Most Frequently Asked Questions
A mortgage broker is a person or a company that can arrange a mortgage between you (the borrower) and a mortgage lender. They work directly with you to help you decide what kind of mortgage you need, and then find a deal that matches your needs and circumstances.
Tied or Multi-Tied: This type of broker is either tied directly to one lender or a group of lenders, meaning they are limited in the type of mortgage that they can recommend. Their close links to lenders often means that they can offer you exclusive deals and incentives.
It is worth noting, because they’re tied to a select range of lenders, they will not be able to offer you certain options you may find elsewhere.
Whole of Market: A ‘whole of market’ broker covers much more of the market. They are usually independent mortgage advisers with no links to any specific mortgage lender. This means that you are not limiting yourself to a single lender or group of lenders that a ‘tied’ broker works with. You’ll have a much greater pool of mortgage options to choose from and because they’re free of ties to any lenders, they can offer you completely impartial advice.
It’s worth noting that even ‘whole of market’ brokers don’t tend to cover absolutely every option in the market. But to get the name ‘whole of market’, they do have to cover enough options to be representative of the whole market, so you’ll still be getting a wide range of options.
A mortgage is the loan that you take out which is secured against your property, that enables you to purchase your home. It is a legal agreement.
The lender will charge you ‘interest’ in return for lending you the money. Therefore, over the term of the mortgage you will need to pay the lender interest and repay the amount you originally borrowed fully before the mortgage ends.
If mortgage repayments aren’t made, the mortgage lender has the option of taking possession of the property and selling it on to try and recoup any losses it has suffered.
A Bank or Lender loans money with interest. In return their loan is secured against the value of a person’s property. The details of the loan agreement are registered against the Title of the property – this is known as a mortgage.
This is when you swap the mortgage you have on your current property for another mortgage with a different lender. You may consider this option if your existing mortgage deal has expired and you wanted to see if a more competitive deal is available. You may also consider this if your circumstances have changed and you want to borrow more money.
A product transfer is when you switch your existing mortgage product to another ‘product’ with the same lender.
This is taking on more borrowing from your current mortgage lender. The further advance is typically at a different interest rate then that of your main mortgage.
There are two main types of mortgages; Fixed Rate Mortgage and Variable Rate Mortgage.
A Fixed Rate Mortgage means that your interest amount is fixed for a period of time (usually two to five years) therefore your repayments don’t change.
A Variable Rate Mortgage means the amount of interest you pay can change, and therefore so do your repayments.
A Fixed Rate Mortgage means that your interest amount is fixed for a period of time (usually two to five years) therefore your repayments don’t change.
When this period comes to an end, your lender will typically transfer you automatically on to its standard variable rate. This usually is a higher rate of interest.
A standard variable rate mortgage (also known as an SVR or reversion rate mortgage) is a type of variable rate mortgage, meaning it can go up as well as down. The SVR is a lender’s ‘default’ rate.
When a fixed, tracker or discount mortgage deal comes to an end, you will usually be transferred automatically onto your lender’s SVR.
A lender can raise or lower its SVR at any time – and as a borrower you have no control over what happens to it. Standard variable rates tend to be influenced by changes in the level of the Bank of England’s base rate. However, a lender may also decide to change its SVR while the base rate remains unchanged.
A tracker mortgage is a type of variable rate mortgage. The Lender sets their interest rate which usually ‘tracks’ the Bank of England base rate.
So, if the base rate went up, the interest rate on your tracker mortgage would also rise. And if the base rate went down, you’d benefit as the interest rate you pay on your mortgage would fall.
Once your tracker deal comes to an end, you’re likely to be automatically transferred on your lender’s standard variable rate (SVR). Typically, this will have a higher rate of interest.
Both of these rates are variable which means that they may change as the Bank of England changes the base rate.
A standard variable rate is the lenders normal mortgage rate, i.e. does not include any discounts or deals. It tends to follow the Bank of England rate, but not exactly.
A tracker mortgage is linked to a particular base rate, which it moves up and down with (‘tracks’). Two of the most common rates that may be tracked are the Bank of England Base Rate, and LIBOR (London Interbank Offered Rate).
A ‘lifetime tracker mortgage’ is a mortgage where the rate you pay back the loan ‘tracks’ the Bank of England base rate for the entire span of the mortgage. As an example, 1% above base rate for the whole 25 years of your mortgage.
