Today, Thursday, 2nd August, the Bank of England have voted to raise official interest rates by 0.25 percentage points to 0.75%
The last rate rise was in November 2017, when rates rose from 0.25% to 0.5%.
Although this sounds low, roughly four million UK households on a standard variable or tracker rate mortgage, which rises and falls with the official rate, will see their monthly mortgage payments automatically go up by roughly £30 a month.
Today’s rate increase to 0.75% makes the base rate the highest it’s been since March 2009, when it was dropped following the financial crisis and recession.
Read on and find out how you can remortgage to future-proof your monthly payments from any further rate increases for years to come.
What a rate rise means for mortgages
A 0.25% increase sounds quite small, but when you apply it to mortgages, monthly payments start to look more expensive.
It’s particularly expensive if you are on your lender’s standard variable rate (SVR), or the rollover, or reversion rate, that you pay once your fixed rate term has expired.
For example, if you were on a 3.99% standard variable rate, your monthly payments on a 25-year £200,000 mortgage would be an extra £340 a year with a 0.25 percentage point rise. Remember – this happened last November – so if you’ve been on your SVR since then and, taking into account the rise of another 0.25 percentage points today, it will be costing you an additional £680 this year alone. That soon adds up!
If you don’t know whether you’re on an SVR you can find it on your latest mortgage statement or call your lender to confirm.
Isn’t a rate rise already accounted for?
Most lenders have already nudged up their rates in anticipation of today’s announcement. As Martin Lewis said in a recent article: “Less than a year ago the very cheapest two-year fixed [mortgage] was under 1%, the similar cheapest deal is now around 1.35%, and five-year deals are up a similar amount too.”
The good news is, that while lender’s prices have risen compared to a year ago, you can still get a two-year fixed that is very low in historical terms. Today, the average rate for a new mortgage is 2.09%, but two years ago it was 2.3%, five years ago it was 3.2% and in 2007 it was 6%.
With the base rate predicted to continue to go upwards, homeowners should act as soon as they are able, to lock in low monthly mortgage payments.
Aren’t I too late then?
No! Firstly, if you know you’re on your lender’s SVR then it makes sense to switch away as soon as possible as it is always more expensive than fixing.
If you’re coming to the end of your initial period in a couple of weeks and are looking to remortgage then you also aren’t too late to make savings. If more rate rises come, which economists predict they will, then lenders’ prices for new mortgage products will also move upwards. The key is to avoid going on to your lender’s SVR and fix a cheap deal as soon as you can. In this market, the longer you leave it, the more risk you run that prices will have continued to go up when you do come to remortgage off your SVR.
If you are already in the process of remortgaging with Habito, then just make sure we have all the necessary details to complete your application as soon as possible. If that means rummaging through files and folders to find employment documents and mortgage statements, now’s the time!
If you need more advice on what documents you’ll need to complete your remortgage, and where to find them, get in touch with one of our mortgage experts for some helpful advice. If you’re interested in reading more about how you can prepare yourself for the smoothest remortgage possible, have a look at our blog post detailing what documents you’ll need to make this happen.
If you’ve remortgaged recently to a fixed-rate deal, then don’t worry – your mortgage payments will stay the same for now, whatever decision the Bank makes.
Can I switch my fixed-rate mortgage early to get a better deal?
If you’re looking to remortgage but not for several months – then make sure you know exactly when your current deal expires and think about for how long you might want to fix it for to protect yourself in the future. In this market, generally speaking, the longer you can fix your rate for, the better. While a five-, seven- or ten-year fixed rate will mean higher monthly payments than a two-year deal, it will also guarantee protection from any further Bank of England rate rises until at least 2023.
With most mortgages you can get released early – but it’ll probably cost you a fair bit. The early repayment charge (ERC) that accompanies most fixed-rate mortgages can add up to thousands of pounds, so you need to do your sums carefully to work out whether cutting your losses and switching to a new longer-term fixed rate is worth it. Our expert advisers are always happy to take a look and tell you whether switching early makes sense or not. They can start helping you find your next mortgage up to four months before your existing deal finishes.
I’m new here, how can Habito help?
At Habito, we search 90 lenders and thousands of deals to find the right mortgage for you. We then manage your application from start to finish, doing all the heavy lifting for you. And best of all we’re completely free – so what are you waiting for? See if you could save by remortgaging today.
Securing a mortgage is straightforward for the vast majority of homebuyers, but there are still plenty of reasons why your agreement in principle or full mortgage application could end up being declined by the lender – from having an adverse credit score to not being registered to vote on the electoral roll.
Obviously the best way to secure a mortgage is not to get declined in the first place, and that’s why it’s crucial to get yourself as prepared as possible before you start applying (for our top tips on the best way to do this, click here). However, getting the thumbs-down from a lender doesn’t have to mean giving up all hope of ever getting a home loan.
Most mortgages are declined because your profile simply doesn’t fit with your chosen lender’s set-in-stone criteria – for instance, you’ve been self-employed for two years, but they need three years’ worth of accounts. But each individual lender has different policies on what is and isn’t acceptable, so read on and find out all about how to turn that rejection upside down.
Agreement in principle declined
An AIP (agreement in principle), also known as an MIP (mortgage in principle) or DIP (decision in principle), is essentially a non-binding pre-approval statement from a lender showing that they’re willing to lend you a certain amount of money as long as the information you provide turns out to be honest and reliable – and it can be a useful tool to help you stand out from other prospective buyers.
To be able to sign off an agreement in principle, though, a lender will need to look at a variety of factors such as your income, your outgoings, your credit score and your deposit to work out whether you’re realistically going to be able to afford the amount of money you’re looking to borrow.
If you’re declined…
The bad news is that appealing against the decision is usually a non-starter – AIP rejections are rarely overturned. But the good news is that eligibility criteria for AIPs differ between lenders and each will have their own ‘pass mark’. This means that if you don’t make the grade, then you’ll hopefully be able to find another lender who’s more willing to help.
The best way to go about this is to use a whole-of-market broker (like us here at Habito). Why? Because they will have expert, in-depth knowledge of each individual lender and can point you in the direction of those most likely to say yes. If you just approach another lender yourself and their approval criteria are also incompatible with your circumstances, you’ll get rejected again (and if they perform a hard search on your credit file then you might earn a black mark against your name at the same time).
It’s also worth trying to find out why your AIP was declined in the first place. Knowing why you were rejected means you can take steps to increase your chances of getting approved next time round. For example, if you were declined because of a poor credit score, you can take action to improve it (you can read our tips on that here).
Full mortgage application declined
A full mortgage application requires a far more in-depth trawl through your credit history than an AIP and the process lenders use to assess your ‘mortgageability’ is called underwriting (it’s the underwriter’s job to approve or decline your application). Even if you have an AIP, you can still be turned down when it comes to the full mortgage application.
Being declined for a mortgage is usually down to one of two reasons: either a thorough search of your credit history has discovered some adverse credit information (such as frequent payday loans or County Court Judgments – CCJs) that makes you an unacceptable risk, or the mortgage underwriter finds that your profile doesn’t meet the lender’s strict approval criteria – for example, because you haven’t been in your current job for long enough.
If you’re declined…
If your mortgage application is declined by the underwriters, the first thing to do is try and find out the exact reason why you were rejected. Once you know this, you need to contact a whole-of-market broker who can advise you which particular lender would be most appropriate for your specific situation.
Even if your application is rejected because of your poor credit score, there are lenders who are happy to consider a wide range of adverse credit issues. But be warned that interest rates and charges will be much higher on an ‘adverse credit mortgage’ than a standard mortgage, and you’ll also need to come up with a bigger deposit – usually at least 15% of the purchase price.
If you were already approved for an AIP before being rejected for a full mortgage because of a policy issue, there’s a very strong chance that another lender out there will want your business. The fact that you were only declined on the basis of policy criteria rather than any longstanding credit problems indicates that your credit score was good enough for a ‘pass’.
Mortgage application declined after valuation
When you apply for a mortgage, your chosen lender will arrange for a surveyor of their choice to carry out a free mortgage valuation on the home you’re looking to buy. Unlike a homebuyer survey, these valuation reports are for the sole benefit of the lender – they assess the true market value of the property and identify any characteristics or major structural defects that might affect its value in terms of security for the proposed loan.
If your lender discovers the property you’re buying is worth less than your requested mortgage amount, they could ask you to increase your deposit or even decline your application entirely – after all, they want reassurances that they’ll be able to get their money back if they need to repossess the property. You may also get rejected if the building is deemed unsuitable because it’s non-standard – maybe it’s constructed out of concrete or is on the 15th floor of a high-rise block (if you’re worried about this, check the lender’s policy criteria before you start applying to avoid rejection).
If you’re declined…
If your mortgage has been declined because the valuation report has down-valued the property, it’s not an easy decision to contest and you may have to up your deposit. However, you can try appealing by finding recent examples of similar local homes that have sold for more or you can even pay a surveyor for an independent valuation (although be warned that they might come up with the same figure as the lender’s surveyor and you’ll have wasted a few hundred pounds in the process).
If you’re rejected on the grounds that the property is not a standard build, then don’t give up hope. Properties that aren’t an acceptable construction type for one lender may well be acceptable with another – speak to an expert mortgage advisor who will have knowledge of the best lenders for non-standard builds. But also think about whether it’s really the right place for you – lenders need to factor in how easy a property would be to resell if it had to be repossessed, so if they’re concerned then maybe you should be too.
Mortgage application declined after exchange of contracts
You’d think at this stage your mortgage offer was secure, and it pretty much is. But very occasionally, a loan offer can be withdrawn even after contracts have been exchanged – and when it does happen, it can cause major headaches for the unfortunate homebuyer.
The most common reason is that the lender uncovers previously undisclosed historical adverse credit such as bankruptcy or some false information on your application form, so it’s crucial to be 100% upfront when applying for your mortgage.
Another reason could be that your mortgage offer actually expires before the completion date. This is most common with new-build properties that are under construction and get delayed. The best way to avoid this is to pre-empt the problem by asking your lender for an extension. With a few weeks’ notice, they should be able to extend your offer by a month or more.
Finally, you can still get rejected at this late stage if your financial situation has changed dramatically since your initial application (you’ve lost your job, perhaps, or taken out a high-interest loan), so try and keep your finances steady in the run-up to the completion date.
