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First Time Buyers : eBook

Introduction:

Dear First Time Buyer ,

At Mill - House Mortgage Solutions we are impartial & give advice from the whole of market .

We aim to provide you with all the information you need to answer your questions , as well as make an informed decision .

Choosing the right starter mortgage is not an easy decision to make . However these are the critical decisions thousands of first time buyers are making each and everyday .

Can You Afford a Mortgage ?:

The first & most important question any first time buyer must ask themselves is can you actually afford a mortgage ?

Some of the most crucial elements , which will effect your borrowing ability , are as follows ...

• The Amount of Deposit you have

Although many lenders offer Mortgages up to 100 % of the properties value , most incur additional charges or increased interest rates .

A substantial deposit can do more than just secure you a better deal though , as most lenders will reduce the amount of money they are willing to lend on high loan to value applications .

In many instances the initial investigations into obtaining a mortgage make many first time buyers realise they need to save for an increased deposit before they can borrow as much money as they want to .

However if you do need to borrow using a 100 % mortgage , do not despair ... there are still many lenders who offer what you need .

• Your Income

Your income will form the basis of the Mortgage lenders decision as to whether to lend you the money you want . Most calculate how much to lend you based on a multiple of your income . However more & more are switching affordability based assessments which can be more suited to individual requirements . In most instances proof of income will be required .

If you are not able to provide proof of income , it does not necessarily mean you cannot have a mortgage . Instead you may have to consider Self - Certification of your income . In short this means the Mortgage Company trusts the information you give them & do not ask for any additional proof . Understandably though this results in a higher risk for the mortgage lender & usually results in higher interest rates .

• Your Financial Commitments

All Mortgage Lenders will asses your existing financial commitments to ensure you can afford the mortgage you are applying for . Many have specific guidelines surrounding areas of poor financial conduct ( as detailed below ).

• Your Financial Background

As mentioned above your previous financial conduct will be taken into consideration by the Mortgage lender when the asses your application .

All Mortgage lenders have specific guidelines on how to view your financial background . They also each consider negative financial data in various different ways .

If you have limited or no financial background , due to never having obtained credit or loans before , many lenders will limit the % of the property value on which they are willing to lend against ( typically 75 %).

If you have obtained previous credit , however failed to maintain this & run into difficulty , each company will take a different view on your circumstances depending on their internal policies .

If you have a poor credit history , CCJ's , missed payments , defaults , it need not mean you cannot find a Mortgage .

We recommend that if you have fears concerning your credit file , you should obtain a copy of your own report ( for around 5 . 00 ) prior to making an application for a mortgage .

Remember : Many of the Mortgage Lenders Mill - House Mortgage Solutions deal with offer mortgages to people in such circumstances , please contact us to discuss your situation .

Types of Mortgage Available & Related Costs :

There are various types of mortgages available :

• Fixed

Here the interest rate charged is fixed for a set period ( i . e . 2 yrs ) before reverting to the lenders standard variable rate . Usually there is an Early Repayment charge if you redeem the Mortgage before that period ends . Typically you will be charged a non - refundable booking or arrangement fee to secure a Fixed mortgage rate .

Benefits : As payments fixed for 2 years a Fixed rate provides security and enables people to budget effectively . They remain unaffected by rises / falls in interest rates .

Drawbacks : As usually tied into deal , unable to take advantage of interest rate reductions . If its necessary to make an unplanned redemption of your mortgage , in the deal period , a large fee is usually payable . Also , If interests rates have risen , there can be a dramatic increase in rate when coming out of a Fixed tie in period .

• Tracker's

Here the interest rate youre charged tracks another interest rate . Usually either the lenders own Standard Variable Rate or the Bank of England base rate . As the rate fluctuates , movements in interest rates usually result in a knock on movement to your mortgage payment . Arrangement or Booking fees on these mortgages are usually refundable , or dont even get charged , if the mortgage doesnt proceed . Many trackers are available without a tie in period , as they do not have a deal period to speak of .

Benefits : Allows the customer to benefit from reductions in interest rates causing a reduction in their mortgage payment . If you want a short - term deal for your mortgage , a tracker can provide a temporary solution until your circumstances change . If you can comfortably afford fluctuations in payments , these mortgages mean you do not have to change your mortgage regularly to secure a new deal .

Drawbacks : Rises in interest rates result in higher mortgage payments . Uncertainty over the future interest rates makes budgeting effectively difficult .

• Discounted

Here the interest rate youre charged tracks another interest rate during the deal period , similar to a tracker mortgage . However this rate is discounted for an initial deal period , making it more attractive to customers by reducing the initial monthly cost . Once the deal period has ended the rate payable reverts to the lenders standard variable rate . As the rate fluctuates , movements in interest rates usually result in a knock on movement to your mortgage payment . Usually there is an Early Repayment charge if you redeem the Mortgage before that period ends . Arrangement or Booking fees on these mortgages are usually refundable , or dont even get charged , if the mortgage doesnt proceed .

Benefits : Allows the customer to benefit from reductions in interest rates causing a reduction in their mortgage payment . Attractiveness of initial rate usually in comparison to available Fixed rates .