This is different to a typical tracker mortgage where the rate tracks the base rate for a set period, i.e. two years and then reverts to the lender’s standard variable rate.
A discount mortgage is a type of variable rate mortgage. The term ‘discount’ is used because the interest rate is set at a certain ‘discount’ below the lender’s standard variable rate (SVR) for a set period of time.
For example, if a lender has an SVR of 4% and the discount is 1%, the rate you’ll pay will be 3%. And if the SVR is raised to 5%, your discount rate will also rise – in this case to 4%.
This is a mortgage which is linked to your savings account. The balance of your savings account will be ‘offset’ against the value of your mortgage, meaning you will only pay interest on your mortgage balance minus your savings balance.
Shared ownership mortgages are part of a Government scheme, aimed at assisting lower income households and first-time buyers to get on to the property ladder. You can buy as little as 25% of a property and someone else, usually a social landlord, owns the rest. You pay mortgage on your share and rent on the other portion. It is possible to purchase further shares in the property – this is called ‘staircasing’.
With a capital repayment mortgage, you pay off both the interest and capital with each monthly payment. This means at the end of the term your mortgage will be repaid.
With an interest only mortgage, you only pay the interest each month and the amount of capital owed will not reduce. This means you need to have a suitable plan in place to pay off the mortgage at the end of the term. This could be the sale of the mortgaged property, cash, stocks and shares or a pension.
Typically the list of fees could include:
Valuation fee – charged by the lender to value the property and generally paid up front with your application.
Solicitors fees – charged by the solicitor to complete the conveyancing transactions on the property. Part of this is paid up front when the solicitors are instruction but the remainder is paid upon completion.
Stamp duty land tax – a tax levied by the government on any property purchase above £125,000.
Lender arrangement fees – charged by the lender for arranging the loan. This can be added to the loan in most circumstances but will therefore increase the size of the loan.
Booking fee – charged by the lender for booking the funds for your mortgage and typically charged up front with your application.
Broker fees – may be charged if you are using a broker and payable either up front or on completion.
Conveyancing refers to the legal work completed by the solicitor or conveyancer you choose when buying or selling a property. It’s important to have either a conveyancer or a solicitor already lined up because as a buyer or a seller, you will need this in place to start and complete your transaction.
In the past, lenders used multiples of a person’s salary to determine the maximum amount of money they would lend. Today, while lenders may still use income multiples, the most important factor is a person’s disposable income – what money is left after all bills and commitments have been paid.
Lender’s need to be satisfied that a mortgage is affordable today and in the future.
A stress-test is a way lenders make sure that you do not borrow more money than you can afford to repay now, or should interest rates increase &/or your financial circumstances change in the future.
The answer to this is simply down to what you can afford. Speaking to mortgage adviser will help to ascertain what term is suitable for you and your circumstances.
You can approach your lender and ask them. The lender will do routine checks on the new party before deeming them acceptable. These checks include credit checks and to ensure the new party is able to enter into the contract. They must not be a minor, mentally incapacitated or subject to a bankruptcy order.
As a mortgage is a binding contract between borrowers and the lender, consent must be given by all parties for any alterations to be made. The lender will want to know the reasons for the request before permitting a ‘transfer of equity’ or ‘transfer subject to mortgage’ to be made.
This is permission granted by your mortgage lender for you to rent out your home for a limited amount of time, usually up to 12 months. Your lender may grant an extension beyond this point, however, if they decline, you will need a Buy-to-Let mortgage to replace your residential mortgage.
The higher lending charge, formerly known as a mortgage indemnity guarantee (MIG), is a fee charged by a mortgage lender where the amount borrowed exceeds a given percentage of the value of the property. This fee may be used by the lender to purchase an insurance policy designed to protect it (the mortgagee) against loss in the event of you defaulting and ceasing to repay your mortgage.
When you take out a mortgage with an initial deal on an e.g. fixed, tracker or discounted rate basis, should you repay the mortgage in full or part before the deal ends, you usually will have to pay an Early Repayment Charge which, in most cases, is charged as a percentage of the loan. Some mortgages will offer a ‘portability’ option which means that if you move house when you are still tied into your deal, you can ‘port’ the mortgage to the new property and avoid the Early Repayment Charge
A redemption penalty, also known as an Early Redemption Charge, is a fee a lender charges if you repay a loan or mortgage earlier than the agreed term.