If you’re declined…
If you’re declined at this stage and the sale falls through, it could end up costing you thousands of pounds in lost fees and deposit. So it’s crucial to secure a new mortgage offer as quickly as possible.
If you’ve been rejected because your mortgage offer has expired (they usually last three to six months), then you should be able to reapply for the same deal if it still exists – after all, you’ve been declined on account of your timekeeping, not your bookkeeping. Alternatively, there’s nothing stopping you searching the market again to try and find an even better offer before the completion date, although time might be tight for this.
However, if you’ve been rejected because the lender has unearthed some serious credit problems or inaccurate financial information, then you’ll probably have to swallow your losses and sort out your finances properly before starting the whole process again.
Get a mortgage quote today
Whichever type of mortgage you need, or if you’d like to speak more about different types of mortgages with a mortgage expert, start your fee-free application with Habito today here.
Back in November last year, Bank of England boss Mark Carney decided that the UK’s jumped-up 3% inflation figure needed deflating a peg or two. What followed was an increase in the official interest rate for the first time in a decade – from 0.25% to 0.5%. It wasn’t a huge rise compared to the double-digit days of the 1990s, but it was still a body blow to millions of borrowers. About half of the UK’s nine million households with a mortgage are on a standard variable or tracker rate, which rises and falls with the official rate.
And now, less than six months later, city economists are predicting that the Bank of England will raise the rate by at least another 0.25% in early May. Why? Because UK inflation has only come down to 2.5%, which is still half a percentage point above Mr Carney’s comfort zone.
Looking further ahead, the expert forecast is for further increases in late 2018 or early 2019 – which means the time for homeowner action is now. So read on and find out how to remortgage to a long-term fixed rate and future-proof your finances for years to come.
What a 0.25% rate rise means for mortgages
While 0.25% might not sound like a huge amount, apply it to your mortgage and things start to look a bit more serious. For example, if you were stuck on a 3.99% standard variable rate, your monthly payments on a 25-year £200,000 mortgage would jump up by more than £340 a year – money which would have been far better spent on a new summer wardrobe.
And if you think ‘no need to act now, there might not even be a rise’, you may want to think again. Several of the country’s biggest lenders – including the likes of Santander, NatWest and Halifax – have already nudged up their rates in anticipation of the latest announcement.
So what should I do?
The good news is that despite the predicted 0.25% rise, interest rates remain at historic lows and fierce competition between lenders means that it’s still a borrower’s market. However, if rates continue to climb upwards, the knock-on effect will be a hefty hike in lenders’ prices.
So, if you’re on a tracker or standard variable rate mortgage, or your fixed rate is about to end, you need to think about remortgaging now to protect yourself and secure the best deal for the future. In general, the longer you can fix your rate for, the better – a five-, seven- or ten-year fixed rate will mean higher monthly payments than a two-year deal, but it will also guarantee protection from Mr Carney’s creeping rate rises until at least 2023.
How can Habito help?
UK consumers are currently missing out on an estimated £29 billion annually by sticking with the same old mortgage year on year, so remortgaging is a no-brainer – rate rise or no rate rise. But that doesn’t mean just popping into your local high-street lender for access to a handful of mortgages. There are loads and loads of great remortgage deals up for grabs across the sector and online brokers such as Habito search them all – more than 90 lenders and thousands of deals – to find the remortgage that’s right for you. Oh, and we don’t charge you a penny either.
Can I switch my fixed-rate mortgage early to get a better deal?
If you’re still on a two-, three- or five-year initial fixed-rate deal, then your mortgage payments will stay the same for now, whatever Mr Carney decides. But that probably won’t stop you drooling over the latest deals on the market – for instance, HSBC recently launched a five-year mortgage fixed at 1.84% for existing current account holders. Ah, if only you weren’t still locked into your fixed-rate mortgage…
Well, the good news is you can get released early – but it’ll probably cost you a fair bit. The early repayment charge (ERC) that accompanies most fixed-rate mortgages can add up to thousands of pounds, so you need to do your sums carefully to work out whether cutting your losses and switching to a new longer-term fixed rate is worth it. It means you’ll be able to lock in a decent rate and not worry about further interest rate rises in the coming years. But do the pluses outweigh the penalties?
Cue our expert advisers, who are always happy to take a look and tell you whether switching early makes sense or not. They can start helping you find your next mortgage up to four months before your existing deal finishes, so what are you waiting for?
Habito Customer Story – A 5-year fix
First-time buyers James and Fiona had trouble securing a mortgage for the home they wanted and jumped from broker to broker looking for the help they needed. With Habito, they finally got the mortgage they required and are the proud owners of a 4-bed detached house in Glasgow.
“In our specific case, we simply wouldn’t have got our house without Habito.
We needed to find a lender who would lend on my bonuses as this would enable us to borrow enough to get the house we wanted. Several other (online and traditional) brokers were unable to help. That’s when we tried Habito who quickly identified a lender who would and took me through the process.
We wanted to go for a 5-year fixed mortgage for the stability of knowing exactly what we will be paying for a good length of time, and the reassurance this provides. Especially when it looks likely interest rate rises may be coming down the line. We also wanted to make sure we had the option to overpay the mortgage to clear the balance early and reduce the overall amount of interest.
In the end, we got approved and were able to buy the home we wanted. Habito helped us when no one else could.”
You might think that the process of securing a mortgage and buying a new home is complicated and exhausting enough without having to worry about writing your will as well, but the truth is there couldn’t be a better time to do it. Becoming a homeowner is almost certainly the biggest financial commitment of your life, and putting a legally binding will together can help to protect your family and keep them financially secure with a roof over their heads if anything ever happens to you.
Sorting out a loved one’s affairs when they die without a will can be a legal and emotional minefield. We’ve all heard horror stories of families squabbling over who gets to keep what, and this is the last thing anyone wants to deal with when they’re trying to come to terms with a bereavement. So most people have got a will in place, right? Wrong.
Nearly 60% of adults in the UK still haven’t got round to writing one yet. And it’s not just carefree twenty-somethings who are guilty of delaying putting pen to paper. More than a third of over-55s are still will-less and an alarming 68% of 35-54 year olds are in danger of dying intestate (without a will), despite being the most likely age group to have kids under 18 and major financial commitments such as a mortgage to consider.
Sadly, your mortgage responsibilities don’t stop if you pass away. Your debts still need to be paid and this includes your outstanding loan balance. Lenders are generally quite sympathetic and will give as much assistance as possible, but they do have the legal right to demand the amount be repaid in full. And if this can’t be covered by the estate, they can ask for the property to be sold to make up the difference. That’s why it’s so important to take out life insurance – if you die, the proceeds of the insurance payout can be used to pay off the mortgage balance or at least reduce it to a more affordable level, which will hopefully allow your loved ones to remain in the family home.
How does writing a will protect you?
By making proper legal provision in the form of a will you can specify exactly where you’d like your money, property and belongings to end up in the event of your death. If you have young children, it also allows you to nominate a guardian to look after them until they reach adulthood and are old enough to take control of their inheritance. In addition, having a will in place speeds up probate (the legal process of dealing with someone’s estate) and can help to mitigate the amount of inheritance tax payable on the property and money you leave behind.
Once you’ve worked out how you’d like your estate to be divided up, you can store the will away and get on with enjoying life, safe in the knowledge that if anything does happen to you the financial fallout for those left behind will be kept to an absolute minimum.
What happens if I die without a will?
Many people assume that if you die without having made a will, then your estate simply passes to your partner or children. But it’s not always quite as straightforward as that. There are detailed laws, known as rules of intestacy, that specify who inherits how much when you die without a will. In other words, it won’t be you but the law that says who gets what, and sometimes that can lead to situations such as your long-term partner ending up with nothing or the government pocketing the lot.
- If your partner dies without making a will, and you weren’t married or in a civil partnership, you have no rights to inherit anything from them, including the home you lived in together.
- If there are no surviving relatives to claim inheritance under the rules of intestacy, then the estate passes directly to the Crown – known as bona vacantia (or ownerless goods). Millions of pounds went into the government’s coffers last year thanks to this little Latin phrase.
Can I write a will myself?
Yes, you can, and there are plenty of DIY will kits available online and in the shops. But making mistakes in your will can prove hugely costly further down the line – your relatives could face big legal fees and the will could end up being challenged or disregarded completely. The smallest things can invalidate a will – you might name someone as a beneficiary but the name doesn’t match what’s on their birth certificate, for instance, or you might not get it witnessed properly.
A will needs to be accurate, clear and totally unambiguous. So it’s usually safest to use a professional will-writing service or a solicitor. Solicitors generally charge £200 or more to draw up a will, while professional online will-writing services such as Farewill cost considerably less and your will can be created in as little as 15 minutes. It’s then checked over by a legal expert before being sent back to you to print, sign, witness and tuck securely away. It will need to be signed in the presence of two witnesses (non-beneficiaries) and they’ll also need to sign in your presence and in the presence of each other as witnesses to your signature.
What should my will cover?
The most basic will should cover who you want to benefit from your estate, who should be responsible for any children under 18 and who will be in charge of organising your estate and following the instructions you leave in your will – this person is called your ‘executor’, and you can name more than one person if you want to. For a will to be legally valid, you must be 18 or over, write it voluntarily and of sound mind, and have it properly witnessed.
If your circumstances are 100% straightforward, then wills can be very simple to draw up. But things are often more complicated – you might share a home with someone who isn’t your husband, wife or civil partner, for example, or you might have children from another marriage – and this is when it really is crucial to get some professional advice.
Can I change my will?
Kids, marriage, moving abroad, divorce – as life changes, your will may need to be adjusted too. The good news is you can alter your will as many times as you like, but the only way you can do this is by making an official alteration called a ‘codicil’ or drawing up an entirely new will. Which option you choose will depend on how many changes you want to make and how complicated they are.
Farewill is the UK’s largest wills provider, helping thousands of people across England and Wales write their wills simply and easily online. A Farewill will costs just £50 and takes 15 minutes to complete. For £10 a year, you can login and update your will at any time.
New Year, new resolutions? It is a time of year when many will be thinking about what they want to achieve in the next 12 months. For some, this means looking at turning the dream of homeownership into reality. But how?
Our latest research asked 1,000 parents around the country about the pressures of home buying and found out that they are going to extreme lengths to help their children onto the property ladder.