Drawbacks : Rises in interest rates result in higher mortgage payments . Uncertainty over the future interest rates makes budgeting effectively difficult . If its necessary to make an unplanned redemption of your mortgage , in the deal period , a large fee is usually payable . There can be a dramatic increase in rate when coming out of a discounted mortgage tie in period .

• Stepped

Here the deal period is set over a timescale ( i . e . 5yrs ) however the rate charged changes each year . The rates charged are usually set at the start of the deal . Once the deal period has ended the rate payable reverts to the lenders standard variable rate .

EG

Year 1 Year 2 Year 3 Year4 Year5

1 % 2 % 3 % 4 % 5 %

These rates can be stepped up or down & are designed to accommodate people who expect changes in their circumstances in the forthcoming years .

For example , if you are a young professional and expect your income to grow steadily you may wish to pay as little as possible now , on the basis youll pay more towards the end of your deal period .

As with Fixed mortgage deals usually there is an Early Repayment charge if you redeem the Mortgage before that period ends . Typically you will be charged a non - refundable booking or arrangement fee to secure a Stepped mortgage rate .

Benefits : Depending on your circumstances , these mortgages can be perfect to support your forthcoming life changes .

Drawbacks : If forthcoming changes in your life do not go exactly as planned , incremental increases each year could seriously effect your ability to pay your mortgage . As usually tied into deal , unable to take advantage of interest rate reductions . If its necessary to make an unplanned redemption of your mortgage , in the deal period , a large fee is usually payable . Also , If interests rates have risen , there can be a dramatic increase in rate when coming out of a reducing Stepped mortgage tie in period .

• Capped

Here the interest rate youre charged tracks another interest rate during the deal period , similar to a tracker mortgage . However this rate gets capped at a set level at which point it will not rise any higher , irrespective of market changes . This level is determined prior to commencement of the mortgage . After the deal period has ended the interest rate payable will revert to the lenders standard variable rate . As with Fixed mortgage deals usually there is an Early Repayment charge if you redeem the Mortgage before that period ends . Typically you will be charged a non - refundable booking or arrangement fee to secure a Capped mortgage rate .

Benefits : In many ways there are a mixture of a fixed and tracker mortgage . You capitalise on interest reductions , however can effectively budget on the set capped interest level .

Drawbacks : Due to low demand for these types of mortgages , there are fewer options available . Cap on interest rate is usually set higher than available Fixed rates . If its necessary to make an unplanned redemption of your mortgage , in the deal period , a large fee is usually payable . Also , If interests rates have risen , there can be a dramatic increase in rate when coming out of a Capped mortgage tie in period .

• Current Account and Offset

Right , heres the tricky one to explain !!!

Current Account and Offset mortgages work in conjunction with your bank account .

With a Current Account mortgage , your mortgage IS your bank account . Your balance shows accordingly ( i . e . 195 , 000 ), your salary can be paid in & all transactions are dealt with as they would be on a normal account . In most instances you can have a check book & debit card !

As you are charged interest daily on the account ( as with most mortgages nowadays ) any money surplus to your advised payment , at any given time , results in less interest being charged . This way the higher the amount & longer you leave money in your account , the less interest you pay .

With an Offset mortgage , your bank account and any other accounts you have ( savings etc .) are Offset against your mortgage . This means before they work out how much interest to charge you on your mortgage they take the balance of your other accounts off your mortgage balance . Creating a similar result as to Current Account mortgages above . The more you have in your accounts the less interest you pay . Its important to note you usually stop receiving interest on your current accounts .

The key difference between the two is a Current Account mortgage is ONE account . An Offset mortgage remains several independent accounts . Although a Current Account mortgage is a slightly more effective way of overpaying , some prefer not to have direct access to large amounts of money and or have no desire for a continual reminder of their mortgage balance !!!

Usually Current Account mortgages & Offset mortgages do not have tie in periods . They therefore do not have early repayment charges . Many will have varying arrangement fees , some refundable some not .

Benefits : People with large amounts of money in savings or investments can use this money to save interest on their mortgage . Either option can help you pay off your mortgage early . Some can be used by sole traders and simple partnerships to offset business accounts .

Drawbacks : Usually this style of mortgage has high interest rates , meaning you need to take advantage of the features of these mortgages to make them worthwhile .

+ Many more !!!

Its important to remember not all deal periods will run in line with the tie in period , within which you must pay an early repayment charge .

Each option provides a different level of security as to the cost of your mortgage repayments .

To discuss which type of mortgage would best suit your needs , please contact Mill - House Mortgage Solutions & well be more than happy to discuss this with you !

However whichever option you choose , each of them entail many of the same associated costs :

• Booking Fee / Arrangement Fee

An Arrangement fee will be charged by most Mortgage lenders to cover the administration costs of setting up the mortgage account . A Booking fee will be charged to reserve a special deal rate ( typically on fixed rate mortgages ).

