in the past, taken out an IVA or been bankrupt even whether you are registered to vote. 9) Your credit score can change Your credit score will be different every time you apply for credit because every lender uses a different formula and some even use different weightings for different products, such as credit cards and loans. Credit scores change according to your circumstances. For example, paying off a loan could result in a higher credit score, while missing several repayments could lower your credit rating.

7 6 Capital Fortune 10) lenders use different information to decide whether to lend to you Banks and credit card companies use a variety of different information to give you a credit score, which determines whether they will lend to you and at what interest rate. Credit scoring works by awarding points based on the information you provide on your application form. The lender may already have about you, based on previous accounts you have with them, and on your credit report, which is held by one of three credit reference agencies Experian, Equifax and Callcredit. 11) How to improve your credit score You can improve your credit score if you: a) Own your own home and/or have lived at the same address for at least 12 months b) Have a good credit history by repaying other credit agreements on time, for example your gas and electricity bills c) Have evidence of stability for example, you are employed rather than self-employed, you ve lived at the same address, worked for the same company and had the same bank account for a long time d) Are not connected financially, through your mortgage or joint bank account, to people with a bad credit score e) Make sure all your debts are registered to your correct name and current address f) Ensure there are no other mistakes on your credit file, such as other people s debts or non-payments g) Register on the electoral roll at your current address h) Don t make too many applications at the same time, which lenders translate as desperation. It s best to space out applications i) Only apply for credit you are likely to get. Also, ask lenders in the first place to only do a quotation search asking for a rate first rather than a credit search j) Show lenders you re a responsible borrower by borrowing money and paying it back. It might mean taking a credit card with a very high interest rate. If you do that, only spend small amounts and keep clearing the balance, to avoid being charged interest. You need to do it for at least six months k) Close down any credit agreements you no longer use 12) A poor credit score affects your ability to borrow A poor credit score can mean you ll be charged higher interest rates, given a smaller credit limit or that your application is rejected. County Court Judgments, defaulted payments and bankruptcy orders leave a black mark against your name when trying to secure credit. Missing credit card payments, direct debits for energy bills, or other commitments, means you could find a mark placed against your name that will cause you problems in the future. The first sign you have a poor credit score can often appear when you apply for credit and get turned down. This then leaves a footprint on your file and if you collect a lot of these, it could make matters worse. A lender doesn t have to give you the interest rate they are advertising or that you see in best buy tables on comparison websites. This is called the representative APR and it only has to be offered to just over half (51%) of people applying for the product. You may be offered a higher interest rate this is called your personal APR. You should check what your personal APR is. Lenders regularly review all of their customers and apply what s known as rate-for-risk pricing policies. If you fall into a certain group based on your credit rating, and the lender decides that group is now a higher risk than previously, they will put up the interest rate for all the people in that group. So even if you ve been a good customer and always paid on time, you could suddenly face a hike in rates. That s why maintaining a good credit score is essential even if you re not looking to borrow any more money. 13) Check you have no missed payments on your mobile phone Your mobile phone contract is a credit agreement and should therefore be treated with the same amount of care. Missed payments, late payments and unpaid accounts will all have a negative impact on your credit rating. On the positive side, paying your mobile phone bill regularly and on time will help you to build a positive credit rating. The longer you remain a good customer, the better your credit history will appear.

8 7 Capital Fortune 14) Ensure your bank account is firmly in credit and you stay within any arranged overdraft limits Lenders use bank account information to verify your income, ensure you have enough cash to complete the mortgage and to see how you save to evaluate your credit habits. If the bank discovers a pattern of overdrafts on your account, that could make it more difficult to close the loan. Do not attempt to apply for a mortgage loan until you have fully resolved an overdraft (paid it off completely). It is wise to then wait at least another two to three months after the issue is cleared up to apply since a mortgage underwriter commonly looks at the last two bank statements when making a decision. Having more cash than is required for closing a property purchase will also help your cause in the loan process. If you have well over the amount necessary and even have an extra few months of mortgage payments, your risk goes down significantly because banks see that you have extra cash in the event of an emergency or job loss. 15) Save up for a large deposit to ensure you get lower rates and more options of lenders A few years ago, mortgage lenders were quite happy to provide 100% plus mortgages but the recession has meant things have tightened up considerably. It s important to save as much as possible for an initial deposit to secure the best repayment deals. 16) Speak to a mortgage broker to see which exclusive deals they may have from lenders Many lenders, particularly those that offer specialised mortgage products, operate exclusively through brokers and as a result enable them to offer deals that wouldn t be available to you otherwise. 17) Ask the lender or broker to see whether they provide free valuations Mortgage lenders carry out valuations on the property that you want to buy. They do this to check if the property you are buying will provide them with sufficient security for the loan. They want to know in the event of repossession, the sale of your home will be sufficient to pay the amount you have borrowed. The mortgage lender will also base the deposit amount on the valuation. The cost to carry out a valuation on a property will usually differ from lender to lender. here are some mortgage lenders who offer free basic valuations, but usually bundle it up with higher lender fees. There are some lenders on the market who will make you pay for a basic valuation of your property and will thus charge you a lower lenders fee, there are also mortgage lenders who will pay for both a basic and Homebuyer Report (a more comprehensive survey of a property). The Royal Institute of Chartered Surveyors recommends that as a home buyer you should at least consider the option of a Home Buyer s Report, which focuses on the property s defects and problems that are urgent and likely to have an effect on its value. 18) See if the lender will meet the costs of your legal conveyancing, particularly if it s for a residential re-mortgage as most lenders now offer this A conveyancer takes care of all legal aspects of moving house, which include: a) Local search b) Land charges search c) Land registry d) Stamp duty Fees for conveyancing work vary, but you will usually be charged for the conveyancer s time, phone calls, letters and faxes and their indemnity fee. They may state that if any unforeseen problems arise these will be dealt with through an extra charge. For a property costing 100,000, you should expect to pay about 550 in fees. However, the cost will also depend on whether your property is leasehold or freehold. Leasehold properties will cost more as they involve additional work checking the lease. Most conveyancers will ask for payment of land registry and local authority search fees in advance. The balance will be due when you ve completed on your home. 19) See if the lender is prepared to offer you any cash back With a cashback mortgage, you re given some cash when you take out your mortgage. The cashback sum may be a proportion of the amount you re borrowing (for example 1%) or a set amount (for example, 500). Be aware that cashback mortgages often have a higher interest rate than other mortgages. To check the true cost of cashback, compare what the monthly payments would be with other deals in the market.