- 3 out of 4 parents say they are willing to help their offspring buy their first home
- 62% of parents of children who rent say they would let their kids move back home to save money
- Others are considering remortgaging, delaying retirement or downsizing to help their children with a deposit
On average, the parents surveyed had bought their first home at the age of 26. This compares to the national average age of a first-time buyer in the UK in 2017 being 32, according to the Department for Communities and Local Government.
The survey found that parents consider numerous ways of giving their kids a much-needed savings boost.
62% of parents admit they would let their kids move back home permanently to save money. 44% would gift or lend them funds from their own savings, with 20% saying they would lend them £10,000 or more. Others were prepared to go to even greater lengths, including downsizing their own home (12%), or even delaying retirement (9%).
Parents in all regions of the UK agreed that lack of funds is the biggest setback for their children. Unsurprisingly, given how expensive rental property is in the capital, every Londoner said they would prefer their children live at home rather than spend money renting. It was those in London who are most willing to consider downsizing to help their children. Whereas, those in Northern Ireland are most likely to think about remortgaging their property, which could also yield considerable savings.
20% of parents say they had been influenced by the news of rising interest rates and the relief for first-time buyers from Stamp Duty as laid out in the Government’s Autumn Budget. As such, they say that this feels like the right time of the year to talk to their children about home buying or to think about how they can help them to buy their first home in the near future.
Daniel Hegarty, CEO at Habito says: “The start of the year is a time for reflection and it is often used in families to discuss financial goals for the year. For many Britons, getting on the property ladder is a key investment for the future and understandably this is a concern for parents across the country.
Currently, 1 in 4 homeowners are overpaying on their mortgage. However, remortgaging from a standard variable rate to a fixed-rate mortgage can save you up to £4,000 per year. Putting those savings away in an ISA over a few years could make for a meaningful gift or loan, to top up a deposit.
Help to Buy, Shared Ownership schemes, the removal of Stamp Duty and using a Lifetime ISA, can lift some pressure off first-time buyers’ shoulders.
For those that are pulling a deposit together, there are mortgages to be had with just a 5% deposit. Using a professional broker can give you a much better chance of being successful in your application to the lender at this level.”
Whether you’re a parent looking to help your child onto the property ladder, or a ‘child’ looking to see how your parents could help you buy, hop onto live chat to speak to one of our mortgage experts now.
Habito is here to help you every step of the way towards mortgage happiness. Click here to learn more about Habito and find out how much you can borrow online today →
About the Survey
The First Mortgage survey was carried out between 15th December and 18th December 2017. It surveyed 1,000 nationally-representative UK parents of children aged 18 and over who are yet to purchase their own home. The study was conducted by OnePoll, a marketing research company.
Once you’ve found your dream home, or perhaps you haven’t just yet, you’ll almost certainly need a mortgage to move in. There are many different types of mortgages, but which one should you go for? You want to make sure you’re getting the best rate possible, but you also need to pick a deal that suits your personal needs. Maybe you’re a first-time buyer on a super-tight budget, or maybe you want to offset your loan against your savings account? Don’t worry, chances are there’s a mortgage out there with your name on it and Habito will search the whole of the market to help you find it – whatever your circumstances. To get you started, here’s our quick guide to the different types of mortgage available in the UK.
How do mortgages work?
Your mortgage is probably the biggest investment you’ll make, so it’s crucial to understand the basics of how they work. The vast majority are repayment mortgages, where you take out a loan from a bank or building society to help you buy a property. The loan covers a percentage of the purchase price and you have to pay the rest up front (the deposit). You then repay the loan to the lender over a number of years (usually 25), with added interest on top.
As a rule of thumb, if you have a decent deposit to put down (say 10% of the property price) and your income is consistent and well-documented, you should be able to borrow around 4.5 times your gross annual salary. But remember that lenders will also want to examine your outgoings and outstanding debt before giving the green light to any loan. To get a good idea of how much you you can expect to borrow, and from whom, check out Habito’s real-time, whole-of-market mortgage calculator here.
What are the different types of mortgages?
- Repayment mortgage
- Interest-only mortgage
- Fixed rate mortgage
- Standard variable rate mortgage
- Tracker mortgage
- Discounted rate mortgage
- Capped rate mortgage
- Cashback mortgage
- Offset mortgage
- First-time buyer mortgage
- Flexible mortgage
- Buy-to-let mortgage
With a repayment mortgage, you steadily pay back the money you’ve borrowed over the length of your mortgage term (the number of years you agreed to pay back your loan to the lender, typically 25). Repayments are made on a monthly basis, with the money split between paying off the interest on the loan and reducing the size of the loan itself. During the first few years, most of the money goes towards paying off the interest, but over time more and more is allocated towards paying off the capital. At the end of the mortgage term, you’ll have paid off the entire loan.
Best for: People who want to be sure they’re going to pay off the whole loan by the end of the mortgage term.
With an interest-only mortgage, you’re just paying off the interest on your lump sum loan each month rather than eating into the lump sum itself. This means that your monthly repayments are lower, obviously, but you still have to pay back the original loan amount in full at the end of the agreement – so you need to be 100% sure you’re not going to have a shortfall when the time comes to settle up. It’s also worth noting that you’ll pay more interest overall compared to a repayment mortgage as you pay interest on the whole amount for the whole term (with a repayment mortgage, you gradually pay off the loan and interest is only charged on the amount still owed each month).
Best for: People who want low monthly repayments and are 100% sure they’ll have enough money to repay the whole loan at the end of the term.
Fixed rate mortgage
A fixed rate mortgage means the interest rate you pay the lender is guaranteed not to change for a set period of time, usually two to seven years. The major advantage with fixed rate mortgages is that they allow you to work out a precise repayment plan several years ahead when you first take out the loan, which makes this option particularly attractive to first-time buyers on a tight budget. But remember that when the fixed rate period comes to an end, you’ll automatically be switched on to the lender’s higher standard variable rate (see below) unless you remortgage to a new deal.
Best for: People who want an exact idea of what they’re going to have to repay for the next few years.
Standard variable rate mortgage (SVR)
The standard variable rate (SVR) is basically a default, bog-standard interest rate that lenders charge on mortgages, and it rarely makes sense to pay the SVR if you don’t have to – individual lenders are free to set their own SVR and adjust it at their own discretion. One of the few benefits of an SVR mortgage is that there are often no early repayment charges attached if you decide you want to pay off your mortgage early or make an overpayment. Lenders can charge hefty fees for doing this on fixed rate mortgages – something you need to watch out for if you come into a large sum of money, such as a redundancy payout or inheritance, and want to use it to lighten your mortgage load.
Best for: People who want to pay off their mortgage very early.
Tracker rates work by tracking a particular interest rate (usually the Bank of England base rate) as it rises or falls, and adding a fixed amount on top. So, if the base rate is 0.5% and the lender’s add-on rate is 2%, you’ll pay 2.5% interest on your mortgage loan. If the base rate goes up, your payments will go up. And if it goes down? Then your monthly mortgage bill will arrive with an added smile. So it’s not risk-free, but it can be rewarding if interest rates take a tumble. Be warned, though: most experts think rates will rise over the next few years, and you’ll also have to pay early repayment charges if you want to switch and remortgage.
Best for: People who think interest rates will tumble over the next few years.
Discounted rate mortgage
Everyone loves getting money off, of course, and a discounted rate mortgage can be a tempting option. The discount is a reduction on the lender’s SVR for a fixed term, typically two, three or five years. But remember that a fixed term is not the same as a fixed rate. The discounted rate is tied to the SVR, which means it can go up as well as down during the term, and even a 0.25% interest rate rise can bump up your monthly repayments quite significantly. The other thing to note is that discounted rate mortgages often include an early repayment charge if you want to pay the loan off early or remortgage.
Best for: People who want an early-years discount on their mortgage.
Capped rate mortgage
Capped rate mortgages are designed to offer peace of mind against wildly increasing interest rates. How do they do this? By putting a limit (cap) on how high the interest rate can rise and therefore keeping repayments under control, while also allowing customers to benefit if interest rates take a tumble. The major snag is that the standard variable rate offered with capped rate mortgages is usually higher than with a tracker mortgage, so you may well end up paying extra for that added peace of mind.
Best for: People who worry interest rates are going to suddenly shoot up.
The appeal of a cashback mortgage is simple: you sign up to the mortgage agreement and the lender then pays you a cash lump sum upfront, usually advertised as a percentage of the overall loan. It’s a tempting idea to help pay for some of the major costs involved with moving house, but every silver lining has a cloud. Chances are if you don’t need the cash lump sum, you’ll find a better rate elsewhere.
Best for: People who need a cash injection to help with moving home.
Offset mortgages link a borrower’s savings account to the balance of their mortgage: every month the lender checks how much you have in your savings account with them and deducts that from the amount you owe on your mortgage, so you only pay mortgage interest on the difference. Let’s say you have a mortgage of £150,000 and savings of £15,000. That month, your mortgage interest would be worked out on £135,000. So it’s quids in for people with plenty of savings and a good way to speed up paying off your mortgage. The downside? The rate probably won’t be the lowest around.
Best for: People with a healthy savings pot.
First-time buyer mortgage
Being a first-time buyer can be daunting: it’s almost certainly the most expensive thing you’ll do in your life and chances are you’ll need a high LTV (loan-to-value) mortgage – the biggest factor when it comes to mortgage rates is the size of your deposit. Fortunately, though, a small deposit doesn’t have to stop you being a homeowner. There are various government schemes to help first-time buyers get on the property ladder. Under the Help to Buy scheme, for example, you can borrow 20% of the purchase price interest-free for the first five years as long as you have at least a 5% deposit (in London you can borrow up to 40%). But remember you’ll still need a mortgage for the rest of the purchase price and a low deposit will mean a jump in rates. So the more you can put down, the better.
Best for: People who are first-time buyers and only have a tiny deposit.
Flexible mortgages are just that – they give borrowers a little bit of breathing space from time to time. Maybe you want to overpay for a while after getting a wage rise at work, and then you need to underpay for a bit or even take a payment holiday and miss a few monthly payments completely when things aren’t going quite so well. Unsurprisingly, though, the price for all this financial freedom is a relatively high standard rate.
Best for: People who think they might have their fair share of financial ups and downs over the years.
