Mortgages

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Mortgages

A mortgage is a special type of loan, usually from a bank or building society that is then used to purchase a property.  The mortgage is secured against your property until you have paid it off in full. This means the lender could repossess your home if you fail to repay it. 

You then repay the loan amount you borrowed over a longer-term and at an affordable rate together with interest being the profit the lender makes from having loaned you that money. 

There are many circumstances as to why you would want a mortgage, the main ones are: 

First Time Buyer

Moving Home Mortage 

Remortgaging

Second Charges 

Further Advances

Please see below for more.

Mortgage for a First Time Buyer

A first-time buyer is defined as a person or if multiple applicants, all the applicants, who have never owned or had an interest in any freehold or leasehold property in the UK or abroad before, who apply for a mortgage.

  

As you purchase your first home as a first-time time-buyer, you will no doubt be excited and nervous at the same time. Getting things rig 

There are literally thousands of different types of mortgages on the market at any given time and understanding which one best suits your needs takes patience skill and understanding. 

 

Getting the right type of mortgage to suit your personal circumstances can save you literally thousands of pounds over the term of the mortgage.  

 

As a first-time buyer, it is imperative that you fully understand the commitment and obligations you make when taking out a mortgage. 

 

We can hold your hand through that process and ensure that you find the right mortgage that best suits your personal circumstances and needs. 

New Home

Moving Home Mortgages

You may already have a home and now wish to move to a bigger property, or the opposite, downsize or perhaps just change home and location.

In any of those circumstances and many others, when moving home, you may be able to transfer your current mortgage over to your new property, which is known as “porting”.  

Remortgaging

If you, for example, have a discounted rate mortgage and the term of that discount has come to an end, you may wish to take out another mortgage to benefit from a further period of discount by taking out a new mortgage with your existing lender or a new one. 

If you wish to move from one home to another, you may wish to find a completely new mortgage deal by taking out a new mortgage with your existing lender or a different one.  

It is often worth talking to your current mortgage provider or a broker who will advise you on which path to take and which one will suit your needs and circumstances the best and in doing so you could save thousands of pounds over the term of your mortgage. 

Living Room

Second Charges

A second charge is not a further advance against your home. See further advance for an explanation as to what a further advance is. 

The difference between what your home is worth and the amount you owe to your mortgage lender is known as the “equity in your home. In simple terms, for example, if your home is worth £300,000 and the mortgage outstanding is £200,000 then you have approximately £100,000 equity in your home, not taking into account any other charges or fees that may be payable. 

In some circumstances, for example, to pay for an extension on your home, you may wish to secure more borrowing against your home against that increased equity and in doing so a second mortgage lender will take security for their loan against the equity in your home. The lender could be your existing lender or a new lender altogether. 

 

These types of mortgages are more specialised and you should take greater care in taking out a second charge against your home. 

Further Advance

A further advance is not a second charge against your home. See the second charge for an explanation as to what a second charge is. 

In simple terms, a further advance is taking on more borrowing from your existing mortgage lender. This could, however, be typically at a different rate to your main mortgage.  

This involves changing the terms of your existing arrangement with your lender and increasing the sum that they loan to you. 

This route can make sense if your lenders further advance interest rates are competitive or if you do not want to remortgage or switch lenders.

Elderly Couple Practising Yoga

Equity Release

The difference between what your home is worth and the amount you owe to your mortgage lender is known as the “equity in your home. In simple terms, for example, if your home is worth £300,000 and the mortgage outstanding is £200,000 then you have approximately £100,000 equity in your home, not taking into account any other charges or fees that may be payable.  

Equity release allows you to access that portion of the money tied up in your home without having to sell the property.  

 

If you are over 55 years old and want to have some extra money – perhaps to secure an inheritance for your family - you can take some of the equity tied up in your home and get it released as a large lump sum, a number of small amounts, or a mix of both. 

In the main, there are two equity release options: 

Lifetime mortgage

A lifetime mortgage is one where you take out a mortgage secured on your property provided it is your main residence but you still retain ownership of your home and of course, can continue to live there. 

Depending on the lender chosen, you can then choose to make repayments on that equity release borrowing or let the interest roll-up over time. The loan amount and any accrued interest is then paid back when you die or when you move into long-term care. 

Lifetime mortgages are very complex and only CeRER qualified mortgage brokers can give advice on these types of mortgages. 

