Buying a house 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. Here the BBC website takes a look at the basics, from how much you can borrow to choosing the right mortgage for you.
Borrowing
As a general rule, mortgage companies will allow you to borrow three times your salary (for owner occupied property), or two and a half times your joint salaries if you’re buying with someone else. However, recently changes to how lenders assess potential mortgage applicants have changed and are now based on strict affordability guidelines.
It’s worth seeking advice from two or three independent mortgage or financial advisers to find the best deal for you. Remember, though, that even if interest rates are low now, there’s absolutely no guarantee they’ll stay that way. Never keep back any information on debts or county court judgements when securing a mortgage; it could come back to haunt you.
Here at Belvoir! Sheffield Estate Agents, we can help and direct you to the best advice based on your individual requirements and circumstances.
Deposits
It’s worth trying to save as much as possible for an initial deposit, to secure the best repayment deals. With property prices as they are today, however, saving even a five or ten per cent deposit can be a real problem.
If your deposit leaves you flat broke, some mortgage companies will offer you the incentive of cash-back after completion, but you may have to pay a fee (redemption penalty) if you decide to pull out of the agreement.
If it’s a choice between paying off expensive debts such as credit cards or personal loans and saving a deposit, it’s often advisable to do the former and take out the best 100 per cent mortgage available. The choice and rates of such mortgages have become wider and more competitive in the past few years.
Mortgage terms
It’s only natural when buying a property to be more concerned with its size than with studying the small print on the mortgage agreement. But the wrong mortgage can cost you tens of thousands of pounds more than it should.
Mortgage providers often offer special deals to encourage people to take out a mortgage with them, and these are usually in the form of short-term introductory benefits on your mortgage. These benefits might be a discounted rate, a fixed rate, or a capped rate for a certain number of months or years, known as a ‘tie-in period’. Mortgage providers will want you to stay with them for as long as possible, and, because of this, many mortgages may contain a ‘redemption penalty’. This means that if you want to pay off your mortgage early, or move it to another mortgage provider, you will have to pay a fee.
Basically, the longer you borrow the money for, the more interest you’ll pay. The other side of this is that the longer you take to pay back the loan, the less you have to pay each month.
The typical mortgage is lent for 25 years, so you need to be in your first property for five years in order to reap the benefits. This is because, if you have a repayment mortgage, most of your repayments during the first years are spent only paying interest. Also the cost of moving (solicitors, stamp duty, and so on) means that it’s uneconomical to move regularly.
For example, if you pay off a £40,000 mortgage in 15 years, rather than the normal 25 years, you’ll have higher monthly payments for those 15 years, but you could save a staggering £20,000 in interest payments. Do the same sums for your circumstanceson a mortgage calculator – and think what you could do with £20,000.
Interest rates
Your other big decision is what type of interest rate to have on your mortgage.
Fied rate; Variable Rate; Capped Rate; Tracker; Discounted Rate.
Definitions of all the above rates can be found at news.bbc.co.uk and of course we here at Belvoir! Sheffield Estate Agency can guide you towards the best advice to help you choose the most suitable mortgage for your requirements.
Types of mortgage
The basic decision you have to make is how you’re going to repay the money you’ve borrowed. Don’t be confused – there are only two basic types of mortgage:
repayment, where the capital is re-paid gradually over the term of the mortgage
interest only, which, as the name suggests, is where you only pay the monthly interest of the mortgage. However, your lender will stipulate that you set up a repayment vehicle, such as an ISA, an endowment policy, or a pension plan which, when it matures, can be used to pay off the outstanding debt. If you take out this type of mortgage, check regularly that you’re on target to pay off the mortgage when it’s due. If not, then increase your savings.
Joint mortgages
If you’re buying a property with a friend or partner, there are a number of issues to consider and steps to be taken to protect your investment before signing on the dotted line:
Draw up a deed of trust with a power of sale. This means sale of the property can’t be blocked by one party if you fall out or the person disappears without a trace.
Decide whether you’ll be joint tenants (the property is then owned 50:50 and passes automatically to one if the other person dies) or tenants in common (each owns a different share, so the person bringing in the larger salary can take a bigger share of any gains – and losses).
Make wills. If one co-owner dies without having made a will (intestate), the remaining person will have no rights over that person’s share of the property.
Put both names on the deeds. And if a new housing arrangement is set up by the individuals after one already owns the property, the lender has to be informed.
If you and your partner aren’t married and decide to buy a house together, it’s important to realise there’s no such thing as a common law wife or husband (except in some extremely obscure exceptions). In the absence of any other legal agreements, if you’re not married the law sees you as two distinct individuals with no call on each other’s money. That means if the utility bills are in your name, you’re ultimately responsible for paying them. And if you pay into a savings account in your partner’s name, the money’s legally theirs.
The solution is to draw up a living together agreement.
For day-to-day concerns, such as paying utility bills, sit down and talk it through. If one of you earns more than the other, for example, will that person pay a larger proportion or will you split the bills 50:50, with the richer one paying for more of the treats?
It’s a good idea to open a joint current account, but it’s important you both agree what the money is to be spent on. Spending the money on an expensive box of Belgian chocolates instead of paying a gas bill is sure to start a row.
Small print
Finally, take time to read all the small print. Always ensure you know what you’re buying and check dates for when any discount or fixed rate runs out. And be particularly careful to check for penalties for paying your mortgage off early, moving to another provider before the tie-in period expires, or for missing a payment.
For more information, please visit www.belvoirsheffield.com or call 0114 331 0033. Alternatively, please email rick@belvoirsheffield.com You can view all the property current listed by Belvoir! Sheffield Estate Agency here.
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