Buy to let mortgage
Buy-to-let mortgages are designed to be used for the purchase of rental property, which means they’re subject to different rules compared to standard mortgages and are usually interest-only. Buy-to-let landlords have been squeezed out of the property market in recent years and seen profit margins slump as measures to free up homes for first-time buyers take effect. So far, these have included a 3% surcharge on stamp duty for buy-to-let purchases and a cut in tax relief for buy-to-let mortgages. But it’s not all doom and gloom: there are still plenty of buy-to-let mortgages out there and we can help you find the best deal to keep your property portfolio thriving.
Best for: People looking to invest in buy-to-let properties.
Remortgaging simply means transferring your loan from the company, bank or building society that originally lent you the money to another (or even to a different deal with the same lender) and cutting your monthly payments or releasing equity in the process. In principle, it’s the same as switching your energy, mobile or broadband provider, only with much bigger returns – homeowners on a standard variable rate mortgage can pay in excess of £4,000 a year more compared to remortgaging to a new fixed rate deal. The process of switching to a new lender is the same as applying for a new mortgage, so you can go directly to the new lender or use a mortgage broker such as Habito, which will act on your behalf. Already have a mortgage through us? We alert our existing customers and help them switch quickly and easily so they can be sure they’ll never pay more than they have to.
Best for: People looking to switch to a better mortgage deal.
Get a mortgage quote today
Whichever type of mortgage you need, or if you’d like to speak more about different types of mortgages with a mortgage expert, start your fee-free application with Habito today here.
The big Budget statements have been made, and first-time buyers have been granted stamp duty relief on properties up to £500,000. This is great news for those looking to get on the property ladder, but you might be wondering how the savings stack up compared to previous stamp duty regulations.
The Big Red Briefcase
Chancellor Philip Hammond announced a raft of changes to the government’s approach, and directed funding at the housing market. This was summed up with his pledge to invest a whopping £44 billion pounds over the next 5 years to stimulate the housing market in Britain.
What is Stamp Duty?
At the centre of the housing budget were changes to stamp duty for first-time buyers. Stamp duty, known as Stamp Duty Land Tax by the government, is a form of tax paid when purchasing land or property. Previously, all purchases of primary property were subject to tax on the value of the property that fell into each tax band. Stamp duty is payable within 30 days of the completion of the sale, and paid to HMRC.
What does this mean for me?
The new changes mean first-time buyers will not pay any stamp duty on properties up to £300,000. This is fantastic news for first-time buyers, who on average spend £207,693 on their first home. This means the majority of first-time buyers won’t pay a penny of stamp duty on their first home, saving an average of £1,650.
For first-time buyers in London, this stamp duty change will also provide relief, where the average first-time buyer spends £410,000 on their property. The new stamp duty relief covers properties up to £500,000, meaning first-time buyers will only pay stamp duty on the £300,000 -£500,000 portion of the property. This means those buying a property at £410,000 will pay £5,500 in stamp duty, saving £5,000 in comparison to the previous regulations.
Check out our Habito Stamp Duty Index to see the effect of the new regulations on the cost of homes for first-time buyers:
Who should I speak to?
With relief on stamp duty, and more first-time buyer mortgages on offer, now’s the time for those looking to get on the property ladder to make a move. Habito is here to help you every step of the way, with a team of friendly mortgage experts on hand to answer any first-time buyer questions you might have, and guide you through your application.
The first step is using our Mortgage Calculator, which can give you an idea of how much you could expect to borrow, including which mortgage might be right for you, in a matter of minutes. All it takes is some simple information about yourself, without any credit checks, to get a picture of what your mortgage might look like.
From there, our mortgage experts can advise you on deals and rates, and help secure the best possible deal for you. Head over to Habito now to find out if you could be in with the chance of saving on your first home, and let us help you find mortgage harmony.
After weeks of speculation about the Autumn Budget, the fiscal facts are finally on the table. Philip Hammond has just finished laying out his plans to the House of Commons, and here at Habito we’ve been keeping a very close eye on the action. All in all, the Chancellor’s Budget speech paints a hugely positive picture if you’re looking to buy your first home. Read on and find out why.
Massive savings on stamp duty
Thanks to rocketing property prices, particularly in London and the South-East, stamp duty has been raking in massive revenues for the government but also helping to stall the UK housing market. The proportion of first-time buyers liable for the tax has risen from 47% in 2001 to a whopping 78% in 2017 – and that figure jumps to 100% in London. As a result, first-time house-hunters have been shying away from getting on the property ladder and empty-nesters have been staying put instead of downsizing to free up family homes.
What has the Chancellor promised?
The Chancellor has come up with a surprisingly sweet carrot to get young people to swap ‘Generation Rent’ for ‘Generation Own’. He has announced that, from today, first-time buyers will pay zero stamp duty on properties up to £300,000. For homes between £300k and £500k, first-time buyers will save £5,000 in stamp duty.
Pre-Budget, properties under £125,000 were exempt, but the average purchase price among first-time buyers in the UK stands at £207,693 – and £410,000 in London. So, the £1,700 you would have to stump in stamp duty on your £210,000 dream home will now be absolutely nothing! Good news for Londoners, who will save £5,000 in tax on a £410,000 home, paying just £5,500 in stamp duty. The new rules mean a stamp duty cut for 95% of first-time buyers, with 80% paying no stamp duty at all.
Habito happiness rating ★★★★★
More land for new homes
The UK is in the middle of a housing crisis, with a chronic shortage of new homes being built each year, and Communities Secretary Sajid Javid piled on the pre-Budget pressure for the Chancellor to ‘think big’ and ring-fence £50 billion of public money for new homes. The benefits of getting Britain building again are clear – an influx of new homes would help to ease the housing crisis and rein in spiraling property price increases, allowing more first-time buyers to get a foot on the property ladder.
What has the Chancellor promised?
Mr Javid’s pleas have been answered by the Chancellor, who has committed £44 billion to provide funding, loans and guarantees over the next five years to boost the UK’s housing stock. He told Parliament that the crisis needed ‘money, planning reform and intervention’, so how will the £44 billion figure break down? Money to deliver 300,000 new homes each year by the mid-2020s (up from the current 217,000), training young construction workers and guaranteeing loans for small house-builders to get their hard hats on pronto. The Chancellor also announced planning reform to free up more urban brownfield sites for residential development, and intervention on the vast number of planning permissions currently left unbuilt. But one thing not to expect is flats in fields – the Green Belt will remain gloriously green.
Habito happiness rating ★★★★☆
Help to Buy scheme extended
Aimed at young house-hunters, Help to Buy launched in 2013 and allows you to buy a new-build property with just a 5% deposit – the government lends 20% of the sale price and you borrow the rest via a repayment mortgage. The scheme has been hugely popular and already accounts for more than a quarter of all new-build sales in the UK, 81% of which are to first-time buyers.
What has the Chancellor promised?
The Tories are targeting the young vote, and Theresa May already used the Tory Party conference in October to announce a government injection of a further £10 billion into the Help to Buy scheme, allowing another 135,000 people to buy a new-build home by 2021. The Chancellor used his Budget speech to reconfirm that figure – but where all that extra money’s going to come from is yet to be revealed.
Habito happiness rating ★★★☆☆
Habito’s point of view
The Chancellor’s pre-Budget intentions were clear: “We will not allow the current young generation to be the first since the Black Death not to be more prosperous than its parents’ generation. Fixing the housing market is a crucial part of making sure that doesn’t happen.” Strong words indeed, and Philip Hammond has followed through with a wide range of homebuyer reforms that mean it’s a brilliant time to put your foot on the property ladder. Stamp duty cuts, new-build investment and a boost for Help to Buy will all help the housing market back to good health.
Kala, our VP Operations, recommends you chat to our friendly team of mortgage experts sooner rather than later:
“Today’s stamp duty reforms will turbocharge the first-time buyer market, allowing people to save thousands and put more money towards a deposit, giving them access to a wider range of mortgages. However, it is also likely that house prices will rise, as there could be a rush to take advantage of this tax change on houses below the £500,000 threshold.
The number of properties bought and sold from now until January is usually low. But with the increase to the base interest rate by the Bank of England this month, as well as continued competitive prices on offer from mortgage lenders, it’s likely we’ll see a boost in house buying, based on first-time buyers rushing to take advantage of this change to stamp duty.”
So stop dreaming and start doing your sums, and hop on to live chat to speak to one of our mortgage experts. Habito is here to help you every step of the way towards mortgage bliss, and there’s no better time to start your journey with us!
Autumn has arrived and Budget season is upon us. Right now, Chancellor Philip Hammond is polishing his speech, and his red briefcase, ready to update the UK on its financial future on 22 November. Rumour has it that the Treasury is looking to put a smile back on the faces of first-time buyers and get the stagnant UK housing market moving again, but how? Habito takes a peek at the homebuyer happiness Hammond might dish up next Wednesday.
Stamp duty shake-up?
The biggest news could be around stamp duty, which is currently creating lots of cash for the government (revenues reached a record £8.6bn in 2016/17, a 17% increase on the previous year) but also helping to stall the UK housing market. Rising property prices mean spiraling stamp duty bills for buyers, particularly in London and the South-East. The result? First-time house-hunters are shying away from joining the property ladder and empty-nesters are staying put instead of downsizing to free up family homes.
Stamp duty can be a hefty extra on top of the asking price, and the proportion of first-time buyers liable for the tax has risen from 47% in 2001 to a whopping 78% in 2017 – and that figure jumps to 100% in London. Properties under £125,000 are exempt, but the average purchase price among first-time buyers in the UK stands at £207,693 in 2017, and £410,000 in London – which means you’ll need to stump up more than £15,000 in stamp duty for that dream half-million pound home in the capital.
So, what might the Chancellor do to help out? One possibility is that he’ll introduce a stamp duty ‘holiday’ for first-time buyers. This means they’d be exempt from paying the tax on homes up to a certain value for a set number of years (the last stamp duty ‘holiday’ covered first-time purchases up to £250,000). Another, less likely option is to make stamp duty a seller’s tax rather than a buyer’s tax, which would reduce costs for first-time buyers and incentivise people to keep moving up the property ladder. A good idea in theory, but some say that asking prices would simply rise to cover the new cost.
Building for a better Britain?
There’s a critical housing shortage in the UK at the moment. Based on current demand, we need 240,000 new homes each year, but only 140,000 are being built. The Chancellor may well introduce changes to free up more land for building and simplify the planning process. This double whammy would help to ease the housing crisis and rein in spiraling property price increases, allowing more first-time buyers to get a foot on the property ladder instead of being stuck in ‘Generation Rent’.