If your mortgage includes it, a payment holiday gives you some flexibility in repaying your mortgage by allowing you to stop or reduce your monthly payments for usually between 1 and 12 months (subject to eligibility).
An underpayment is when you pay less than your required monthly mortgage payment. Some lenders allow this if you’ve made overpayments in the past, creating what is called an overpayment reserve.
Before you think about making overpayments on your mortgage, you need to check if your mortgage product has any restrictions regarding overpayments.
Most lenders allow you to make overpayments of up to 10% of the outstanding mortgage amount per year without incurring any early repayment charges.
If you are beyond the original fixed, tracker or discount deal with a lender, then you will be on standard variable rate and usually will be able to overpay by as much as you want.
Stamp Duty Land Tax (SDLT) is a tax payable if you buy a property or land over a certain price in England and Northern Ireland. The current threshold on residential properties is £125,000 and £150,000 for non-residential land and properties.
How much you are liable to pay depends on whether the property or land is for residential use and whether you’re a first-time buyer or if the property/land is for non-residential or mixed use.
A Buy-to-Let is when you purchase a property with the sole intention of renting it out.
When someone needs to rent out their home, perhaps through relocating for work, or if someone has inherited a property, simply put, an accidental landlord is someone who rents out a property due to circumstance rather than choice.
Joint Tenancy and Tenants in Common are both types of shared ownership of property, however, the differences are what happens to the property (or share of) when a person dies.
Joint Tenancy – typically spouses enter into this arrangement – when one person dies, the primary benefit is the ‘right of survivorship’, which simply means, the deceased’s share of the property automatically gets transferred to the surviving spouse.
Tenants in Common – typically friends, relatives or unmarried couples opt for this type of ownership – each party can leave their share of the property to whoever they want in their will, which can be someone unconnected to the mortgage.
Right to Buy, historically, was a scheme in the United Kingdom whereby longstanding local authority tenants were legally entitled to purchase their homes, usually with a large discount. This is no longer available in Wales or Scotland, however, it is still in operation in England and Northern Ireland. To qualify, you need to have lived in local authority housing for 3 years or more.
Right to Acquire allows most housing association tenants to buy their home at a discount. The discount tends not to be as generous as what is applied through a Right to Buy purchase.
Different lenders use different terms, however, they are the same thing.
A decision in principle/agreement in principle is a document confirming that you will be able to borrow a certain amount subject to a full assessment when you apply. The amount may change once a full review is carried out.
You can use this document to prove to a seller of a property that you have been pre-approved for a mortgage.
In the first instance you should seek permission from your mortgage lender for ‘Consent to Let’. Your lender may increase the interest rate to reflect the change in risk. A mortgage adviser can provide you with advice on your mortgage and insurance options.
LTV or ‘loan-to-value’, describes the size of the mortgage you want in relation to the value of the property you wish to purchase. This is set as a percentage.
For example, if you want a mortgage for £150,000 against a property worth £200,000, the loan to value will be 75% (£150,000 / £200,000 = 75%). The deposit required from your own money will be £50,000 and £150,000 is paid for by your mortgage.
This is a policy which covers the cost of damage to the structure of your home, such as the walls, roof and floors. It usually covers damage to permanent fixtures and fittings too.
If you have a mortgage, it will be a condition of the mortgage that the property must be insured. Failure to insure your property could put your mortgage – and your home – at risk.
This should not prevent you from getting a mortgage. There are a number of lenders who are more favourable to clients who have previously had trouble sourcing finance.
Credit scoring is a system used by lenders (and other companies who provide credit) to help them decide whether to lend you money, by looking at how you manage your money both now and in the past. The higher your credit score, the more likely you are to be accepted for credit, be it a mortgage, a credit card or even a new sofa.
Information such as:
- a record of current and past credit commitments (such as, mortgages, loans, credit/store cards) that you’ve held in the last 6 years.
- details of any county court judgments (CCJs), bankruptcies and defaults in your name.
- details of any searches on your credit file.
- information from the electoral register.