9 8 Capital Fortune 20) See if any family member could provide a gift which you can use towards the deposit Around 80% of first-time buyers aged under 30 are estimated to be receiving financial help from their parents, according to the Council of Mortgage Lenders (CML). With most lenders reserving their best rates for people who only need to borrow around 70% of a property s value, deposits remain one of the biggest barriers for most firsttime buyers. Deposits are crucial so this is the most popular way parents can lend a helping hand. Some lenders might take issue with parents lending their children money, as this technically impacts their ability to afford the loan. a) Help with the deposit Your parents need to consider whether they can afford to give the money as a gift or long-term loan. If they need to borrow money in order to fund your deposit, perhaps by taking out a loan or remortgaging their own home, then they should seek independent financial advice first. The tax implications of a financial gift also need to be considered. General cash gifts of up to 3,000 each year are exempt from inheritance tax, but if your parent dies within seven years of this money being gifted, it will still be considered as part of your parent s estate. Your parents also need to consider if you are buying the property with a spouse or partner, or even a friend, what would happen if your relationship later breaks down. They should take legal advice in advance of buying to make sure every party knows what will happen to the property and the money gifted should things go wrong in the future. b) Be a guarantor If you have an adequate deposit to secure a mortgage, but are struggling to borrow enough money to buy your first home, your parents could help by becoming a guarantor on your mortgage. This means that, should you later become unable to pay the mortgage, your parents will be liable for doing so and the lender can chase them for the money. Not all lenders will accept parental guarantors. The main consideration for your parents should be whether they can afford to take on responsibility for the loan should you, for whatever reason, no longer be able to cope with it financially. Lenders will assess your parents income and other financial commitments to assess their ability to be able to cover the mortgage should you not be able to. Your parents should seek separate legal advice so they fully understand the financial consequences of guaranteeing a mortgage. c) Use savings to offset their mortgage If your parents have cash in their savings account, they could help you by opting for an offset mortgage that links their savings to your mortgage. The lender will then deduct the savings from the amount owed, and only charge interest on the difference. There are some important factors for your parents to take into consideration; for a start, they must be prepared to tie up their money for at least three years, possible longer if the property has fallen in value. d) Buy together Your parents could also buy a property with you. This means using your collective income to take out a joint mortgage, with all the relevant names on the deeds, and sharing responsibility for making the repayments. However, they should take measures to protect themselves financially since they will have to take on the full debt or risk defaulting and potentially losing the home if you are unable to contribute to mortgage payments. It s also important to consider what would happen to the property and paying the mortgage should you or your parent die. When taking out a joint mortgage, it s important to consider your life insurance arrangements and review whether these need to be changed in light of the mortgage agreement. You and your parent should all seek independent advice, and get suitable legal documents drawn up so that everyone knows what will happen if one party wants out or should things go wrong.

