Mortgage questions & answers

We've broken down the most frequently asked questions into the following sections. Have a read and if you still have questions or need advice on anything mortgage related, either fill out our quick enquiry form or give us a call on 02382 353 001.

• What affects eligibility for a mortgage?
• How do you go about raising capital/releasing equity?
• Interest Only vs Repayment mortgages
• The different types of mortgages available
• Mortgage related terms
• Leasehold and Freehold property

Simply put, a mortgage is a loan that is secured against a property.

The definition of a mortgage is a legal agreement by which a bank or lender lends money with interest, in exchange for taking the title of the debtors property. This is on the condition that the conveyance of title becomes void upon the payment of the debt.

A mortgage is used to help fund the initial purchase of a property, while a remortgage is the refinance of an existing mortgage on a property.

There are two main reasons for remortgaging and they are:

• To reduce mortgage repayments

  Your home is most likely to be the largest investment you will ever make so it makes sense to ensure that you repay the finance on this investment for the lowest total cost possible.

  One of the ways of ensuring that you repay the mortgage at the lowest total cost is to regularly review the terms of your mortgage, especially if you are on the lender's standard variable rate, or if you are coming to the end of an existing deal.

  You can then either speak directly with your lender to see what other terms they have available that you will qualify for, or speak with an independent adviser who can compare products from the whole of the market for you and let you know what you qualify for taking into account all of your circumstances.

• To raise capital

  If you have equity in your property, it may be possible for you to use this equity to raise capital from your property. There are many reasons why you would want to raise money from your property, the most common reasons for raising capital are for:

  • Home Improvements
  • Debt Consolidation
  • Business Purposes
  • Funding the deposit or purchasing in full another property (Buy-to-Let, Holiday Home, Second Home etc)
  • Gifting to family/Friends
  • Tax Bill
  • Car, Wedding, Holiday

  In essence, you can raise money from your property to use for any legal purpose. Every lender has their own criteria for raising capital raising.

There is no universal calculation for this. All lenders will take into account your income and expenditure and then work this into their own affordability calculator when calculating how much they are prepared to lend to you.

The factors that can affect how much a lender will lend to you are:

• Debts to be repaid

  If you have other debts outstanding at the time of application that are being repaid as part of the mortgage then some lenders will disregard the monthly payments on these debts and may lend you more than other lenders.

• Income supplements

  If you receive additional income above your PAYE salary such as over time, allowances, state benefits etc then some lenders will include all or a portion of this which will increase the amount they will lend to you.

• Payslip Deductions

  If you contribute to a work pension, work benefits, trade union etc directly from your pay then some lenders will take this into account and this will reduce the amount you can borrow.

• Term of the mortgage

  The amount you can borrow is usually maximised over a term of 25 years or more so a shorter mortgage term may reduce the amount you can borrow. This is because the mortgage repayments are higher on a repayment mortgage over a shorter term, therefore, the higher the mortgage payment the less there is available to cover other living expenses.

• Self Employed Income

  By it's very nature, self employed income tends to be volatile and can vary from year to year depending on the nature of the self employment. All lenders have a minimum time in self employment and this minimum time varies from lender to lender. Some lenders will base the amount they will lend you from your most recent year's accounts whereas others will take an average income based on your last 2 or 3 year's accounts and calculate how much they will lend you from that.

• Household make up

  Simply put, this is how many people there are in the household makeup and works on the basis that the more people there are in the home, the higher the living costs will be. So for example, a single person with an income of £40,000 per year will be able to borrow more money than a married couple with 2 dependent children with the same annual household income.

• Other mortgages

  If you have other mortgages, for example on a Buy-To-Let property then the monthly mortgage repayment may be deducted as an expense from your income for affordability purposes. If you have a regular income from the property, such as rent, that covers the mortgage payment which can be satisfactorily evidenced then some lenders will consider this as self funding and it will not affect how much you can borrow.

• Loan to Value (LTV)

  Lenders may impose a maximum affordability amount if you are borrowing at a high loan to value.

All lenders calculate how much they will lend you based on the income you can evidence and the expenditure you have.

Your earned income will be assessed as either employed income, self employed income or a combination or both.

Apart from PAYE contracted basic annual salary, lenders will assess different elements of your earned income differently whether it be employed or self employed income. Here we look at what different forms of earned income may be assessed differently between lenders.

• Employed

  • Length of time in employment
  • Overtime – This might not be guaranteed and could be regular or seasonal
  • Bonuses – This might not be guaranteed and could be paid monthly quarterly or annually
  • Staff Benefits – This might be paid as a cash sum instead of an employee benefit such as medical insurance
  • Car Allowance
  • Location/Cost of Living Allowance
  • Maternity Pay
  • Future contracted pay rises
  • Agency Workers
  • Zero Hours Contracts
  • Offshore workers
  • Foreign Currency income
  • Banked Hours

• Self Employed

  • Sole Trader/Partnership
  • Limited Company Director/LLP PAYE
  • Limited Company Director/LLP Dividends
  • Limited Company/LLP Retained Profits
  • Length of time trading
  • Declining Profits
  • CIS Contract workers
  • Contract Workers paid on a daily rate
  • Umbrella Companies

There are other forms of income that may be be used for mortgage purposes such as Pension Income, Maintenance and Benefit Income. Lenders will assess each of these in different ways.

An independent adviser will be able to discuss your income sources and determine how lenders will use that for affordability purposes and the lenders most likely to lend you the required amount based on your income.

Yes.

In addition to affordability checks, all lenders will have both a minimum and a maximum loan amount that they will lend. These amounts may vary depending according to the Loan to Value, typically, the more equity there is in a property, the higher the maximum loan amount they will lend.

All lenders will have a minimum and maximum available term limits for lending. This can be anywhere between 1 year as a minimum and 40 years as a maximum.

The maximum term available to you will also be subject to your age and anticipated retirement age.

Yes.

There are some lenders who will lend beyond your anticipated retirement age, however, you will need to be able to demonstrate how you will be able to continue to afford the mortgage beyond this age for example from Pension income.