• Higher Lending Charge ( HLC )

A Higher Lending Charge will be made by most Mortgage lenders on high Loan to Value applications ( typically over 90 %) to cover the additional risk of losing money in the event of reclaiming the property . This fee has taken the place of the MIG premium previously charged by many lenders , which became unpopular due to negative press coverage in the late 1990's .

• Early Repayment Charge

An Early Repayment Charge will be made by most Mortgage lenders on capital repayments within an initial tie in period ( typically the same term as the discounted or fixed rate deal ). The charge is normally made as a percentage of the figure being repaid .

• Valuation Fee's

Many Mortgage lenders will insist on the use of their own approved valuers at the cost of the applicant . Some however will allow the use of your own private valuation made prior to the house purchase offer , as is required by law in Scotland . Typically however a charge will still be made to re - type this valuation for the purposes of the relevant Mortgage lender . In either case it's best to check with the relevant Mortgage Lender on their accepted valuation procedures .

• CHAPS / Funds Release Fee

The CHAPS / Funds release fee is made by most Mortgage lenders to cover the related costs of transferring the funds to your solicitors upon completion of the mortgage application .

• Sealing Fee / Closure of Account Fee

Mortgage lenders charge a Sealing Fee / Closure of Account fee to cover the administration costs of closing the account when you redeem the mortgage .

Since recent pressure from the FSA ( Financial Services Authority ) many mortgage lenders have ceased charging a Sealing / Closure of account fees . However some continue to charge them and others have simply re - classified the fee as an administration charge .

It's important to remember all the above costs will be in addition to your own solicitor's costs , deposit & stamp duty ( where applicable ).

Remember : Some Mortgage Lenders Mill - House Mortgage Solutions deal with offer deals with FEE's FREE options , which our advisers would be happy to go through with you .

Ways of Repaying your Mortgage :

In Addition to choosing the right type of Mortgage , you need to consider the most appropriate form of Repayment .

There are three options available ...

Interest Only ( IO ), Capital & Interest ( C & I ) & Mixed ( MIX ).

• Capital & Interest ( C & I ) or Repayment Method :

With the repayment Method you pay off the capital as part of your regular monthly payment . Your monthly payment will contain an element of repayment of your capital in each payment alongside the interest due . The proportion of each will change through the term of the mortgage .

Repayment mortgages have certain advantages ; the debt will reduce with each monthly payment you make , albeit that you will be paying mostly interest in the early years , with the capital repayments making up only a small part of the total monthly premium .

As the debt reduces , the amount of capital repaid increases ; this would normally reduce the debt against the property .

Continuing to make all payments when due guarantees the mortgage will be repaid in full at the end of the term . When repayment is selected many lenders will be more flexible about rearranging payments and altering terms as and when this is necessary .

• Interest Only ( IO ) Method :

With the interest only method , only interest is payable over the term and the capital is intended to be repaid at the end of mortgage by an appropriate repayment vehicle such as ISAs , PEPs , pensions , unit trusts or endowment policies . People have been known to utilise more than one of such repayment methods to repay the debt at the end of the term .

Interest Only mortgages were most popular in the late 1980's when most commonly sold alongside an endowment policy designed to repay the debt & make a modest profit . However in recent years the shortfalls experienced on many endowment policies had led many to opt for the additional security of the C & I or repayment method .

• Mixed Repayment ( MIX ) Method :

With the mixed repayment method , the applicant selects a proportion of the debt on which to pay C & I and a proportion of the debt on which to pay interest only . The applicant would also need to put provisions is place to repay the interest only section as outlined above .

They each have their advantages & disadvantages .

The main advantage of C & I as a repayment method is that this method provides the security of repayment over a given period .

Interest Only may not be able to provide the same security , however it does enable the customer to utilise the investment potential of the accompanying repayment vehicles .

Using a mixture of each method ( MIX ) enables the applicant to have some security of repayment with an added investment potential normally only enjoyed by those who opt to go Interest Only .

Most First Time Buyers opt for the additional security of the C & I method , however lenders will offer all three options in most cases .

Which is Best for You ?:

Call NOW on 0845 508 3252 to receive FREE ADVICE on which type of Mortgage & Repayment method suits your needs best.

Our opening hours are 9 : 30AM - 7 : 30PM Monday - Friday & 9 : 30AM - 1 : 30PM on Saturdays .

Please either ;

call us on : 0845 508 3252 (calls from UK landlines charged at local rates, mobile phone rates vary by cellular service provider)

or

e - mail us at :info@millhousesolutions.co.uk

or

fax us on : 0845 508 3253

or

Write to us at : 9 Leopard Court Norwich NR3 1NN

We aim to respond to all our enquiries within 24 hours of receipt . Within 1 hour wherever possible .

To speak to one of our Advisers about your own Mortgage OR anything in conjunction with it

• Telephone: 08455 08 32 52
• Email: info@millhousesolutions.co.uk
• We will contact you if you complete our Arranging Contact Form

We can then discuss these or any other points you wish to query.

Our opening hours are 9 : 30AM - 7 : 30PM Monday - Friday & 9 : 30AM - 1 : 30PM on Saturdays .

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