10 9 Capital Fortune 21) negotiate with the seller to offer you a discount on the sales price and use thisdiscount as a vendor s gift to further lower the loan to value (LTV) ratio Vendor funded deposit refers to instances in which the seller of a property funds the deposit of their property, on behalf of the buyer. The primary advantage of a vendor funded deposit is that it encourages buyers to purchase the property. Also, the use of a vendor funded deposit encourages those without the equity requirements for larger loanto-value (LTV) ratio mortgages available to them to capital raise. However, there may be instances in which lenders do not recognise a vendor funded deposit as lower than the valuation price. In these cases, lenders may recognise thereduced price from the vendor as the final valuation price, rather than a higher price with the deposit paid. Generally, a vendor funded deposit can be no larger than 5% of the value of the property, so may need to be used along with a cash deposit by the borrower, in circumstances where a vendor funded deposit is accepted by a lender. 22) Build into your costing all additional costs such as stamp duty, survey and legal fees The money for such costs as stamp duty, property survey, and conveyancing need to come out of your savings and cannot be added to a mortgage. If you don t plan for these additional costs, they will have to come out of the deposit. 23) if you are remortgaging, obtain valuations from three local estate agents to provide an up to date value of your property These can be used a comparables if the lender s valuation needs to be challenged. 24) Make sure you qualify for the mortgage deal you choose Before going through the time and expense of applying for a mortgage, make sure you re aware of any restrictions that apply and that you meet the lender s criteria. Find out too if the lender refunds the fees it charges for assessing your mortgage application. Some lenders have now introduced non-refundable fees. 25) Don t complete the application yourself There are brokers who don t charge fees and who will process the full application, follow up and chase the lender, arrange the valuation, push for the offer and will liaise with the solicitors. Applying for a mortgage via a broker usually means that you save a considerable amount of time and legwork by cutting down on both the research you need to do and the number of applications you need to fill in. This will save you valuable time and money. Typically you only need to provide your information to mortgage broker once and they ll be able to use it to find a suitable deal and submit an application. 26) look beyond the initial interest rate and assess pound for pound what the overall cost of the mortgage will be Low rates can mean expensive mortgages, giving high lender arrangement fees or other costs. See if the lender will advise you how much you will actually pay in interest over the initial incentive term and for the rest of the mortgage. 27) The initial interest rate you pay is certainly important, but not the only factor to consider Some schemes that look very appealing have great rates to start with, but may come with huge set-up fees or extended lock-ins to later, much higher, interest rates. That s why it s important to shop around and to weigh up each deal before you commit. 28) Consider the Annual Percentage rate (APR) The APR is a strong indication on the overall cost of the mortgage. You will often see two rates quoted by lenders the applied rate and the annual percentage rate (APR). For example: The applied rate for the term of the mortgage 5.19%. The overall cost for comparison is 6.2% APR. The applied rate is the rate of interest which the lender uses to calculate the amount you actually owe them. It will not be the same as the APR as it does not include all charges. You should use the APR to compare the true overall cost of your loan. For example, if you find two mortgages with the same applied rate and the same mortgage term but with different APRs, then you know the one with the higher APR has higher charges. The lower the APR, the better, so be sure you do your research. 29) Switch if you can to a daily calculated interest rate to save money Interest is calculated daily, monthly or annually. Daily calculated rates save you the most money. That s because every payment you make reduces your balance, and the lower your balance, the less interest you pay. Mortgages where interest is calculated daily keep track of those monthly payments. If lenders sums are done once a year, they do not factor in all payments so interest is calculated on the balance at the start of the year which will be higher than later in the year.

11 10 Capital Fortune 30) See if you can make regular over-payments on your mortgage If you can make regular over-payments on your mortgage, you will reduce your overall debt and thereby the amount of interest charged. However, many lenders will restrict the amount you can overpay each year. 31) Consider forecast on rate change in a market where they are falling: you may be best to track the Bank of England Rate If rates are rising, you may save money by fixing. 32) Always try to track against the Bank of England base rate which is independently set each month Avoid discounted products which offer a discount to the SVR as lenders have discretion to amend the rate. 33) Once you have found the mortgage that best suits your needs and circumstances, act quickly It is important to act fast to secure the mortgage deal you want. Rates are only guaranteed once a full application has been submitted. 34) Once submitted, review rates as new products may come onto the market from the date of application and your completion You can look to then do a product switch or even, if needed, change lender. 35) Ensure you secure the best rate Mortgage offers can last for between three and six months so rates can be obtained well before your current deal ends giving maximum options. 36) Consider offering additional security to your lender Besides your deposit, you can offer lenders additional security on the loan by including a second property, share portfolio or investments. With bespoke lenders, this can mitigate their overall risk and may lead to negotiation on the interest rate. 37) if you could be a potential private bank client, it can often be possible to obtain a better deal if you are prepared to offer a bank some assets other than just the property Assets that you can offer can take many forms, such as a holiday home pledged as additional security, cash deposits, custody of a share portfolio or a pension fund to manage. In some circumstances, this does not even need to be yours. For example, if your parents are happy to place their assets with a private bank, they may be able to help you negotiate improved mortgage rates. 