A helping hand for Help to Buy?
Theresa May announced at the Tory Party conference in October that the government will find a further £10 billion for its Help to Buy loan scheme. This will allow another 135,000 people to buy a new-build home with only a 5% deposit. Furthermore, she announced they will cough up an extra £2 billion for affordable housing. That’s a lot of loose change, so expect the Chancellor to use his speech to outline where all the money’s going to come from.
Buy-to-let landlords are being squeezed out of the property market through a raft of recent measures designed to free up homes for first-time buyers. This includes a 3% surcharge on stamp duty for buy-to-let purchases and a cut in tax relief for buy-to-let mortgages. The crackdown is a vote-winner for the Tories, so don’t expect any U-turns on Wednesday.
A positive outlook
If the stamp duty ‘holiday’ and Help to Buy funding do come true, it’s a positive picture for potential homeowners and might just be the ideal time to put your foot on the property ladder. So, keep a close eye on the Budget on Wednesday and remember that Habito is here to help you every step of the way to the best mortgage whatever your Budget.
Before November, there hadn’t been an interest rate rise for nearly a decade in the UK – which meant that anyone who’d bought a home from 2008 onwards had never had to experience a rising interest rate market. But it’s all change now the Bank of England has bitten the bullet and decided to bump up the base rate from 0.25% to 0.5% to try and stem the country’s increasing inflation.
So, how is the Bank of England’s decision going to affect the Bank of You? And how can remortgaging help to ease the pain behind the interest rate rise? We’ve got it all covered, from the reasons behind the Bank’s decision to the best ways to remortgage – and save on your monthly payments.
How does the Bank of England decide the interest rate?
The Bank of England’s Monetary Policy Committee (MPC), which is made up of nine members and led by Governor Mark Carney, meets on the first Thursday of each month to set the official UK interest rate (the base rate) – the figure at which commercial banks borrow from the Bank of England. And since 2009, those monthly interest rate meetings have been, quite frankly, uninteresting as the MPC hasn’t had too much to decide. In fact, the base rate has only had to be altered once during that entire time – a 0.25% drop in August 2016 to its lowest ever level of 0.25%.
So why the sudden change of heart for the Old Lady of Threadneedle Street? Well, it’s all down to the current level of inflation. The MPC has an inflation target of 2%, and if the rate goes too far above or below that then Carney and his crew need to take action to stabilise the economy. As it stands, inflation is at a four-year high of 3%, which is a full percentage point above where it should be. This spike, mostly driven by a slump in the value of the pound following the Brexit referendum vote, has inevitably ended in a hike.
What does this mean for mortgages?
At Habito we search more than 20,000 mortgages from over 90 lenders to find the right one just for you. And we’re also determined to make the mortgage process more transparent. That’s why we want to make sure you understand exactly how interest rate rises can affect your home loan – and what we can help you do about it.
The good news is that if you’re still on a two-, three- or five-year initial ‘teaser’ fixed rate, then your mortgage payments will remain the same for now, however much Mr Carney decides to tinker with the interest rates. But be warned, this honeymoon period will only last until the end of the fixed term.
After that, you’ll move onto your SVR (standard variable rate) – which averages 4.6% at the moment – unless you do something about it. That’s why, if you’re one of the hundreds of thousands of borrowers reaching the end of their fixed term every month, it always pays to think about remortgaging, whether there are any more interest rate rises or not.
If you’re already one of the estimated three million people on a standard variable rate or tracker mortgage, even this measly 0.25% interest rate rise on a 25-year £200,000 loan will see your payments jump by £480 a year.
Will there be more rate rises to come?
Some people reading this might think, ‘it’s only 0.25%, I don’t need to do anything yet’, but burying your head in the sand and hoping for no more rises could prove to be a costly mistake, especially as the Brexit process is turning out to be less of a smooth uncoupling, and more of a tricky divorce.
If the pound continues to slump and inflation continues to rise, then further interest rate rises seem highly likely. Many experts believe this initial hike could be just the tip of the iceberg and that rates will continue to edge up during the next few years. For example, the National Institute of Economic and Social Research (NIESR) think tank believes that this first rise will be followed by more hikes every six months until the base rate is up at 2% by 2021.
Even if the base rate rose just one percentage point higher, the impact on your family finances would be severe – the additional cost on a 25-year £200,000 mortgage would come closer to an extra £150 a month, or an eye-watering £1,760 a year on top of your usual payments. That’s an awful lot of piggy banks that’ll need emptying if you don’t take action soon.
How can you protect yourself from a rate rise?
So, what can homeowners do to combat the creeping base rate rise? Well, the positive news is that it’s not too late to act. Despite the Bank of England’s 0.25% rise, interest rates remain at historic lows and fierce competition between different lenders means that it’s still a borrower’s market with thousands of cheap remortgage deals up for grabs across the sector.
But if rates do continue to go up, this window of opportunity will start to close as lenders hike the prices of their mortgages. The result? Not only will millions of homeowners’ monthly payments skyrocket, it will also be more expensive to remortgage to a cheaper fixed rate. So, if you’re on a tracker or variable rate mortgage or your fixed rate is about to end, you need to act now to protect yourself and secure the best deal for the future.
A recent YouGov survey found that more than a third of Brits haven’t changed their mortgage during the last five years, which means that there are an awful lot of people coughing up thousands of pounds every year in excessive mortgage fees – what we call the ‘mortgage loyalty penalty’. But it doesn’t have to be like that! Remortgaging with Habito is as simple as switching your energy, mobile or broadband provider, only you’ll enjoy much more rewarding returns.
The process of switching to a new lender is the same as applying for a new mortgage, so you can either go directly to the new lender or you can use a mortgage intermediary (broker) such as Habito, which will act on your behalf with the lender (and we’ll do it all for free).
You’ll need to be prepared with all the correct documentation and there’ll probably be a conveyancing fee from your solicitor as legal work is needed to change the original lender’s interest from the property to the new lender. However, most remortgages include a free legal package, so this might not add on any cost to you.
Once the remortgage has been accepted by your new lender, your solicitor will manage the transfer of money to pay off your old mortgage. And then the only thing left for you to do is decide what you’re going to do with all that money you’ve just saved yourself!
Top Tips: How to get yourself remortgage ready
Don’t Leave It Too Late
It can take time to switch on to a new remortgage rate, so you should start looking into the available options well in advance – roughly 14 weeks to three months before your current rate expires is ideal. Don’t worry, you won’t have to switch the second you’re approved, though: once you successfully apply, you’ll get an offer with an expiry date attached.
Do Check Your Credit Score
It’s crucial to make sure your credit history is squeaky clean before applying for a remortgage. In the UK, there are several credit reference agencies (CRAs) such as ClearScore, Experian, Equifax and CallCredit, and each will hold a file on you called a credit report. Check as many as possible before applying (the most any will cost you is a couple of quid), address any mistakes and cancel any unused credit cards that show up.
Don’t switch too soon
You don’t want to switch too soon because some mortgage terms will include an early repayment charge if you switch while you’re still within the initial ‘teaser’ period. This charge can be as much as 2%-5% of your outstanding loan, which can add up to several thousand pounds, so timing your remortgage right is key! If there is a charge, arrange for your remortgage to start the day after the penalty period ends on your current deal.
Do sort out your paperwork
You know all that paperwork you had to get together for your last mortgage application? You’ll need to do the same this time round as well, unfortunately, so it’s worth hunting it down in plenty of time. Documents include high-resolution scans of:
◦ Proof of salary (payslips, or SA302 forms if self-employed)
◦ Proof of address (council tax/utility bill)
◦ ID (passport or driver’s licence) and bank statements
Don’t Go On a Shopping Spree
Lenders need to know that you’re sensible with your money and can afford to make repayments on your home loan. So, in the weeks and months running up to applying for a remortgage, it makes sense to avoid applying for extra credit or buying big-ticket items.
Do Speak To Habito
With Habito, if it suits you, you can do the whole process – receive advice and make the application – all online. However, we understand that sometimes you just want to talk to somebody, which is why we have our brilliantly helpful team of (human) mortgage experts on hand to guide you through the process every step of the way. So get chatting!
What are you waiting for?
Consumers are currently missing out on a staggering £29 billion a year by sticking with the same old mortgage year on year, and with interest rates on the rise that figure is only going to get worse. So it’s more important than ever to secure the best deal you possibly can on your home loan, and with Habito it’s more straightforward than ever too. Get in touch and let us free you from standard variable rate mortgage hell – before Mr Carney has his next monthly meeting.
Since Habito first launched in early 2016, we’ve made it our mission to break down barriers in the mortgage process. We want securing a home loan to be simple and straightforward for as many people as possible.
And now we want to help even more potential homeowners by busting the myth that non-UK citizens can’t get a mortgage. Just imagine: you’re living and working here and have spotted your dream flat for sale. You’re desperate to get a mortgage, but you’re not a British national. Impossible, right? Wrong. The fact is that getting a home loan approved when you or your partner are non-UK citizens is often more about credit history than country of birth.
Don’t worry if you feel confused, you’re not alone. Out of a population of 65 million in the UK, some nine million were born abroad. Which means there are a lot of foreign-born house-hunters out there just like you. But there are plenty of homeowners too – foreign buyers own nearly 10% of Britain’s housing stock.
So read on to find out how to join them. We’ll unpack everything you need to know – from visas to credit scores. And we’ll show you how to maximise your chances of getting a mortgage through a broker such as Habito.
I’m an EU national. Can I get a mortgage?
Several things affect how easy it is to get a mortgage in the UK as a foreign national. But for now, if you’re an EU citizen, nationality shouldn’t be one of them. The truth is lenders cannot discriminate between EU citizens solely on the basis of their country of birth. So whether you were born in Bristol or Berlin shouldn’t make a difference to you obtaining a mortgage offer. As long as you’ve been an EU resident for at least three years, and have a bank account and permanent job in the UK.
Far more crucial is your credit history – and this could be a stumbling block if you’ve only recently moved here. Having a good credit rating is essential when it comes to getting the best deal – or any deal at all. So you need to build up your credit score as soon as you arrive. This means everything from registering to vote to making sure you pay your mobile phone bill on time. For more tips, read our blog on how to improve your credit score here.
