Mortgage Types
100% MortgageA 100% mortgage is where the mortgage lender lends you the full amount that the property costs. (So if the house costs 100,000 you borrow 100,000). Usually you'd only get a loan to value mortgage between 75% to 95% (eg if the house cost 100,000 a 75% mortgage means you would borrow 75,000). The problems with getting a 100% mortgage are: It will probably cost you a lot more than necessary - you'll be charged a higher interest rate. You may get tied in - which you want to avoid. You'll be relying on property prices continuing to rise. If they fall you'll be in a right old pickle called negative equity. You'll very likely have to pay a mortgage indemnity guarantee policy. This is only good for the lender and doesn't help you. However if, like many, you don't have enough spare cash and a 100% mortgage is your only realistic option, the good news is that there are some reasonable deals out there. You've got to shop around to find one. This may be a drag but shouldn't be as difficult if you use an expert. Group MortgageThe cost of the average UK home has now reached almost 180,000 - nearly six times the UK average income. It has become increasingly difficult for first-time buyers to buy a property - even with two incomes, many areas of the country are unaffordable for most first-time buyers. A recent survey has shown that around 57% of first-time buyers would consider buying a property with friends. Over the last few years more and more high street lenders have started to offer just such mortgages; group mortgages that enable up to four people to pool their income and jointly purchase a property. What's A Group Mortgage? A group mortgage is a mortgage held by 2-4 people, with the amount lent being based on the incomes' of all those people. The property being purchased is also jointly owned by all the people on the mortgage - so four friends might buy a house, based on all four of their incomes, and 25%-owned by each of them. Group mortgages have been around for a few years now, but over the last couple of years have experienced a surge in popularity as house prices have continued to rise, pricing many first-time buyers out of the market. Group mortgages currently represent around 2%-3% of the UK mortgage market. One major high street bank has reported a 50% rise in applications for group mortgages this year, and with the average house price in the UK approaching six times the average income this trend looks set to continue, especially in the south-east and in major cities. Why Choose a Group Mortgage Group mortgages offer a solution to first-time buyers who cannot afford to buy a property singly. Either they do not have access to a suitable deposit, or more likely, the mortgage required is too large to be based on their salary alone. Group mortgages offer a number of advantages: Get a foot on the property ladder even if you can't afford a property on your own Start benefiting from rises in property prices Escape the rent trap Get a place to call your own The problem with renting is that you aren't left with anything when you move out. It's money down the drain. As the monthly payments for a rental property are sometimes more than those for a mortgage, it can be very difficult to save up for a deposit when you are renting. Group mortgages can provide a solution to these problems. How Do Group Mortgages Work? Taking out a group mortgage is very similar to taking out a regular mortgage, except there is an extra stage required to agree the terms of the joint ownership. If you are thinking of doing this, here's how it works: Decide who will be in the group (maximum 4 people) Jointly select a property and agree a price with the vendor Find a lender who offers group mortgages - a broker can be helpful Apply for a group mortgage Draw up a "Declaration of Trust" document Move in! Each person whose income is being used to fund the mortgage will be required to provide proof of earnings and undergo a credit check, just like a regular mortgage Repayment MortgageThis is the old fashioned, traditional type of mortgage and remains the only way the property is actually guaranteed to be yours at the end of the mortgage term - provided you have repaid the loan. Your mortgage debt is divided into capital repayments (ie repayment of the money you borrowed) and interest payments (ie repayment of the interest you're being charged for the loan). As you pay off your mortgage every month you're paying off a bit of capital and a bit of interest until the full debt is repaid. You usually pay off mostly interest in the early years and then gradually more of the capital debt. It may seem as if this is costing more but that's because unlike the other types of mortgages you're paying off the capital and not just the interest. Endowment MortgageThese are basically a mix of savings, investments and life assurance "wrapped up" into an insurance policy. The basic idea was that you got a mortgage on which you were only paying off the interest payments of the loan. So the capital sum - the actual loan you originally took out - was not being repaid at all. However the plan with that was to be paying money into an endowment policy. This would be making you money on the side. It would do so well that when it came to the end of your mortgage you would be able to use your endowment to pay off the capital sum. Got that? Well don't waste too much time trying to. Endowment mortgages were very popular in the 80s and 90s but, they've resulted in a lot of trouble because the "side" or "by product" endowments did much worse than expected for many people. (In other words the property was not theirs because they won't couldn't pay off the loan). This resulted in yet another personal finance scandal. Huge amounts in compensation have been paid. There is now a different type of mortgage which has taken the place of endowment mortgages - the interest only mortgage. This operates under similar lines see the quick guide to interest only mortgages. Compensation Claims for Endowment Mortgages If you want to see if you can claim that you were mis-sold an endowment policy call the Financial Services Authority. (Tel. 0845 606 1234). Getting rid of your Endowment If you have an endowment and want to get rid of it you can "sell" it. This could be to the company that sold it to you originally. However you might make more by selling it on the open market. There are a lot of firms who will do this for you. Check Google. But do shop around for the best deal. Always get three quotes. Poor Credit MortgageIn the past few years an increasing number of mortgage brokers and lenders have started specialising in bad credit (aka "adverse credit") cases. This is simply because there's good money to be made from the higher interest charges that people with a bad credit record have to pay for their mortgage. More recently the "normal" well known high street type lenders have started to get involved in this area. This might be because many more of us have developed bad credit ratings - thanks to the explosion in the UK's lending culture. It's almost certainly because the banks are under pressure to produce ever higher profits. So you could go to your existing bank and ask them about any such mortgage packages they might do. However you must be very careful when making any enquiry to a bank or mortgage lender. Lenders will often take your enquiry as a "mini application". They will do a quick credit search on you before answering you - even while you're on the phone. The problem with this is that their check will be seen by other lenders who you should also be approaching (you should always shop around and get three quotes when getting any type of financial product). Lenders - including your own bank - will often assume that an enquiry to a rival means you were turned down - and not that you are in fact carefully shopping around and rejecting the bad deals. What to do? Well the best way around this significant problem is to ask an independent specialist bad credit mortgage adviser. They will know immediately which currently available deals are best for you. They will also know how likely you are to be accepted by the lender. So you will be able to avoid the rejection spiral. The best way to find this type of professional is by word of mouth recommendation. If you can't find one in this way, we can link you with an independent, regulated one we know. This is a free service and there is no obligation at all to proceed with any deals suggested by them. Click here if you want this now. Whatever you decide to do, just make sure that you shop around as there's a big market out there. Don't just take the first offer you get. Buy-to-Let MortgageMortgage providers' traditionally only offered loans for people buying homes. An increasing number are offering loans for a property you want to "buy to let", (ie not to live in as your home, but to rent/let out to tenants). Getting income from the rent is seen as a good investment by some and is becoming more commonplace. It's particularly popular for retirement planning because of the growing concerns about the inadequacies of traditional pensions. The old saying "There's nothing more solid than bricks and mortar" is more relevant than ever. If you're interested in renting to students in a university town or to commuters in suburbia, the Council of Mortgage Lenders has two leaflets 'Buying to Let' and 'Thinking of Buying a Residential Property to Let' You can order them by phone on 020 7440 2255. The fears over the past couple of years that the market was overheated seem to have been incorrect. However make sure that your buy to let property is in an area which is likely to have a demand. There is a wealth of information on buying property to let. Just make sure if you're paying for it that it's been written by someone with direct experience in the field. |