38) Consider mixing products between a proportion on fixed or tracker mortgages Mixing products like this will allow you to hedge the risk of interest movements and could save you money or mitigate against you paying more if rates go a certain way. 39) Look to mix interest only with repayment mortgages This will save you money on the amount of monthly repayments you will make. 40) Consider full interest-only mortgages to minimise monthly payments The advantage of a full interest-only mortgage is that you ll pay less than you would on a repayment mortgage month by month. The disadvantage is that at the end of the mortgage term, you will still owe the capital and you will also end up paying more interest overall. You need to have a way to pay off the capital you owe at the end of the mortgage. Typically, this is done with an investment vehicle or by selling the house. The investment you use to repay your mortgage could be an endowment policy, an ISA, your pension, shares, investment bonds, investment funds or a buy-to-let property, etc. Using an investment to pay for the capital of your mortgage carries risks however. They include the investment not performing enough to repay the mortgage in full and that you end up paying more than you would have done with a full repayment mortgage. If the investment takes longer to reach the amount needed to repay your mortgage, you ll be paying more interest and investing longer than you intended. 41) look at possible tax savings through using ISAs or a pension towards your mortgage 42) Consider stamp duty mitigation schemes or offshore trusts when buying the property Recent stamp duty mitigation schemes involve setting up a special purpose vehicle company, onshore or offshore, to buy a property and, once the sale is complete, the freehold is transferred or the company taken over. It s important to realise however that the HMRC is studying schemes like these with the intention of clamping down on them. 43) Consider your current and future domicile and whether this can potentially be used now or in the future when both buying and selling the property

12 11 Capital Fortune 44) Choose your mortgage broker carefully Mortgage brokers have different expertise: some are better at searching and some have greater clout with lenders. Don t settle for the first broker you find investigate carefully. Word of mouth is the best recommendation for any service so ask friends and colleagues for recommendations. Talk to the past and existing clients of the mortgage brokers you are considering. At the very least, read the testimonials on their website or in their brochure. 45) use brokers who have received client testimonials and who have won awards Look for proof that the mortgage broker you choose provides a high standard of service. A mortgage broker with great client testimonials and awards is obviously doing something right. 46) Check the broker does not use a restricted panel of lenders and is whole of market Choose a mortgage broker who has access to the whole market so you can be sure you are getting the best possible available deal. Ask if they can also compare direct deals, not available to brokers as well. 47) Check the weekend press for best buy details The deals in best buy tables published in newspapers are usually ordered according to the lowest interest rate on offer. What you need to be aware of is that lenders who offer very cheap rates frequently offset this by increasing the size of the fees attached to the deal. What those best buy tables often leave out (or hide in tiny print) is the Early Repayment Charges, limits on the maximum loan size and regional restrictions. It s also important to realise that some lenders will charge you if you change your mind after applying for a mortgage deal, while others won t charge you anything. Unfortunately, the best buy tables won t tell you which ones are likely to charge in such a case. 48) Read the message boards on mortgage blog sites Find out what other people are saying and doing. Take note of the good and bad experiences they have had and learn from their mistakes. 49) Check you can confirm all your income details in order to obtain the best mainstream rates Lenders will need evidence that you have a steady income stream from a full-time or parttime job so gather bank statements, tax returns and any other relevant documents. 50) Ensure you have all your paperwork together to avoid any delay in submitting the application to quickly secure the best deal whilst available After going to all the effort of finding a great deal and choosing a property, the last thing you want is to lose the mortgage deal because you don t have the necessary paperwork ready. Get everything that a lender will want to see ready before you start applying for mortgages. 51) Obtain rental valuations from ARLA estate agents for Buy To Let properties Once you have valuations from a number of estate agents, you can use them to challenge the lender s valuation. 52) Shop around for your solicitors to save money A good service for this can be found at com/purchase/solicitor-quote 53) Speak to mortgage advisers from Which? The Which? mortgage advisers look at every mortgage from every available lender (even the ones consumers can only get direct from banks and building societies). Its advisers are also paid a salary rather than commission so you can be assured the advice they give is impartial and independent. 54) Reduce the term of your mortgage By reducing the repayment period of your loan, the less interest you will pay. What s more, loans with faster payoffs carry less risk, so lenders are willing to offer lower rates for shorter term loans. If you re in the market to take advantage of today s low rates and refinance an existing loan, consider taking out a shorter-term loan, such as a 15-year or 10-year fixed. The payment is higher than a 30-year fixed loan, but you ll save thousands of pounds long term. 55) Consider offset mortgages which may also save you money if you use the offset facility and combine it with your current account An offset mortgage can pool your finances including your current account, savings and mortgage, into one. It adds up your pooled assets, savings and money in your current account, and offsets them against your mortgage on a daily basis. It offsets your savings against the total debt of your mortgage, so rather than earning interest on your savings, you pay less on your mortgage debt. Let s say you have 15,000 in savings and an outstanding mortgage of 100,000, you ll only pay interest on 85,000. Since you won t be earning interest on your savings, you won t pay tax on it.

