A Guide Your First Mortgage Call the team on:

Transcription

1 A Guide Your First Mortgage Call the team on: Fenton Simpson Financial Services Ltd Innovation Centre, Innovation Way, Heslington, York YO10 5DG Tel: Your Home May be repossessed if you do not keep up repayments on your mortgage. An administration fee may apply, a typical example would be 195. Terms and Conditions may apply. Registered Office: Ian Walker & Co. Chartered Accountants, Heworth House, Melrosegate, Heworth, York YO31 0RP. Authorised & Regulated by the Financial Conduct Authority FCA No Registered in England FCA No

2 So you have decided to take the plunge, you have some hard earned money ready for your deposit, so what do you do next? This guide will run you through a few hints and tips for getting your first mortgage and help with some jargon busting along the way. So let s get started 1 Know your finances Banks lend money based on affordability, so know your finances. It is not always easy to get to grips with your finances and fully understand the budget that you have, therefore take some time to work it all out. Use a monthly budget planner (you can download ours for free here!) and start to write down exactly what you are spending each month. It is important to understand what credit commitments you have, these will include car finance, credit cards, overdrafts and any unsecured loans you may have plus much more. Getting to know your commitments before you start the process will certainly prevent any unnecessary stress and problems further down the line. Knowing your finances will also allow you to work out your monthly budget. When owning a property there are other considerations to take into account beyond the mortgage payment itself. Therefore work out how much you can afford to spend on the mortgage payment, your Buildings and Contents Insurance, Protecting your Mortgage, Council Tax and saving money for a house fund to put towards any unexpected repairs. There are schemes out there to help you save that all important deposit such as a Help to Buy ISA. These allow you to save with a better interest rate than you would find on an ordinary account and may also include contributions by the government. 2 Know your Credit Score A bad credit score can seriously affect your ability to get a mortgage, therefore find out what it is before you get started. We recommend you use Experian or Equifax, who will allow you to have a free 30 day trial with them and discover your credit score without financial commitment. They also give you hints and tips how you can improve your score before you apply for that mortgage. (You can access your Free 30 Day Trial on our website.) The biggest impact on your credit score will undoubtedly come from any County Court Judgements (CCJ s). These most often come from unpaid bills, so it is important to know whether you have any or not and if so let your Mortgage Broker know so that they can find a suitable lender for your circumstances.

3 3 How much will it cost me to get my mortgage? There are a number of cost considerations when getting your mortgage, so be prepared. Below are a list of costs that you may encounter along the way: - Stamp Duty This is the amount of tax you pay on the purchase of your property and is currently; Nil on first 125,000 2% on 125, ,000 5% on 250, ,000 10% on 925,000 to 1.5 million 12% over 1.5 million - Legal Fee s You must use a solicitor when purchasing a property and they will act on your behalf in order to sort out the finance, carry out searches on the property and draw up the title deeds and the contract between you and the seller (amongst other things). Fees will ordinarily range between Some mortgages will give you the opportunity to have free conveyancing, but ask your mortgage adviser for the best course of action and get a word of mouth referral for a good solicitor. A bad solicitor can seriously hold up your purchase! - Surveyor Fee s When purchasing a property the mortgage lender will want a survey carried out on the property so that they feel happy with its condition in order to lend you the money for it. You can also instruct a more in depth survey called a Full Structural Survey, which will assess in more details the state of the structure itself. This is especially worthwhile on older properties. A survey on the property will cost anywhere between depending on how comprehensive you want it to be. Once again some lenders will offer a free survey with your mortgage. - Mortgage Broker fee s If you go to your bank to speak to someone about a mortgage it could take you up to 4 weeks just to get an appointment, at that appointment it could then last 2 hours just for them to say that you do not fit their criteria. If you contact a Mortgage Broker the chances are you will be able to get an appointment at a time that suits you within the same week. The Broker will be able to tell you immediately which lenders you will not be able to use and which you can and will be able to arrange everything for you. There may well be a fee for this as a lot of hard work goes into arranging a mortgage application on your behalf. The average fee in London for example is between % (our fee is 195). There are also brokers who do not charge a fee, so it is about finding who you find it easiest to deal with! - Mortgage Arrangement Fee s On many mortgage products there will be an Arrangement Fee to pay, these can vary from and will often just be added to the total mortgage debt so that you do not have to pay it up front. Some lenders also charge for an application to be completed and this will need to be paid up front, your mortgage broker can arrange this for you. Usually this will be between