Brexit has created a lot of uncertainty and confusion over the status of EU citizens in the UK, and the rules regarding eligibility may well change in the near future. For the latest information, you can visit the government’s dedicated web page here.
I was born outside the EU. Can I still get a mortgage?
Unsurprisingly, things become more complicated if you’re a non-EU citizen and you want a mortgage. But don’t despair – it’s not impossible. The main problem you’ll face if you’re not an EU national is that you won’t have any traceable credit history in the UK. This could cause major complications when applying for a mortgage.
So you’ll need to build up a positive credit footprint to increase your chances of getting your hands on a home loan. Read our blog for tips on how to do this.
Different lenders will have different requirements when faced with a non-standard mortgage request like this, so the best approach is to use an online broker such as Habito. We have access to a vast range of mortgages across the whole marketplace. We scan more than 90 lenders, covering over 20,000 mortgages – so our experts will be able to advise you every step of the way and find a loan to suit your situation. To get you started, here’s a quick round-up of what you can expect from lenders.
As a non-EU citizen, you’ll have to produce evidence that you:
- Have lived in the UK for at least two years
- Have a permanent job in the UK
- Have permanent residency in the UK
- Have a UK bank account
- Have a sizeable deposit (as much as 25%)
If you don’t have permanent residency (PB) or indefinite leave to remain (ILR) in the UK, you may still be able to apply for a mortgage as a non-EU national as long as you have one of the following visas:
- Tier 1 or Tier 2 Visa
- Residence Card
- Family of a Settled Person Visa
- UK Ancestry Visa
The above visas apply to sole or joint applications, where one or both applicants are from outside the UK/EU. You can apply for a visa up to three months before the day you’re due to start work in the UK and you should get a decision within three weeks.
Can I still use the government’s Help to Buy scheme?
The government’s Help to Buy (HTB) scheme is available to all UK residents. The best place to start is the official website, where you can find out about the various options available. When you sign up to Habito, just follow the instructions on the dashboard and let one of our advisers know that you’re looking to use the HTB scheme.
Moving to the UK and getting a mortgage – A Habito Customer Story
|Name: John White
Occupation: Self-employed; John works as a sole trader, as an Identity & Access Management (IAM) Solutions Architect in the IT industry
Property type: Semi-detached, modern
Location: YorkJohn was looking to buy for the first time since moving from Canada with his British wife. After navigating the immigration process when he moved to the UK, he was prepared to spend at least as much time familiarising himself with how mortgages in the UK work – particularly since he knew his nationality would likely be a factor, on top of being self-employed. “I read that Agreements/Decisions in Principle were leading many people to falsely believe they would be approved, only to be rejected as soon as the lender took a closer look during the actual application process. I wanted to get a really good idea of what might be asked of me, and where I should look, by the time we were ready to start house hunting so I did a lot of research.” Although he found a deal for a mortgage in principle, he was curious about what a broker might say and how easily they could find him a mortgage, given his circumstances. He turned to Habito and successfully got a mortgage in a few weeks.“Being a self-employed, foreign national, I thought it would be incredibly difficult to get a mortgage. But Habito took it all in stride and landed me a great mortgage, making sure we had all the supporting documents/evidence covered. I actually went through the motions with an estate agent’s mortgage adviser, who would have charged £400 for their services, and their at-a-glance search came up with the same deal Habito had already found me (for free!).“
Mortgage A-Z: 10 Common Terms Explained
We know that mortgages can seem baffling, even to people born here, and this is due in part to the overuse of jargon and acronyms by the industry. So here is a quick run-down of some of the terms we use in the UK in the process of home-buying:
Agreement in Principle (AIP)
This is a document from a mortgage lender confirming that you can borrow a certain amount from them. This will show the seller that you can afford to buy the property and hopefully your dream home can be taken off the market.
The process of managing the legal side of property transactions is called conveyancing. Whether you’re buying, selling or remortgaging a property, you’ll need to appoint a licensed conveyancer. We recommend speaking to Premier Property Lawyers for all your conveyancing needs. For further information on conveyancing and the legal side of buying property, check out our dedicated blog post.
A fixed rate mortgage means the interest you pay won’t change for the period of time you agree. This rate is unlikely to be fixed for the duration of the mortgage, more like two to seven years. Once this period is up, you’ll go on to your lender’s standard variable rate. We have more information on fixed-rate mortgages here.
If your property is freehold, this means that you own the building and also the land on which it stands.
If you have an offer accepted on a property but then another buyer comes along and makes a higher offer, which the seller accepts, then you’ve been gazumped. You’ve been warned!
If the property is leasehold, then you own the building but not the land it stands on, and only for a certain length of time (anything up to 999 years).
This is the size of your mortgage as a percentage of the value of the property you’re buying. This is the ratio of the size of your borrowing amount to the size of your deposit. The more deposit you can put down on a property, the lower the LTV ratio will be. The most competitive interest rates are usually available to customers with lower LTV ratios, often below 70%.
Stamp duty land tax (SDLT) is a tax payable when you’re buying a property for more than £125,000. There are several rate bands for stamp duty, and the tax is calculated on the part of the purchase price that falls within each band (0% on £0-£125,000; 2% on £125,000-£250,000; 5% on £250,001-£925,000 and so on). You can find out more about Stamp Duty in our First-Time Home Buyer Guide.
Standard variable rate
A standard variable rate (SVR) mortgage is an interest rate that’s set by, and varies, between each lender. When your fixed term ends, you’ll automatically be moved over to the SVR. Your lenders SVR can be seen as a default interest rate, and is not usually based on any one factor. It varies between lenders, and is usually several percent higher than your lender’s fixed rate deals. More information on SVRs can be found here, and we also have a guide on how to avoid the mortgage loyalty penalty.
Lenders will need to carry out an inspection of the property before approving your mortgage. This is to make sure it’s a sound investment to lend on and valued correctly. Typical valuation costs are around £400 but can exceed £1,000 in some cases. The valuation process will be different depending on what type of buyer you are, and the property you are looking at. Head here for more jargon-free information on valuations and surveys.
Get a mortgage quote today
Whichever type of mortgage you need, or if you’d like to speak more about different types of mortgages with a mortgage expert, start your fee-free application with Habito today here.
Finally, after months of trawling estate agent websites and trekking around the local area in search of fresh ‘For Sale’ signs, you’ve spotted your dream home. Better yet, the asking price seems pretty reasonable too. All you need to do now is secure a mortgage and domestic bliss is just round the corner.
For the majority of people who apply for a mortgage each year, the hunt for a home has a fairytale ending. And once you get your mortgage approved, the lender will leave you in peace as long as you make your monthly repayments.
But if you’re one of the millions of adults in the UK with the dreaded words ‘bad credit’ attached to your name, getting a mortgage in the first place can be a whole different ballgame – less fairytale, more frustration.
How much bad debt is there?
Debt comes in many forms – from student loans to credit cards, phone contracts to payday loans. It’s crucial to understand the difference between ‘good’ and ‘bad’ debt, especially if you’re about to apply for a major loan such as a mortgage.
It’s no surprise to learn that the economic downturn over the last ten years has created a mass of debt in the UK. According to The Money Charity, unsecured debt now tops £200 billion, the highest level since 2008 – and credit card debt alone currently stands at £68.5 billion. To put this into perspective, that averages out at nearly £7,500 of debt for every household.
- £200.882 billion – Level of unsecured debt in the UK
- £7,413 – Amount the average household owes in unsecured debt
- 248 – Number of people declared bankrupt or insolvent every day
- 3,321 – Number of county court judgments (CCJs) issued daily
Pretty shocking, right? And when it comes to working out your individual credit score it’s not just major black marks like CCJs and bankruptcy that count against you. Smaller issues such as paying your phone bill late or missing a credit card payment can also have an effect on your application.
All of this means that there are a lot of potential pitfalls between spotting that ‘For Sale’ sign and getting the keys to the front door. On the other hand, if you stay within your credit limit and pay back your loans on time you can build up ‘good credit’. This actually helps to boost your credit score and makes you more attractive to potential lenders.
Read your credit report
The first thing to do before you apply for a mortgage is to get hold of a copy of your credit report. This is a footprint of your credit history. It is a list of your accounts such as credit cards, phone contracts and utility bills, the dates they were started, the amount of each loan and, crucially, any late or missed payments. Also included will be details of any CCJs, repossessions or bankruptcies.
Who works out my credit score?
Your three-digit credit score is worked out by a credit reference agency (CRA) and there are three of these in the UK: Experian, Equifax and Callcredit. They all have a statutory duty to supply you with a copy of your credit report for a maximum of £2. You can access your credit file online in a matter of minutes, so get checking as soon as possible.
It’s worth getting a report from all three, as they may have different information that could adversely affect your credit score. You can also check your credit score as many times as you like without it having an impact on your score.
What’s a good credit score?
Basically, a high credit score means that you’re deemed low-risk and this obviously appeals to lenders. Conversely, a low credit score means you’re viewed as higher-risk and more likely to default on payments in the future. A ‘good credit score’ will differ between lenders as they use different scoring scales. This is a rough guide to good scores with the three CRAs.
A good credit score with:
- Experian is scoring over 880 out of 999
- Equifax is scoring over 420 out of 700
- Callcredit is scoring 4 out of 5
With outstanding mortgage lending now at £1.344 trillion (that’s 12 noughts!), it’s no surprise that mortgage providers might impose a higher interest rate or turn down your application all together if you fall into the high-risk category.
Can I still get a mortgage with a bad credit score?
If your credit history isn’t blemish-free, don’t give up all hope of becoming a homeowner. When it comes to getting a mortgage application approved, there’s bad credit and then there’s really bad credit. A missed mobile phone payment a few years ago means you’re far less of a risk to lenders than someone with a string of CCJs to their name.
Before submitting anything to a lender, we also perform our own affordability assessment. This leaves no footprint on your credit history and ensures that you have the best possible chance of being accepted for a mortgage.
Depending on how poor your credit history is, some lenders may not be willing to offer you a mortgage. But plenty of others could be much more sympathetic.
That said, if you’ve experienced a CCJ, IVA (Individual Voluntary Arrangement) or bankruptcy in the past, we, unfortunately, won’t be able to help you. The best place to start is by working with a company like ClearScore who give you access to your credit score and report for free. They also offer tips and coaching to improve your credit score and get you in better shape for a mortgage application.