13 12 Capital Fortune 55) Consider offset mortgages which may also save you money if you use the offset facility and combine it with your current account continued There are other benefits of an offset mortgage. Since your monthly repayments are based on the full mortgage amount and the total interest paid is substantially reduced, the effect is that your mortgage is paid off quicker. For all this to happen your savings must be held with the same bank or building society as your mortgage. An offset deal allows you to access your savings at any time, just as with a standard savings account. 56) Home purchase insurance offers you protection if the purchase falls through As a property buyer, you face the possibility of finding yourself out of pocket due to survey/legal fees if your home purchase falls through. Buyer s protection insurance is designed specifically to protect you in the event of the following unexpected circumstances: a) Gazumping or vendor (seller) withdrawal, for any reason other than unreasonable conduct or delay on your part. 56) Home purchase insurance offers you protection if the purchase falls through continued b) Adverse valuation where the mortgage lender values the property at more than 5% below the agreed purchase price, or if work needs to be completed on the property, which will cost more than 5% of the agreed purchase price. c) A change in your circumstances if you are unable to complete the property purchase due to your employer either instigating relocation or notifying you of impending involuntary unemployment and your not being reemployed prior to completion. 57) Carefully consider the type of property valuation you require Valuations can be costly but can save you money in the longer term if they highlight problems with the property. According to the Royal Institute of Chartered Surveyors (RICS), surprisingly, only 20% of all homebuyers commission a professional survey, possibly because they assume the mortgage lender s valuation is sufficient. In fact, the lender s survey is simply a mortgage valuation, a property inspection to establish the amount and terms of the loan. It will not tell you if the property is worth the price you re paying for it, nor point out any structural defects. To obtain this kind of information, you ll need to get a professional opinion by commissioning a chartered surveyor before you sign any contracts. There are two main types of survey the Homebuyer s Report and the Building Survey. a) Homebuyer s report This type of survey is designed to keep costs to a minimum and is likely to be the best choice if the property you are buying is conventional in type and construction, is apparently in reasonable condition and built within the last 30 years. According to the Royal Institution of Chartered Surveyors (RICS), the main objectives of the Homebuyer s report are to: i) Make a reasoned and informed judgement on whether or not to proceed with the purchase. ii) Assess whether or not the property is a reasonable purchase at the agreed price. iii) Make clear what decisions and actions should be taken before contracts are exchanged. b) Building survey This type of survey is suitable for all residential properties and provides a full picture of the property s construction and condition. The detail in this kind of survey is higher than the Homebuyer s Report, which is why it is more expensive. A Building Survey is required when a property is of an unusual construction or has had extensive alterations, if it s old, in need of serious structural repair or if you re planning a major conversion or renovation. The final report will include detailed technical information on the construction of the property, materials used and a listing of all major and minor defects. The report does not provide a valuation, however this can be arranged as an agreed extra. The cost of this survey is from 400 upwards and will usually take one to two days to complete. You can expect the final report within three working weeks of the original survey. c) Choosing a surveyor Once you ve worked out which type of survey to go for, the next task is to find a suitable surveyor. Your mortgage lender or estate agent may be able to offer a recommendation, also don t forget to ask any friends who ve recently purchased a property. If these options fail to find someone suitable, contact the RICS (

14 13 Capital Fortune 57) Carefully consider the type of property valuation you require continued Tell your surveyor information about the locality, including any information you ve gathered about properties that are for sale or have recently been sold in the area. Also, inform the surveyor of any potential problems that you noticed when you viewed the property. 58) Obtain a decision in principle from a lender Having a decision in principle from your lender means you can it to negotiate with the estate agent on price as it is clear you are in a strong position. 59) Consider selling your own property first so there is no chain Make buying a property as swift and easy as possible by putting your existing home on the market. If it sells before you make an offer on a new property, you won t have to wait for the sale of other properties in the chain. 60) Keep your credit accounts up to date Your credit score is being monitored constantly so it s important to keep up to date with allyour credit payments and to ensure your bank account is in a healthy state. 61) Consider your future plans and whether you will be charged repayment penalties if you redeem the mortgage earlier While paying back a loan before the end of its term may seem like a great idea, it s important to realise that a loan may have charges associated with paying off the balance early. This charge has different names it may be called an early repayment penalty, an early redemption fee, a redemption charge or a financial penalty. An early repayment penalty is usually equivalent to one or two month s interest. The earlier in the term you repay the loan, the higher the charge as the interest component of the loan repayment makes up a higher proportion of the repayment, the earlier in the loan term it is. An early repayment penalty can add a considerable cost to your loan. Check which loans apply a charge and which don t. 62) Consider the importance of portability (the ability to move the loan to another property) to avoid penalties A mortgage with a portability feature means that if you move you can take your mortgage over to a new property (subject to underwriting checks and a fee). Because you can take your existing borrowing to your new place, it means that you wouldn t have to pay an Early Repayment Charge. However, if you reduce your borrowing when you move to your new place you might well need to pay an Early Repayment Charge on what you repay. If you need to borrow more, the additional amount will probably be charged at a different interest rate to your original loan (so you could end up with two parts to your mortgage). 63) Consider taking out accident unemployment insurance If you could not work due to an accident, illness or being made redundant, having accident, sickness and unemployment insurance would give you financial support during that time. You can choose the amount of cover you need deciding whether you want to be covered for redundancy, sickness, injury or all three and if you need to protect your mortgage repayments, your salary (on average between 50-75% of your gross salary), loan repayments or rent. There are other providers of Payment Protection Insurance (Short-Term Income Protection) and other products designed to protect you against the loss of income. For impartial information about insurance, please visit the website at A typical monthly cost for Monthly Payment Protection Insurance is 5.02 for every 100 of monthly benefit. A monthly administration charge of 3.18 will be added to the monthly cost. 64) Shop around for buildings and contents cover Buildings insurance generally covers damage due to fire, lightning, explosion or earthquake, theft (or attempted theft), riots or vandalism, storms or flooding, subsidence, falling trees, moving objects and escaping or leaking water or oil. Be aware that if your property is in an area that is prone to flooding, it will affect your premium.