4 4 Where should I go to get advice on my mortgage? Now that you know how your finances are looking, you have your budget for when you have your mortgage and you know you have a good credit rating, you can go and explore the options. You essentially have two options, you can visit your bank or visit a mortgage broker. In order to get independent advice across the whole of the market then you will be best to visit a mortgage broker. An initial chat will have no obligation and will give you a clearer understanding of how the market works. An adviser will be able to answer any questions you have and assess your circumstances in order to get you the most suitable deal. They can work with your budget to find out what is reasonable with the Buildings and Contents Insurance that you require and to protect your mortgage which will give you peace of mind that you can afford what you would like to do 5 Can I look at houses yet? Yes you can! It is time for the fun bit. Having gone through your finances with your adviser you will now have a clear understanding on how much you can afford to offer on your dream property. You will be able to offer with confidence and this will also put you in a fantastic position as a buyer. Most Estate Agents will ask for a Decision in Principle (DIP) to effectively back up your offer. Your broker will be able to do this for you either before or after you make an offer on a property. The DIP is exactly what it says on the tin, it is as definite a decision as a lender to make without you actually completing a mortgage application. 6 Your offer is accepted! Once your offer is accepted and you have instructed your solicitor you are rocking and rolling. It is important to note that it is not yet a done deal, there are many legal hurdles to overcome before you can move in. Here is a little break down of what to expect; - Instruct your solicitor - Instruct your mortgage broker to apply for the mortgage for you (A mortgage offer will last for roughly 3 months from the date that it is offered, and can take up to 4 weeks to be processed) - A valuation (Survey) will need to be carried out on the property that you wish to purchase - You will need to negotiate fixtures and fittings on the property you are purchasing - You will need to find out how many properties are in the chain, the more there are then the more unsteady the chain is. Remember nothing is confirmed until you have exchanged and completed contracts, so it is crucial that you keep things as smooth as you can in order to not end up spending lots of money only for the move to fall through. The small the chain, the less risk there is of it falling through! - Arrange your Buildings and Contents insurance to begin on the date you are due to move in - Arrange protection on your mortgage to start on the date that you move in - Exchange contracts - Complete and move in!

5 7 Move in! Once you are in your property you can pop the champagne and relax, you have done it! Don t forget to get registered on the electoral role in your new home, register for council tax, sort out your utilities, such as water, gas, electricity and anything else that you require. (We recommend using Utility Warehouse to get the most from your bills!) How long will all this take? The length of time that it takes to purchase a property can vary hugely. Provided that you are honest, organised, efficient and answer any questions from your solicitor or mortgage broker quickly it should be relatively stress free, however everything is dependent on everyone else in the chain so providing they are all as efficient as you then there should be no problems! The most time consuming side to the move is the legal side of it. It will take your solicitor on average 6-8 weeks to do all of the necessary work to have you ready for completion. Any delays, complications or unexpected hiccups will delay beyond 8 weeks but so long as you keep in regular contact with all of the parties involved this should not be an issue for you. We hope to see you soon and help you get your first mortgage! New Home Planner Use the below sheets to work out your costs; Deposit Valuation or Homebuyers Report or Building Survey Arrangement Fee Solicitors Disbursements Stamp Duty Mortgage Broker Estate Agent Total