- previous address history within the last 6 years
You can check your credit score using one of the links found on our website: Experian, Equifax or Noddle. Common websites that are used to check credit scores are Equifax and Experian. They may also charge you for the service.
Checking your credit score will show how likely you are to be accepted for a credit application.
There are some things to do which can help to improve your credit score:
- Make sure you are registered on the electoral roll.
- Pay your bills reliably and on time.
- Check your credit report for any errors, as you can appeal mistakes.
- Try to reduce any outstanding debt or clear it off completely.
If you are experiencing money troubles or fear you will not be able to keep up repayments, you should contact your mortgage lender immediately. Getting help and advice sooner rather than later is very important.
Typically, these are general questions about your lifestyle which includes questions about your height and weight, whether you smoke, how frequently you exercise etc. They will ask about your current state of health and whether you’ve had any issues in the past. There may also be questions about your immediate family and some questions into their medical history too.
It may be deemed necessary by the insurance company to approach your doctor to ask some further questions about your medical history. This is quite common.
The most straight forward type of life insurance pays out a chosen amount of money if the person insured dies. Cover is often taken out to provide for loved ones or to pay off a mortgage in the event of death.
The best way to determine whether or not you should have life insurance is to ask yourself a few simple questions, including:
- Would my family be financially stable on their own in making certain payments, such as the mortgage or daily expenses without my income?
- Would my death have a financial impact on my children or partner?
Everyone’s circumstances are different and you should speak to a financial adviser, however, there are certain things you to should consider: the amount of money owed on your mortgage and any other debts; household running costs; the cost of raising your children; if you have any benefits as part of your employment contract etc.
Term assurance is an insurance policy that pays out a cash lump sum on the death, if death occurs during the term of the policy. You can have a decreasing or level term policy:
Decreasing Term Assurance (DTA) – the benefit amount (pay out) reduces over the period of time you have chosen, also called the ‘term’. This type of policy is usually bought with a specific debt in mind, such as a mortgage. As the amount you need to repay your mortgage decreases over time, this is the policy that is usually chosen to provide this kind of cover.
It is not suitable for those with interest-only mortgages.
Level Term Assurance (LTA) – the sum chosen when taking out the policy remains the same during the entire term. So, if you die within a year of buying the policy, the amount paid would be the same as it would if you died a year before the policy was due to expire.
Terminal illness cover is generally available as an option with your standard life insurance policy and provides a benefit when you’re diagnosed with a terminal illness and are expected to die within 12 months.
Although common, this is not a feature of every life insurance policy and terms and conditions will vary.
This means that your premiums won’t go up, unless you alter your policy or choose an increasing option, so you’ll always know how much you’re paying.
A Guaranteed Insurability Option lets you increase the amount of cover you’re insured for without the need to provide any further medical evidence. Evidence of a ‘life event’, such as marriage/civil partnership, the birth of a child, a pay rise or a promotion etc. Typically, proof has to be submitted within 6 months of the event occurring.
Waiver of premium clause can cover the cost of keeping an insurance policy (or another financial product) in force in circumstances where you are unable to. If you are unable to work through accident or illness, waiver of premium could mean that premiums will be paid and your insurance cover will remain in place. While it can be taken out on a wide range of products, waiver of premium is perhaps most commonly associated with life insurance.
Critical illness cover pays a tax-free lump sum if you are diagnosed with a critical illness listed within the policy, during the policy term.
Critical illness cover is often available as a combined policy with life insurance. In these instances, you can often only claim once, unless you have chosen a policy where the life cover remains unaffected even after a critical illness pay out
Income Protection, also known as IP insurance, pays a percentage of your gross salary as a regular payment until you can return to work following illness or injury. Short-term income protection policies, which last for one or two years, are available at a lower cost. Providing you pay your premiums, you can claim as many times as you need to while the policy is still in force. It does not pay out if you are made redundant.
A Family Income Benefit (FIB) policy is a type of life insurance. It works by making regular tax-free payments to your family and is designed to replace your income if you were to die. The regular payments from a FIB policy only lasts as long as the policy runs.
So, for example, if you took out a 25-year policy and die 5 years into it, your family will receive regular income for the remaining 20 years.
A Family Income Benefit policy shouldn’t be used to cover mortgage or other debt payments. An insurance policy that provides a lump sum is usually more appropriate for that.