15 14 Capital Fortune 64) Shop around for buildings and contents cover continued It s possible and often a lot cheaper to arrange your own cover but your lender will want to check that the policy is adequate. They may charge you a switching fee. There are different ways to choose the level of cover you need. a) Sum-insured With a sum-insured policy, you work out the cost of rebuilding your home, including the cost of demolition (if necessary), clearing the site, and architects and builders fees and the insurer calculates your premium on that basis. The Association of British Insurers has an online calculator to help you calculate the rebuilding cost. (You can find it at If your house is not standard construction (brick walls with a tile roof), you might have to get a chartered surveyor to prepare a valuation for insurance purposes. You can find a surveyor at the RICS ( org/findasurveyor). b) A bedroom-rated policy This policy is based on the number of bedrooms your home has (subject to maximum amounts of cover). Insurers will want to know how many rooms were originally designed for sleeping in, even if they are now used for a different purpose. Your insurer may also want to know whether any rooms have been converted into bedrooms. 65) Pay all fees upfront Try to pay any fees upfront so they are not added to the mortgage, which would mean you d be paying interest on the additional money for the length of the loan. Those fees could include: valuation, conveyancing and arrangement/ lender fees, stamp duty or even a mortgage indemnity guarantee payment. Some lenders offer to pay for your valuation fees, arrangement fees and legal costs. These may be refunded, but you have to pay for them in the first place and the lender will forward you the money once your mortgage application has completed. In some cases, the lender takes care of the fees completely. There may be some restrictions, however. The lender may insist that you use a particular solicitor or surveyor in order to receive a free service, or to obtain a refund. 66) Look at fix and track mortgage deals These kind of mortgage deals give you the benefit of saving on current tracker rates but also provide the ability to fix the interest rate. 67) look for lenders who offer a further drawdown facility or reserve Check if your lender offers a drawdown facility, which could save you re-applying should you need further funds. With this kind of facility, you can borrow extra without further approval from your lender, as long as the total loan is below an overall limit. Or, you may be able to borrow back against earlier over-payments With a more traditional mortgage, you usually need to apply for a top-up loan, which could take longer to arrange. 68) Consider a third party such a parent or guarantor on the mortgage as this may increase affordability and get you a better rate If family members want to help but don t have savings they can afford to lend for a deposit, there are now mortgages that can help. a) Guarantor mortgages Guarantor mortgages allow borrowers to take on larger loans than the lender would normally be prepared to extend if a close family member is prepared to act as a guarantor on the debt. Parents or grandparents offer their own homes as collateral on your mortgage. They will need to have at least 25 per cent equity in the property on which your lender will put a charge. If you keep up with your mortgage repayments, there s nothing for your parents or grandparents to pay. But if you default on your loan, your family members will be liable to make up the shortfall they might have to remortgage their home to do so and, in extreme circumstances, it could be subject to repossession. b) Family offset mortgages With a family offset mortgage, your parents or grandparents put their savings into an account linked to your mortgage. You can t get at the money, but it serves as a deposit on the property you want to buy. It also lowers interest charges, as the savings balance is deducted from the value of the loan. Your family members won t have access to that money until your mortgage is worth only 75 to 80 per cent of its value. Some banks are offering variations on the family offset mortgage.

16 15 Capital Fortune 69) look at smaller building societies who sometimes offer lower rates Small building societies often have greater flexibility than big banks when it comes to mortgage lending. While they may not be able to compete on price, they can be flexible about their criteria for lending so if you re struggling to get a large enough loan or even to get a mortgage, they may be worth checking out. They are now looking at an individual s unique set of circumstances before making a decision, rather than holding them up to a strict set of criteria and rejecting them if they don t meet even one. The drawbacks with this type of underwriting are that it may involve providing more paperwork with a mortgage application, it may be more expensive, and good deals tend to go fast. The advantages (besides being able to get a mortgage when it seemed impossible) is that small lenders often have lower arrangement fees and they sometimes specialise in niche areas. 70) Consider all your sources of income When you re applying for a mortgage, include all possible sources of income, including bonuses, commission, tax credit, child benefit overtime, and disability benefits as this could boost your overall income and get you a better rate. 71) Do research on the expressed views of commentators regarding Bank base rates 72) Borrow only what you need and borrow as little as possible While it might be tempting to take out the maximum mortgage possible, you need to be sure you can cover all your monthly bills and have enough left each month to enjoy life. Remember, if you can t keep up your mortgage payments, your home could be repossessed by the bank or building society. 73) Speak to your existing lender if you are tied into a high rate to see if you can opt out early You may have to pay an exit fee to leave your current lender and, depending on your deal, an early repayment charge as well. You may have to pay an arrangement fee to join your new lender and face legal bills too. If you use a mortgage broker to help you find a new deal, some of them may charge too. Most fixed-rate deals have big penalties if you leave early but it could be worth paying, for a really big rate cut. However, the rate you need to achieve to make switching worth it may not be possible in the present market, or you may not have a low enough LTV to successfully apply for it. If you own less than a quarter of a property outright or put another way, need to borrow more than 75% of the value of your property then you ll often find it difficult to get a good new mortgage deal. It s still worth checking the deals available for those with little equity in their property as, though they are few and far between, some exist. Be warned, though, that they usually come with very high interest rates which may make switching pointless. To find out what s available, speak to a whole-of-market mortgage broker, who ll scour the market and find the best deal possible for you. 74) use a chartered or certified accountant if you are self-employed Traditionally it s been more difficult for the self-employed to get mortgages since the majority of mortgage lenders preferred to see the regular income guaranteed by employment. This has changed in recent years. Lenders want to see evidence of how employable you are and to see that you receive regular income. They will want to see three years audited accounts, although some will accept only two years. If you haven t been in business for long enough, the lender may accept a letter of confirmation from an accountant. But, if you can t show the three years accounts, you may have to pay a larger deposit. If you re on a short-term contract, it will help if you can show the lender that the same employer has renewed your contract. Some lenders will want to see a pattern of contract renewals over a two or three-year period. 75) Check the follow on rate of the product as some follow on rates are high Although mortgage lenders offer enticing deals to tempt you to sign up, these usually end within the first two to three years when you go onto a follow on rate, which can come as an unpleasant shock for many borrowers. 76) Check with the lender whether they automatically offer retention deals to save future application