You may also be tempted to take out a so-called ‘adverse credit’ mortgage. But be aware that interest rates and charges will be considerably higher than a standard mortgage. You will also need to put down a bigger deposit – usually at least 15% of the purchase price.
Don’t get caught out by mobile phone providers – A Habito Customer Story
|Name: Fei Yan
Occupation: Works in operations / compliance
Property type: Terraced house with 5 bedrooms
Location: West London
Fei Yan had a mortgage approved with another broker but it was declined on the day of completion. He called his mortgage broker and the bank but got no real answers as to why the mortgage wasn’t going through; only that there were ‘personal data issues’. It turned there was default on his mobile phone account for £8 with O2 – a debt that Fei didn’t even know about. The issue took weeks to sort out and then his bank didn’t return the valuation costs.He decided to go with Habito because he needed a quick turnaround to secure his dream house. Luckily, Habito successfully sorted a mortgage for Fei.“Habito was checking on the progress of my application every day, so I was always confident that my application was progressing at speed. My approval came in on the 30th of January and they released the funds the next day. I know this was because they were able to put pressure on the bank to be faster than the usual time frame.”
Habito’s top 5 ways to improve your score and make lenders love you:
- Check that you’re on the electoral register
Simply put, the electoral register allows lenders to check that you are who you say you are. It is key to making sure the information you’ve supplied in your mortgage application is accurate. You can register here.
- Challenge any errors in your credit report
If your file shows that you defaulted on a payment, it’s bad news for your credit score. But sometimes mistakes are made – if that’s the case, it’s crucial to fix them. Contact the lender and ask them to delete the error from your file. Failing that, contact one of the credit reference agencies or the Financial Ombudsman. And remember, it’s important to check all three CRAs before applying for a mortgage.
- Cancel any unused credit or store cards
Having unused credit or store cards will mark you out as someone who doesn’t use credit often. It also shows you have a limited credit history, so it’s best to cancel unused cards. At the same time, don’t cancel all your cards. Having a credit card that you repay in full every month shows potential mortgage lenders that you’re a responsible borrower.
- Avoid payday loans and withdrawing cash with a credit card
Doing either of these frequently suggests you’re unable to manage your money and this will reflect on your credit score. That’s not to mention the effect it will have on your overall finances. An occasional credit card ATM withdrawal on holiday should be OK. You still have to pay the money back on time and in full – and don’t make a habit of it!
- Pay your bills on time
It sounds obvious, but forgetting payments can cost you dearly on your credit score. So set up automatic payments or reminders to make sure you don’t miss any due dates. That goes for all bills, be it your rent or your monthly phone bill. Again, though, don’t stress too much about one late payment a few years ago. The negative impact missed payments have decreases with time.
How bad credit affects the ability to own a home continues to be a contentious issue. However, the rules around responsible lending are in place for important reasons.
Most people are aware of the financial crisis which started in 2007 on the back of subprime lending. People without a repayment strategy were loaned irresponsible amounts of money. This caused loan defaults on a mass scale, and initiated the collapse of several major financial institutions.
Just like you, we don’t want this to happen again. We understand that people want to take out mortgages to help them buy their dream home. That’s why we’re here to guide you through your mortgage application. We’ll answer any credit and affordability questions you might have.
Hopefully you now have a better understanding of bad credit, and how it affects your mortgage eligibility. For any more questions, don’t hesitate to get in contact with one of our mortgage experts.
Can Habito help with this?
At the moment, the answer is no. However, we are aware that buying a house is much more than sorting out a mortgage. We are currently working on becoming more involved with the process even beyond the point of receiving a mortgage offer.
- If you’re purchasing a property
You will need to make arrangements and appoint a solicitors firm who will handle this part of the application. We can’t stress enough how important it is to be represented by solicitors that make you feel confident about the process. You also will be negotiating their fees and the ways you’re going to be working together. Therefore, it’s vital to feel comfortable about asking a lot of questions and communicating regularly.
- If you’re remortgaging
The lender may offer you a solicitor as part of the remortgage package. If this is the case, you won’t be liable for any fees – the lender will pick up any fees.
My mortgage has gone to offer. What now?
We will always email you a copy of your mortgage offer. You will also receive the complete documentation from the lender within a few business days. From this point on, the only documentation to complete will be between you and your solicitors.
Once you receive a “solicitors pack”, you will need to fill in the questionnaire included and post it back. It will also include the instructions about the way your solicitors will operate. This should include how to access their online portal and track your application until completion.
Remember, solicitors are not mortgage advisers
Our job might be done once you get your mortgage offer, but we’re always open to questions. Our mortgage promise means we’ll watch your mortgage, and make sure you never end up on your lender’s variable rate. When your introductory period is up, you will be transferred over to this more expensive rate. But not with Habito! We want to continue saving you money, and we’ll alert you when it’s time to switch. We’ll manage the remortgage process, and make sure you keep your pounds in your pocket.
A break with tradition – how online brokers are taking the misery out of mortgages
Traditional mortgage brokers – all pain, no gain
Putting customers back in control
Traditional vs online mortgage brokers: the facts
Traditional mortgage brokers
- Customer fees are often high
- Analyse limited range of lenders
- Limited office hours
- Recommendation can take weeks
Online mortgage brokers
- Service is fee-free
- Analyse vast range of lenders
- Service available 24/7
- Recommendation within days
How online mortgage broking works
Our mortgage promise
Brilliant, where do I sign up?
The best part is you can sign up with us on your desktop, phone or tablet, 24/7. Habito fits in with your lifestyle, not the other way round. The first step is a conversation with our Digital Mortgage Adviser to discuss your mortgage needs. This will help you find the best option for your individual circumstances. You can chat everything through with our mortgage experts via online live chat every day. All from the comfort of your sofa.
How Habito came about
So What Next?
What can Habito do?
At the end of the day we cannot answer this question with a ‘yes’ or ‘no’. We can’t tell you where to invest your money, but we can help you invest in property. Getting a mortgage can be a daunting experience, that’s why we’re here to help you every step of the way.
The way we work today has changed. Many more of us have the freedom – and the uncertainty – of ‘portfolio careers’ and other non-traditional forms of employment. In other words, we get to be our own boss, whether as a sole trader, a contractor or a limited company director. It can be exhilarating, but it can also be worrying. Self-employment as a trend has been increasing for the last decade in the UK. Between 2006 and 2016, the number of those in self-employment increased from 3.7m people to 4.6m people.
A concern for many is whether there’s an extra price to pay when it comes to buying your own home. There’s a definite shared sense of fear when it comes to self-employment and mortgages. How can we prove our income when we don’t fit neatly into a salaried box? Will we be restricted to a narrow selection of uncompetitive deals? Will anyone even want to lend to us?
Should I be worried?
Take it from us: there’s nothing to fear. Lenders live in the modern world – and they want borrowers. They do need to know, however, that you’ll be able to afford your mortgage now and in the future. So you just need to be able to prove this. You’ll need to show them that you have been trading for a certain period – the industry standard is two years, though some lenders ask for three – and be able to supply figures to prove your income.
The way to do this is simple. To get yourself mortgage-ready, you’ll need some information from HMRC. Ask for your SA302s and tax year overviews for the last two or three years. These show the income you declared, the tax paid and your profit. For lenders, they function as payslips. The lender will look at the numbers and – unless there’s an enormous discrepancy between the years – they’ll be able to use the figures to calculate the amount they’ll lend. That’s all there is to it. There should be no discrimination. When it comes to the amount you need for a deposit, say, you should fare the same as everyone else. And contractors may find it even easier, with lenders willing to lend based on your day rate.
What should I do then?
Hopefully you now have a better understanding of applying for a mortgage if you’re self-employed. For personalised, detailed advice on your mortgage possibilities as a contractor or self-employed worker, speak to one of our mortgage experts. You can do this by signing up, entering some details about yourself (this shouldn’t take more than ten minutes) and letting us know about some of your future plans. Once we have this information, we can give you accurate advice, and get you back on track to a hassle-free mortgage.
Whether you’re a first-time buyer or looking to remortgage, your property must be valued before your mortgage is approved. This is because lenders need to know they are lending the correct amount of money.A mortgage is a ‘secured loan‘ because the money you are being lent is secured against the value of the property.
This means lenders need to have an accurate estimate of what your property is worth. This is so they don’t end up lending you more than the value of the property. More importantly, you’re going to want a survey to check the condition of the property depending on its current state. This is to make sure the property you’re buying is up to the standard you expect.
First Time Buyers and Home Movers
There are several different types of home valuations depending on several factors. The two main factors are which type of mortgage you need, and the condition of the property. These valuations all have different prices, another factor to take into account when totting up what you are spending on home-buying services. For more information, check out the Money Advice Service’s website.
- A Condition Report is a basic survey suitable for new-builds and homes in good condition. A HomeBuyer Report is a survey for property in decent condition, and will identify any structural issues or problems like damp.
- A Home Condition Survey is similar to a full building survey. This will provide you with information on how to deal with problems identified at the property.
- A Full Structural Survey is suitable for older home or properties requiring repairs. This is an extensive survey providing detailed advice on repairs. It also includes a report on the potential for hidden defects in the property.
If you’re looking to remortgage, lenders will also have to carry out a valuation. This will not be as thorough as a first-time buyer or home mover mortgage. That’s because your lender will have already valued your house. This means they already have a figure to base their valuation on.
The reason they need to carry out another valuation is to make sure your property hasn’t deteriorated and lost value. Often lenders will carry out a very quick valuation for a remortgage, often just driving past the property! However, you should build in some time for this to happen in your remortgaging process.
For more information on remortgages, including when and how it is advisable to remortgage, head over to our dedicated page.
You can do your own property valuation
Finally, there are also ways of checking the value of your property yourself. Lenders will likely not accept this as a final valuation, but it is always helpful to know. There are several free online valuation services available, we suggest you check out Settled. You can also check out historical sale prices of similar property in your area to guide your valuation. One place you can find these sale prices is the HM Land Registry.
Finding out how much your house is worth is usually one of the earlier steps to take in the process of getting a mortgage. However, you can start speaking to a mortgage expert before your valuation. In the case of remortgages, they can advise when exactly to get these valuations done. If you’d like to get in contact with a member of our mortgage expert team, head over to Habito. They should be able to answer any questions you have, and guide you through your application. So what’s the wait? Get started now.