6 FAQ s What if my parents are helping me with a deposit? That s great, and it can be a huge boost to have that financial backing. There may be a couple of forms to be completed such as a Gifted Deposit form but your adviser can talk you through this. If you have family members that would like to help however may not think that they are financially able to, there may be products out there to help which your mortgage adviser will be able to tell you about. How much deposit do I need? There is no standard answer to this, the rule of thumb is the more you have, the better. Mortgages are worked out on the Loan to Value (LTV) which illustrates how much equity you have in the property. For example, a 100,000 property, deposit would mean that you have a 10% deposit and as such you would require 90% mortgage, 90,000. Therefore ordinarily the lower the LTV the better. There are mortgage products around for 90% and 95% so work out based on your deposit what you require. What is Stamp Duty? Stamp Duty Land Tax (Stamp Duty) is the tax that you buy on the purchase of a property. It is important that you are aware of how much you will need to pay before you start to house hunt so that you do not get any nasty surprises further down the line and can budget for it alongside your deposit. You can use our Stamp Duty calculator to work out exactly how much you will be due to pay. The rates currently stand at; Nil on the first 125,000 2% on 125,000 to 250,000 5% on 250,000 to 925,000 10% on 925 to 1.5 million 12% over 1.5 million How do I get a Mortgage? There are two ways that you can go about getting a mortgage. You can visit your local bank or contact a mortgage broker to do this for you. The difference is that a mortgage broker can search the majority of the market for you very quickly whereas a bank will only offer you their products which may not be right for you. As a First Time Buyer a mortgage broker can look after you throughout the process of getting your first property and ensure that you get the best option for you. What is conveyancing? The legal process of house buying is called conveyancing. Your conveyancer, often a Solicitor or specialist conveyancing firm, will look after the collecting and transferring of funds, stamp duty charges and payments, providing legal advice, drawing up contracts and conducting local searchers. We have a panel of Solicitors that we deal with on a daily basis, if you would like a recommendation on a Solicitor to use please ask one of our advisers.

7 How much can I borrow? Mortgages are lent based on your affordability. Lenders will judge your affordability based on your income (including commissions, bonuses and overtime), against your outgoings. Out advisers will help you through this and will be able to advice on which lenders are affordability criteria you are most likely to meet. What affect does my credit rating have on my ability to get a mortgage? A low credit score caused by missed payment and CCJ s can certainly have a detrimental effect on your ability to get a mortgage if it is not disclosed to your adviser. You can check your credit rating here. What fees are involved in getting a mortgage? There are a number of different cost considerations when arranging a mortgage, so make sure you add them to your budget before you get started. In terms of the mortgage itself, some products have a fee on them and others do not. Your adviser will go through various mortgage options with you and outline if the product has a fee involved or not. Brokers may also charge a fee for their service, we charge 195 on application. A common fee could be 450 1%. Do I need insurance with my mortgage? For the majority of people, a mortgage is the biggest financial commitment they are ever going to make. As such it is prudent to ensure that it is protected which will allow the mortgage to still be paid should in the event of, critical illness, accident, sickness, unemployment and ultimately loss of life. Interest Only or Repayment Mortgage? There are a lot of different terms in the mortgage world and the decision between Interest Only and Repayment is a big one. The vast majority of mortgages will be Repayment mortgages, which means that at the end of the term of your mortgage the mortgage will be totally repaid. An Interest Only mortgage is a higher risk product, you will only pay back the interest on the mortgage. This means that your debt will not ever decrease and as such through this method you will never pay off the mortgage. This type of mortgage is therefore much more common with landlords who may not have any desire to pay off the mortgage. Ask your adviser what will be best for you and they will be able to help you make that decision. Should I have a Fixed or Tracker Rate mortgage? It depends on your circumstances and what you consider to be the best for you. Your adviser will talk you through the implications of each mortgage type. A fixed rate will give you peace of mind in terms of knowing what your monthly repayments will be, whereas a tracker rate may give you lower

8 repayments but you must be prepared for potential rate rises which will impact on your monthly repayments.