17 16 Capital Fortune 77) if you are planning to let the property, check on the lender s consent to let policy to ensure they won t increase the rate Your lender may give you consent to let your property but may charge you more each month. If you have enough equity in your home, you might be better off with a buyto-let mortgage rather than your lender s consent-to-lease mortgage. These special let-to-buy rates are higher than the best rates for either residential or buy-to-let mortgages. 78) if you re planning on working abroad, check your lender s ex-pat policy to ensure it won t increase the rate Lenders become nervous of supplying mortgages to borrowers who are outside the UK purely because it makes it much harder for them to chase up on problems such as defaulted payments. By being outside UK waters and therefore subject to other laws and constraints being an expatriate adds a level of risk to the mortgage that the lenders need to take into consideration. There will also be further rules regulations and paperwork to contend with. There are a number of lenders who specialise in expatriate mortgages. They will have experience of the needs of UK citizens living or working abroad and they will structure the mortgage to cater for features such as exchange rates. 79) Check if any additional fees for registering a lender s interest on building insurance policies 80) Check if the lender imposes additional administrative charges if you don t take out the buildings insurance In the past, you were free to take out this insurance with any provider. Nowadays, some lenders want to sell you their own insurance and will penalise you with a 25 fee if you decide to go elsewhere. 81) Check the number and amount of money transfer fees when completing the mortgage The CHAPS (Clearing House Automated Payment System) fee, also known as a telegraphic transfer fee, is supposed to cover the administration costs of transferring the lender s money to your solicitor. The cost nowadays is likely to be only a few pounds, and while some lenders may charge more than this, others do not charge anything at all so it s worth checking your lender s policy. 82) Check to see if there are any non-refundable fees (such as booking fee) even if the mortgage doesn t complete There is a growing trend in the current mortgage market to ensure that the lenders are indemnified for costs incurred on assessing unsuccessful applications. Several UK mortgage lenders have now introduced non-refundable fees as a way of boosting their coffers. If your application is rejected, you could lose hundreds of pounds and have nothing to show for it. The lender meanwhile will miss out on many years of interest and fee income, but will keep the application fee to cover costs. So you need to be on the lookout for non-refundable fees and make sure you don t apply for mortgage products you have little chance of obtaining. Some lenders have products that do not require borrower s to pay fees upon application. It makes sense to seek advice from an independent mortgage broker who can scan the entire home loan market for a suitable product and search for products based on criteria such as whether or not they have non-refundable application fees. 83) Check if the lender requires you to take out any other insurances If your lender requires you to take out other insurances, consider whether it is appropriate to undertake this insurance with the same provider. 84) Shop around for life cover Most lenders will insist you take out life insurance cover to pay off your remaining mortgage should you die before the payment term has ended. Critical illness policies will also repay your mortgage, but only if you fall ill with one of a limited number of serious illnesses. You can also take out Mortgage Payment Insurance to cover all or part of your monthly mortgage instalments should you be unable to pay due to accident, illness or redundancy. 85) Check if a repayment mortgage will be best long-term If you are likely to move property consider whether a 25- year mortgage on a repayment basis is appropriate, given interest is front loaded on repayment mortgages and you will be redeeming this mortgages well before the end of the term.

18 17 Capital Fortune 86) Check that the broker and lender have local telephone numbers Communication by telephone can be expensive and it s highly likely you ll need to communicate often with your mortgage broker or lender so check to see if they have local or toll-free telephone numbers. 87) See if the lender and broker will allow you to communicate by to keep costs down It s important to find ways to save money wherever you can so check if your lender and broker will agree to communicate via . This will save you both time and money. 88) Use a broker to certify true copies of your documents You can save money by using a broker rather than a solicitor to certify your passport and proof of address documents. 89) Ensure your solicitor is on the lender s panel to save paying for work undertaken and having to change solicitors at a later stage It is important to ensure that the solicitor or licensed conveyancer that you choose is on your lender s panel. Most lenders in England and Wales operate an open panel of solicitors where they stipulate that any solicitor acting for them in a mortgage satisfies certain criteria. This criteria varies but generally relates to the number of registered principals (partners) in a law firm and confirmation that they are registered with the Law Society of England & Wales or with the Council for Licensed Conveyancers. Some lenders operate closed panels where they will only allow a select number of solicitors to act for them and sometimes lenders operate a local solicitor-only panel. The reason why it is necessary for your solicitor to be on your lender s panel is that they will also be able to act for your mortgage lender. As you will be responsible for paying the solicitor s fees for acting for your mortgage lender, it is cheaper for you if the same solicitor can act for both you and your lender. Otherwise, you could end up paying two firms of solicitors to do the same job. 90) See if your lender will allow a valuation re-types This is particularly relevant in Scotland where the property is already valued as part of the sales process and a re-type will save you money. 91) if buying a leasehold property, look at the leasehold account to check there are no historic or future works As leaseholder, you will take on the legal liability for all maintenance/service charge and ground rent payable on the flat, even if the amounts due relate to a time before you took over its ownership. Your conveyancer should ask the seller s conveyancing solicitors to ensure that all outstanding amounts that relate to work carried out before and upto completion date are settled on completion date. If this doesn t happen, you will be responsible for those amounts. 92) Consider all management charges, service charges and ground rent when buying a leasehold property As leasehold is, in effect, a form of tenancy, an annual fee (known as ground rent) is payable to the landlord (that is, the freeholder or an appointed managing agent). Ground rent may be a nominal sum. A maintenance (or service) charge is also levied, to cover things like managing the building, external redecoration and repairs, gardening, window cleaning, buildings (though not contents) insurance, and so on. Such charges may rise annually without limit, but they are required by law to be reasonable. The leaseholder usually owns everything within the walls, including the floorboards and plaster, while the freeholder owns the structure, the land on which it is built, and the common parts (which include communal entrance halls, staircases and so forth). The freeholder may be an individual, a company, a local authority, a housing association or a residents management committee, under which leaseholders join forces to buy the freehold of their building. The lease stipulates who is responsible for maintaining and repairing different parts of the property and any conditions you must meet as a resident. Check these if you are considering buying a leasehold property. Your solicitor should check that the seller is up to date with ground rent payments before you sign the contract. 93) Check whether the freeholder on a leasehold property organises the insurance and if so, what is the cost Before you sign a mortgage on a leasehold property, find out who has responsibility for organising insurance and whether you will need to contribute in any way.

