FAQ

FAQ:

Got Questions? Check out our FAQ section.

FAQ

How much can I borrow?

The mortgage market has altered significantly since the ‘credit crunch’ took hold. All lenders are now much more concerned with the ‘risk’ attached to the mortgage. Therefore, the best value mortgages are now open to those clients that offer the lowest risk, such as those with little debt, a clean credit history, and plenty of equity or deposit.

Each lender has different criteria when it comes to how much you can borrow. The emphasis is now placed more on affordability than straight forward income, so clients with outstanding loans, credit card debt, and other commitments will not be able to borrow as much as those without debt. A simple rule of thumb is to take gross annual income, deduct all annual debt payments, and multiply the remainder by four. This will not be far from the actual figure. Before the credit crunch I would have said five or even six times available income would have been achievable, but the whole area of irresponsible lending has had to be addressed leading to severe reductions in what can be borrowed.

In the past mortgages were available for more than the value of the property, based on expectations that the value would always increase. The collapse in house prices has seen an end to such practises with many lenders only able to offer loans up to 75% of the property value. Higher LTV’s are offered, but the rate you pay is much higher to reflect the perceived additional risk.

Credit Scoring & Credit History

Lenders operate automatic credit scoring based on your credit profile giving either a high, medium, or low score, or in some cases the score is represented as a number. Not all lenders use exactly the same method of scoring, and the criteria for scoring on slow selling products is often tweaked to attract more applicants. Therefore, a simple low score is not an impediment to getting a mortgage.

It is surprising how much credit information is available to lenders. They have access to details of all loans and credit commitments you have, and the record of payments on each going back for three years. Any missed or late payments will undoubtedly cause the lender to be wary of granting the mortgage as it demonstrates a lack of control over your finances. However, all cases are different, and a valid reason for any discrepancy can be discussed with a lender who may override the scoring system to your advantage.

A lender looks at the whole application, and can be influenced by your age, job security and salary prospects, whether you are on the electoral role, any persons associated with your address, how stable your residential history is, and how frequently you have applied for credit. If you are not sure of your financial standing and credit history we recommend that you obtain a copy of your credit file from www.experian.co,uk or www.equifax.co.uk which will provide the same information as the lender sees. Then we can discuss any issues that may affect the application being accepted, and hopefully overcome them.

What if I have Poor Credit History?

Before the impact of the ‘Credit Crunch’ a history of poor or ‘adverse’ credit was not a barrier to getting a mortgage. The situation now is entirely different, with all lenders forced to evaluate risk much more carefully. A mortgage that might not be repaid because the client has a history of failed credit agreements will no longer be acceptable, and I fear that it will remain like this for a long time. If such deals were readily available the rate paid would be very high making them unaffordable. The only sensible way forward is to discuss the situation with a broker, and lay down a plan leading to a stable financial future following which you will once again be eligible to apply for a mortgage.

What Costs are Involved

VALUATION/SURVEY FEE, a purchase will require you to pay for a valuation of the property for the lenders purposes, or a more comprehensive survey for your own satisfaction. The cost depends on the property price and the lender. With a remortgage this cost is often covered by the lender as an incentive. ARRANGEMENT FEE, nearly all mortgage products have an arrangement fee charged by the lender to cover their costs. The fees can be paid up front, or added to the mortgage. Over the past year the level of fees has increased markedly, so we search for deals with low or modest fees where possible.

SOLICITOR/CONVEYANCER CHARGES, for a purchase you will need a legal representative to handle the process, liaise with the other side’s solicitors, and change the details on the Land Registry to the name of the new owner or owners. The cost increases with the value of the property and can vary greatly between different solicitors. We can provide guidance on what is considered a reasonable cost. Again, with a remortgage this cost is often covered by the lender as an incentive.

STAMP DUTY, the government have been altering the details of this tax to stimulate the sale of properties. The basic cost is as follows:

Up to £125,000	No Tax - Now raised to £175,000 until December 2009
£125,001 to £250,000	1%
£250,001 to £500,000	3%
Above £500,001	4%

INSURANCES, all buildings must be insured to protect the interest of the mortgage company as a minimum. Beyond this, the choice of insurer and cover is yours. The Best Mortgage Company will supply quotations for comparison, and arrange appropriate policies as instructed.

PROTECTION, it makes sense to protect your income, and the mortgage as far as possible from any disaster that life can throw at you.

Can My Parents Help?

Some lenders offer special schemes for first time buyers who have parents willing to support them by being named on the mortgage, or by acting as ‘guarantors’ for the first few years. The parents must have a degree of spare income to qualify for such schemes. The alternative is for parents to help with the deposit. The funds can come from savings, or from a small mortgage on their current home.

What is Shared Ownership or Homebuy?

Housing Associations offer buyers the chance to buy a percentage of a house, and pay rent on the part not purchased, i.e. you buy 50% of the house, and pay rent on 50% with an option to purchase a greater percentage at a later date. This is Shared Ownership. The only issue is that it is rarely possible to buy the full 100% of the property as the association must retain a stake.

The government is promoting a scheme where you can receive up to 25% of the value of a property funded by the builders or housing associations. You pay a nominal interest rate on this portion, and take a normal mortgage on the rest. In future, you may choose to purchase the additional 25%, or when you sell the property simply pay 25% of the sale price back to the funding organisation. Such schemes are Homebuy, or Shared Equity.

Local Authorities or Housing Association websites are a good place to start researching properties in your area. By all means contact The Best Mortgage Company if you want further information.

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