Home reversion 

A home reversion mortgage is different in that you sell part (a percentage) or all of your home to a home reversion provider in return for a lump sum (or regular payments). You are still given the right to continue living in the property until you die rent-free, but you have to agree to maintain and insure it.  

If you sell a percentage of your home, the percentage you retain will always remain the same regardless of the change in property values, so if the property value, for example, goes up, the home reversion provider also benefits from that increase in value in the same percentage as do you.   

At the end of the plan your property is sold and the sale proceeds are shared according to the percentage of ownership retained by you and the home reversion provider. 

Home reversion mortgages are very complex and only CeRER qualified mortgage brokers can give advice on these types of mortgages. 

Buy to Let

Buy to let or BTL mortgages are mortgages specifically for landlords who wish to buy a property to rent it out to a tenant. 

The rules around buy to let mortgages are similar to those around regular mortgages nowadays, but there are some key differences.  There are also special tax considerations that you should also be aware of before taking on a second or subsequent property to let to tenants and further, there are additional SDLT fees payable for second or subsequent owned properties such as buy to let mortgages. 

The general idea is that a buy to let landlord will purchase a property with a buy to let mortgage and get rent from a tenant that more than covers the mortgage payments that are due on the property. 

Many investors find that buy a buy to let property is an attractive option because you can potentially earn a profit in two ways:

 

a) Rental yield – what your tenant(s) pay in rent, minus any maintenance and running costs, like repairs and agent fees; and 

b) Capital growth – the profit you earn if you sell your property for more than you paid for it. 

With any investment, there is always a risk and you should carefully consider the risks before taking on a buy to let mortgage. The risks can include: 

a) The amount of rent you receive may not cover the mortgage payments but you will still each month be expected to meet the shortfall; and

 

b) If you cannot find tenants or there is a gap between one tenant leaving your property and the next tenant taking the property  - known as “voids” -  may mean that you will have difficulties in covering your mortgage payments and you will still each month be expected to make the mortgage payments; and  

c) Non-paying or poorly paying tenants are notoriously difficult to evict and during that time the mortgage still needs to be paid in full; and  

d) Difficult tenants may leave the property in substantial disrepair and the cost of those repairs (if not met by the tenant) must be met by you; and  

e) The value of your property may fall as well and you might not be able to sell it for as much as you paid for it or had hoped to gain in value. If the sale price does not cover the whole mortgage, you will have to make up the difference; and 

Getting specialist advice from a mortgage broker in relation to the many buy to let products on the market is essential. 

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Apartment Building

Shared Ownership Scheme Mortgages

Purchasing a property outright in the traditional way can be very costly and out of the reach of many key workers and first-time buyers. A possible alternative is a shared ownership scheme.  

Shared ownership schemes are also sometimes referred to as part buy/part rent. 

Shared ownership schemes allow buyers to purchase a share or proportion of a home – usually between 25% and 75%.  

In such a scheme, you would secure a mortgage on the share that you purchase, that is, if for example, you purchase a 50% share of your new home that say cost £200,000 then you would get a mortgage for only 50% of the £200,000 that is, a mortgage for £100,000. Clearly, therefore, the amount you pay is far lower than obtaining a full mortgage. 

As you only need a mortgage for the share that you intend to purchase, the amount of money required for a deposit is often much lower compared to purchasing a property outright. 

The builder or housing association then retains ownership of the other 50% which you can buy in sections over time as your circumstances improve.  If you wish to buy the other share retained by say the builder or housing association, then that share must be purchased at market value so if the property has gone up in value since the original purchase price the cost of the share to be purchased will also increase. 

During the time that the builder or housing association owns the remaining share, you continue to pay (usually) a below market value rent on the remainder together with any service charge and ground rent. The overall cost of the purchased part combined with the rented part is often far lower than the cost of purchasing the whole at the outset. 

Got a question?

Speak to a mortgage expert now

0333 34 44 34 8 

Penn Financial is the trading name of Penn Financial Limited registered in England and Wales number 06242330 and the registered office is at 13 Austin Friars London EC2N 2HE where a list of directors is available for inspection.

 

Penn Financial Limited is authorised and regulated by the Financial Conduct Authority number 927714.  Please be aware that Commercial Mortgages, Overseas Mortgages and some Buy To Let Mortgages are not regulated by the Financial Conduct Authority. The guidance on this website relates to the UK regulatory regime and is targeted at UK based consumers.

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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE. 

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