19 18 Capital Fortune 94) Avoid new build flats which will restrict the number of lenders you can approach for a mortgage Most mortgage lenders will consider lending on newbuild houses but some won t lend on new-build flats. The maximum proportion of the property s value you can borrow (the Loan-To-Value) may be lower than for a second-hand property. Many builders arrange mortgage facilities for a whole estate in advance. There is often a link between the property developer and a particular building society, which makes it possible to get a loan for a high percentage of the purchase price. 95) Avoid short leases which will restrict the number of lenders you can approach If you buy a leasehold flat, you don t actually own the property. All you own is the right to live there for a specified period of time however much time remains on the lease. Many leases are granted on a 99-year term while some run for 999 years. Most banks and building societies are happy to lend on property that has at least 75 years unexpired on the lease. You should not buy a property with a lease of less than 60 years. In fact, many mortgage lenders are very unlikely to lend for a lease as a short as this. Lenders normally want at least 20 years left on the lease after the end of the mortgage term. As a leaseholder, you have the right to extend the lease for 90 years or even to buy the freehold if certain criteria are met, though the application process is expensive and takes a long time. 96) Avoid unusual build types or construction which will restrict the number of available lenders Unusual properties like windmills or listed properties tend to put off lenders and insurance companies. Their main concern is the resale value of the property. It s for that reason they charge a premium on such properties. 96) Avoid unusual build types or construction which will restrict the number of available lenders continued There are specialist mortgage lenders who will provide loans for conversions of derelict properties and for environmentally-friendly home conversion projects. It is important to have planning permission in place before you go to a lender. Similarly, mortgage lenders may want access to architects plans or quotes from builders. 97) Before remortgaging, check out the costs involved Check out the costs involved in remortgaging your property before you switch. Usually, you will have to pay a few hundred pounds for a property valuation for your new lender and conveyancing fees for making the transfer. Some lenders may offer to cover these costs but the interest rates on their deals may be higher. You may also have to pay an arrangement or reservation fee of anywhere from 200 to 700 (or higher). Lenders who offer to waive such fees may have higher than normal interest rates. It may be cheaper to pay valuation, conveyancing and set-up fees to get a lower interest rate. Or, you may find that once you ve taken these and an early repayment charge into account, it s cheaper to stay with your existing mortgage. An early repayment charge is to compensate the lender for the time and expense involved in you leaving early. It s important to ask your prospective lender about redemption or early repayment charges before you sign anything. Lenders may also charge an overhanging lock-in penalty if you decide to leave after the special deal interest rate has ended. Again, check with your prospective lender about this so you are forewarned. If you re unsure, ask your mortgage broker to work it all out for you. 98) Consider when buying any property the ease of re-sale as you may be getting a bargain, but when selling may need to also offer a bargain in order to sell Research your property market to ensure the location is one that s in-demand from potential buyers. The last thing you want to discover is that you ve bought into an area that s in decline and where property is hard to shift.

20 19 Capital Fortune 99) Check to see if your property has had any subsidence, heave or flooding as these factors may impact the availability of the mortgage If your property has subsidence or heave or is located in an area that is prone to flooding, it will have an impact on the likelihood of you getting a mortgage. These factors will also increase the costs of building insurance. 100) Find out if the lender makes additional charges for missed payments or duplicate statements as these may be expensive Missing even one mortgage payment will have a serious impact on your financial situation. For a start, it will increase the total amount you will have to pay back, due to account management charges and associated interest being added to your mortgage balance. It will also mean the missed payment information is reported to credit reference agencies, which may affect your ability to obtain credit in the future. One late payment will push your credit score down by anywhere from 50 to 100 points. The longer it takes you to repay all the overdue money and get back on track with repayments, the more your score will suffer. That s why it s important not to sign up for a mortgage that you really can t afford and to maintain good communication with your lender throughout the term of the loan. Most banks and building societies are willing to co-operate with their customers to work out the payments and will consider repossession as a last resort. If you know the payments are going to be late for whatever reason, get in touch with your bank and ask for advice. Contacting your lender immediately gives you the opportunity to come to an arrangement with them about how to resolve the arrears. It could mean a refinance package, a restructuring of payments to spread the arrears over several future payments, or even simply extending the term of your mortgage to make up for the missed month or months. In many cases, you will be advised to temporarily switch to an interestonly mortgage which can reduce your payments for up to a year before switching back to your regular mortgage. 101) Mortgage lenders don t like properties above retail premises It is difficult to get mortgages on flats above shops or other commercial premises. Lenders will look very closely at the type of commercial property as well as whether any of the commercial activities in the area are likely to cause a nuisance (noise, smell or unsociable hours). They will also look at how you gain access to the flat (through the shop or business area, or via external stairs). That s because all of those factors will influence its resale value. Getting a mortgage on flats that are above restaurants, takeaways or pubs can be the most difficult.