For many, the journey to homeownership involves borrowing funds. Whether you're a first-time buyer, investing in property to let, or remortgaging, it's a substantial commitment. Below, you'll find vital information to bolster your confidence in making financial decisions regarding home purchases.
Understanding the Various Mortgage Types
Mortgage options differ based on the term length, monthly repayment amounts, and the interest rates attached.
Fixed Rate Mortgages
Commonly, fixed-rate mortgages span two or five years, securing an unchanging interest rate for this duration. Upon term completion, the lender's Standard Variable Rate (SVR) applies, likely increasing your monthly payment. Remember, fixed-rate mortgages include fees, and sometimes, a two-year agreement, despite a lower interest rate, may carry fees akin to a five-year deal. The advantage? You'll know precisely what you're paying throughout the term.
Standard Variable Rate Mortgages
Lenders set their SVR, not necessarily linked to the Bank of England's base rate. It's crucial to verify their SVR before commitment, as lenders may adjust it anytime, possibly raising your monthly payment. The perks include lower setup fees compared to fixed or tracker mortgages, no penalties for overpayments or full settlement, and the possibility of reduced payments if interest rates drop.
Tracker Rate Mortgages
These mortgages follow the Bank of England's base rate, typically adding a fixed percentage. Like fixed-rate options, trackers may offer introductory periods before switching to the lender's SVR. For the mortgage's lifetime, a rise in the base rate could mean higher monthly payments. Benefits include generally lower rates, cost-effectiveness when the base rate is low, easier overpayments, and decreased interest payments if the base rate falls. Some providers may allow a fee-free switch to a fixed-rate mortgage if the base rate rises.
Discount Mortgages
You'll receive the lender's SVR at a reduced rate for a set time, such as two or three years. Some offer longer discount periods, while others use a staggered system, starting with a lower rate that increases after an initial period. The advantage here is lower early repayment charges in comparison to fixed-rate mortgages, which is beneficial if you plan to pay more than your regular instalments. Additionally, you benefit from a lower interest rate than the lender's SVR for the deal's duration and potentially even lower rates if the SVR decreases due to a base rate cut.
For many, purchasing a home is the most significant financial decision they'll ever face. It's not just about choosing the right mortgage; it also encompasses legalities, surveys, and insurances.
Key Mortgage Fees to Consider
As a first-time buyer or when switching mortgage lenders, expect several fees, such as:
Application Fee: This fee is for setting up your mortgage and could be labelled as an 'arrangement', 'product', or 'booking' fee, sometimes reaching up to 2,000+, Expect to pay a fee of at least £1,000 to secure an attractive rate.
Valuation Fees: Charged for property valuation to ensure its worth aligns with your offer, these can start at £150.
Surveyor's Fees: it could cost around £300-£1500, depending on the type of survey, this fee covers property inspections for structural integrity.
Solicitor's Legal Fee: This covers the legalities of mortgage transfer, conveyancing, and local searches for planning issues. In the UK, the average conveyancing fees for buying a house, including disbursements, come to around £2,339.
An A-to-Z of Mortgage Terms
Buildings Insurance: Protects against damage to your home's structure, necessary when taking out a mortgage.
Capital: The sum borrowed for property purchase.
Completion: Occurs post-contract exchange and fund transfer, culminating in you receiving your new home's keys.
Equity: The property portion you own outright, including your deposit and the capital paid off on your mortgage.
Exchange of Contracts: The point at which buyer and seller are legally bound to complete the property sale.
Land Registry: The official department maintaining property ownership records.
Stamp Duty: A tax paid when purchasing a property above a specified price.
Five Fundamentals of Home Buying
Deposit Savings: Can you afford at least a 5% deposit? A larger deposit improves your chances of obtaining a lower interest mortgage.
Credit Rating: Lenders will assess your credit rating through agencies such as Experian, Equifax, and TransUnion to gauge your mortgage suitability.
Mortgage in Principle: This lender-provided confirmation strengthens your purchasing credibility.
Mortgage Application: With an accepted offer on a property, consult a mortgage adviser to determine the suitable product for you.
Conveyancing: The legal process of home buying. Seek advice on finding a reliable solicitor offering these services.
For more information, please get in touchYOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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