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Choosing Your UK Mortgage
This quick primer gives you potential mortgage options for each kind of borrower. Please note that this is a general guide and we should emphasize that you are always better off talking to a professional mortgage adviser.
One thing that applies to most types of mortgages is the choice of a fixed rate mortgage or a variable rate mortgage.
The best choice depends on your own circumstances and to an extent on interest rate levels at the time, but things to consider are:
* Can you afford to have your payments increase each month? This could happen with a variable rate mortgage.
* Are rates generally low at the moment? It could be a great time to get locked into a fixed rate mortgage.
* Do you want the security of a fixed monthly payment for a number of years? Fixed rate periods from 1 to 10 years are available.
* Are you having difficulty with borrowing enough money? An interest only mortgage can mean lower monthly repayments ie you can borrow more against your salary. But there are drawbacks.
To understand which solution will work with your circumstances, discuss your choices with a UK mortgage specialist, who will advise you on worthwhile choices.
Here are some specific tips depending on your particular mortgage needs:
First Time Buyers
As a first time buyer, you are most likely to have some special requirements. You will probably have a very small deposit or possibly no deposit at all. You may be having to push your budget to an extreme just to afford a mortgage, but are determined to get a foot on the property ladder.
There are several suitable solutions:
• 100% mortgages to many lenders offer 100% mortgages aimed at first time buyers. These are normally repayment mortgages and can be a good option to get you going.
• If you have a deposit, but can't afford expensive monthly payments, a choice to think of might be an interest-only mortgage, where your monthly payments only involve payment of interest, and you don't make any payment towards the capital principal.
• Choose a mortgage term more than 25 years. Though it may seem daunting, many lenders will give mortgages with terms up to 40 years.
Any of these choices can be a solid way to get started in home ownership, with a goal to moving to a better deal in 2-5 years time when you have some equity in your property and are perhaps can afford larger monthly payments. Remember, very few people stick with the same mortgage for 25 years anymore. It is normal to change mortgages for a new deal every 2-5 years.
Getting a mortgage for self-employed people has always been a bit more of a challenge. Even if your business is well established, it can be tough to substantiate your income, and since mortgage lenders evaluate your ability to pay based on net income, you could find that they underestimate your borrowing wherewithal.
So what are the choices?
• Self-Certified Mortgages. It is not necessary to provide audited accounts and to verify your income, although you will still be asked to substantiate that you can afford the monthly payments.
• If your business is well-established, and you can provide 3 years or more of audited accounts, showing a regular income, you should not have too many problems. Lenders are more flexible than they once were.
As with other specialist mortgages, it can be worth getting the advice of an Independent Financial Adviser to make sure you get the right deal for you.
Already a Homeowner?
If you are already a homeowner (with or without a mortgage) then you might want to release some equity from your home to give you a cash lump sum.
This means that if you have paid off a significant amount of your mortgage and/or property prices have risen, you can benefit from some of the "profit" that is locked into your house without having to sell the house.
Lenders provide a variety of ways for doing this, but they are generally described as "equity release" mortgages.
Typically you will be able to get up to 95% of the equity in your home, provided to you in a lump sum which you then pay back like a typical mortgage. This can be used to pay for to almost anything, really.
Get a Better Mortgage Deal
Don't forget that just because you have a mortgage, it doesn't mean that you can't get a better one that will cost you less, or alternatively a mortgage with a shorter term so that you can pay it off sooner.
Look to see whether you want to find a better interest rate, a long-term fixed rate deal or you want to increase or decrease the time left on your mortgage. You will probably be able to find a lender who is able to offer just what you desire, and could save you a significant amount every year.
Discussing what you need with an IFA can often help uncover the best mortgages, which sometimes come from quite minor building societies.
Big Bonuses, but a Small Basic Salary?
If this is you, then you might find it rough to get a repayment mortgage that meets your needs. This is because bonuses and overtime are tough to predict, not guaranteed and are normally excluded from your assessed income by mortgage lenders. This means you could wind up with being offered a much smaller mortgage than you think you can afford.
The solution to this could be a flexible mortgage. Related to the interest-only mortgage, flexible mortgages have monthly payments which are interest-only, but enable you to make ad-hoc repayments towards reducing the capital sum.
For example, if you get a quarterly bonus, every 3 months you could make a payment towards reducing the capital sum of your mortgage, whilst paying smaller, interest-only payments each month from your typical salary.
Flexible mortgages like these can be helpful for anyone with an unevenly distributed income who receives occasional large payments, rather than solely receiving salaried income.
Are You an Expatriate?
As an expatriate, your mortgage needs are a little different. Buying real estate abroad is challenging with a UK mortgage, although there are some high street lenders that are affiliated with foreign lenders, particularly in Spain, to provide easy access to mortgages in some other countries.
On the other hand, many expatriates look to secure a property in the UK in preparation for their ultimate return. This is more straightforward and there are several big lenders who can assist with this.
A great approach is probably to locate an IFA who has experience of setting up this kind of mortgage and see what they can offer you. There may be some difficulties but it should certainly be workable.
Buying to Let?
Buying to let has become very popular in recent years. Whether you count yourself a professional landlord or are just looking to buy a second property to rent out as an investment, buy to let mortgages are fairly normal now and as such are quite widely available.
You may notice some differences to residential mortgages:
• Can only borrow up to about 75% of property value
• Mortgage terms may not be extendable beyond 25 years, often less still for interest-only deals.
As with all mortgages, you will have to undergo a credit check and will have to submit some evidence that the property you are buying is a suitable business proposition, i.e., you can rent it for a suitable amount and/or can make the payments yourself if needed.
Want to Let Out Your Home Temporarily?
There are times when homeowners want to let their home on a temporary basis. Perhaps they are moving abroad for a year or two, or elsewhere in the UK, but want to maintain their main home and rent it out to cover the costs of the mortgage.
Most residential mortgages will allow you to do this although precise terms and conditions will vary from lender to lender, but as long as you instruct your lender you want to let, you will most likely find they are happy for you to do so.
Are You a Muslim, Looking for a Sharia-Compliant Mortgage?
Islamic mortgages used to be nearly impossible to get in the UK, but in the last 5 years, the number of lenders that offer mortgages that comply with Sharia law has grown considerably. It is now possible to get an Islamic mortgage for your house from several high street lenders with no more difficulty than a regular mortgage.
Islamic mortgages available in the UK fall into two primary categories. By far the most in demand are mortgages based on the Ijara principle. Also available are mortgages based on the Murabaha principle but these tend not to be affordable to a great deal of borrowers, especially younger people just starting out.
Getting Divorced, Need Two Mortgages?
Getting divorced can be a hard and traumatic experience, often not least because of the financial complications. These can cause people with previously exemplary financial records to get into problems and can sometimes make it tough for the divorced individuals to get mortgages.
A few lenders now offer mortgages designed specifically for the needs of the newly-divorced, with a number of features designed to help people back onto their feet, financially:
• Fixed interest rate for up to 5 years
• First few months at 0% interest
• The lender will include maintenance payments (alimony) in their assessment of your earnings when determining the amount that can be borrowed.
• Can borrow 100% of property value if needed
• Choice of repayment or interest-only mortgage There are not many of these packages around (Yorkshire Building Society offers one example), but they can really help divorced people through the difficult process of finding a new home and re-establishing their financial situation.
About the Author: This article is written by Mortgage Sorter, a UK mortgages website that has been helping normal people understand UK mortgages for over five years. The website provides relevant UK mortgage information.