What is interest and why’s it so important?
So which one should I choose?
Can I talk to someone about them?
First things first
Maintaining your monthly payments is critical to staying on the good side of your lender. It is in both the lenders and your best interest to avoid defaulting on your mortgage. If your circumstances change, lenders will work with you to help continue repaying your mortgage. To put it simply, lenders would rather you were paying some money rather than no money towards your mortgage.
If you do lose your job or take a salary cut, it’s important to communicate this with your lender as soon as possible. If you take a salary cut, lenders may be able to adjust your mortgage terms to fit around your new salary. This might mean a raise in your interest rates, but lower monthly payments that you can continue to manage. If you have lost your job we advise heading over to the Money Advice Services information page on being out of work.
If you lose your job, the first thing to check is whether you have any payment protection. This is a form of insurance you may have been sold when you took out your mortgage. Due to the sales techniques used in the past, you may not be aware that you have payment protection. This means it is advisable to check with your lender whether or not you have this form of cover. If you do have payment protection, the level of cover it will provide will depend on the policy you took out. The government has advice on claiming payment protection and what to do if you think you may have been mis-sold it.
Lenders also have features called ‘mortgage holidays’ which your deal may be covered by. It is important to note that not all mortgages have this option. Some mortgages will require you to have previously overpaid to be able to access a mortgage holiday.
A mortgage holiday allows you to suspend monthly payments for an agreed period of time. Your mortgage balance will be accruing interest for the duration of the holiday, which can push back the term of the mortgage. Mortgage holidays will temporarily reduce the burden of your monthly payments. This is extremely helpful if you are moving between jobs and not earning, or taking a break from work. Mortgage holidays are a temporary solution and are not suitable if you have a permanent drop in household income. The Money Advice Service has further information available on mortgage holidays here.
The most important thing to do should you lose your job or take a pay cut is communicate with your lender. Waiting even a few days can eat up your buffer zone of time and lead you into further problems. If you’re quick to speak with your mortgage lender you should be able to come to an agreement for how to continue managing your mortgage. If you aren’t able to come to an agreement, just having time on your side is an advantage when it comes to planning how you will decide to continue. So, pay cuts and unexpected job losses needn’t keep you up at night if you have, or are looking for, a mortgage.
Hopefully nothing, but….
The most common issue people have when applying for a mortgage is bad credit. Lenders perform affordability assessments on all applicants, and a history of credit issues is a red flag. Credit issues won’t come out of the blue, and working towards minimising any you might have is a must before applying for a mortgage. This post details credit issues that can be resolved, and credit issues that can cause a real barrier to a successful application. If you do have bad credit history, there are organisations that can offer advice. Speak to the Money Advice Service in the first instance.
Having credit commitments shouldn’t be a barrier to mortgages. Manageable debts such as credit cards and student loans prove to lenders you can borrow responsibly. If you keep on top of your monthly payments, credit shouldn’t detract from your mortgage eligibility.
These issues shouldn’t stop you being able to get a mortgage. However, if you do fall into these categories, it’s a good idea to resolve them to make sure you get the best possible mortgage offer. Here are two issues that could prevent you getting a mortgage.
Low Credit Score
A credit score is a number which reflects your borrowing habits. Different credit scoring agencies will have different scales to measure this, but they all work on the same principle. The better your borrowing habits, the higher you’ll score. There are several credit rating agencies in Britain including Equifax, Experian, Callcredit and ClearScore.
The information in your credit file includes:
- Search footprints on your file, such as credit applications
- Financial links to other people including joint loans and bank accounts
- Late / missed payments or defaults
- Outstanding debt with lenders
- County Court Judgments (CCJs) against you
- If you’re on the electoral register at your current address
- If you have been declared bankrupt or entered an IVA (Individual Voluntary Arrangement).
We encourage all applicants to create accounts with the three main agencies and check their score. Applying for mortgages before checking your credit score can cause some nasty surprises. We want to help you avoid that happening, so try and stay on top of your credit before applying.
There are many ways to improve your credit score and increase your chance of a successful mortgage application. We would recommend checking out the Money Advice Services guide to increasing your credit score before anything else.
Large fluctuations in income and spending can be another red flag to lenders. Your income is the main factor that lenders take into account when assessing affordability. This is why lenders need evidence of your income for the last two years at least, and several months of bank statements to check spending.
Because of the length of a mortgage, lenders need to be able to predict your future income so they can be sure you will be able to manage future payments. If your income has large fluctuations, it will be harder for lenders to predict this accurately. This is why income can become such an issue when applying for a mortgage.
Furthermore, erratic spending patterns can also have an impact on your mortgage application. Lenders will be impressed with stable, manageable monthly outgoings. You can read more about income and outgoing in our post that answers the question ‘How much can I borrow?’.
Some credit issues can prevent a successful mortgage application. This is because of the criteria lenders must follow to ensure appropriate lending. Issues such as CCJs and IVAs will stay on your credit file for 6 years and will seriously affect your mortgage eligibility. If you have defaulted on a previous mortgage, it is unlikely you will be approved for another mortgage. These issues will present a greater challenge to getting a mortgage, but some lenders can help those who fall into these categories.
You can help yourself by always staying on top of your credit and spending. We encourage people to go out and check their scores with the different credit agencies, and work towards improving them if possible. We want to help you borrow responsibly, and we think managing your personal finances is a great place to start.
This will depend on your lender and mortgage. Some deals allow greater flexibility when looking to change mortgage. Others will have penalties for switching mortgages or leaving early to take advantage of better rates.
If you are on a fixed rate deal, it is likely you will have to pay a fee to leave your deal early. Fixed rate mortgages have the benefit of certainty as they lock in an agreed rate for a fixed number of years. Fixed rates have, over the last few years, continued to fall. Between July 2012 and July 2017, average interest rates for a 2-year fixed mortgage dropped by 2.25%. Yes – you read that right!
Most fixed rate deals have 2-, 3- and 5-year introductory terms. Once this period expires, you will be transferred over to your lender’s standard variable rate (SVR). If you leave your fixed rate deal early, you may be charged a penalty fee by your lender. This might negate the effect of moving to a cheaper deal, so careful checking is important. This is something you need to take into account when thinking about switching. These deals are usually only a few years long so forking out to leave early, and then only saving a small amount monthly might not be worth it. If you’d like more information on what a fixed rate is, and its advantages, check out our fixed rate blog post.
Standard Variable Rate (SVR)
If you have found yourself on your lender’s standard variable rate, it’s probably time to make a move. This is the lender’s ‘default’ mortgage rate, and it’s significantly more expensive than any other rates they offer. At the time of writing, the average SVR rate in the UK was 4.28%. The average interest rate for a 2-year fixed 75% LTV mortgages was 1.42%. That’s a 2.86% difference (!), which equates to massive savings over a long period of time.
One positive of being on an SVR is not paying fees to switch to another rate. If you are switching to a deal with your existing lender, this should be a relatively straightforward process. If you are switching to a different lender, we would encourage speaking to one of our friendly mortgage experts. It takes just ten minutes to create an account and complete your personal details. From there you can have a live web chat or phone call with one of our friendly mortgage experts. They’re here to answer any questions you might have, and guide you through your mortgage application.
When should mortgages cross my mind?
As early as possible! As much as we all dream of that perfect house, it’s important to have an idea of what you can afford before you get carried away. If you are planning on using a mortgage to buy a house, you need a clear understanding of how much you can expect to borrow. This is essential to streamline the process as you hunt for the right home.
So how do I find out how much I can borrow?
If you head over to our Mortgage Calculator, you can get an idea in a matter of minutes. The first step is to enter some basic information on your income and savings. This stage is super quick (it should take less than 5 minutes) and doesn’t require a credit check. From there you can sign up and enter some personal details, and receive free, professional mortgage advice.
Home buying timeline
Buying a home isn’t the most straightforward purchase. Careful research will help you make the right decision when you come to make an offer on property. When searching for a home, it’s essential to have an idea of how much you can expect to borrow. Before viewing a property, you may be required by an estate agent to get an agreement in principle (also known as an AIP) or a Mortgage in Principle, which can be issued by Habito. This is a document saying ‘in principle’ a lender agrees to grant you a mortgage of a specific amount.
Once you have this ‘in principle’ document, you can begin searching for your new home. Once you have found the property you wish to purchase, you can put in an offer. From here, the property will be taken off the market, and you can submit your mortgage application. This will require you to upload some documents to your Habito dashboard using our handy document upload function. Once your documents are uploaded, our case managers can submit your application to the lender, and keep you updated on the progress of your application. From here, your mortgage will go through underwriting and the property will be subject to a valuation. If these steps are all okay, you will be approved, and your mortgage will go to offer. Your solicitor will help you handle this step of the process which involves liaising with the party selling the property. The last step involves signing contracts, exchanging them, transferring the funds to the seller of the property, and you have completed your mortgage. Now the only job is moving in and making it home!
Whether you’re a first-time buyer, a seasoned homeowner or just looking to remortgage, tracking down the right mortgage with the best rate can be time-consuming, a lot of hassle and outright difficult.
There are over 20,000 mortgages to pick from in the UK and almost as many pitfalls to avoid along the way. So, it can make a lot of sense to tap into a professional broker’s expertise and industry know-how to help you find the ideal mortgage fit for your finances.
So what is a mortgage broker? A mortgage broker is an intermediary, linking the borrower like you, to a lender, which is usually a bank or building society. Your mortgage broker manages the application on your behalf, researching deals, talking with lenders and taking the burden off of you.
Read on and find out how mortgage broking works – and how you can make it work for you.
What does a mortgage broker do?
Buying a home is almost certainly the biggest investment you’ll make in your life, so the last thing you want to do is get stuck with a mortgage that’s less than perfect – or even worse, be turned down altogether because your application doesn’t match the lenders criteria.
But a skilled broker can find you the best deal, guide you safely and swiftly through the application process from beginning to end, and take-on most of the paperwork along the way.
In other words, the benefits of using a mortgage broker are they’ll save you time, hassle and money – which, let’s face it, is the perfect scenario.
And because brokers have a professional duty of care, you’ll be protected by the full force of the Financial Ombudsman if you end up being mis-sold an unsuitable mortgage that’s not as shiny as it was made out to be (you can check the Financial Services Register to see if a broker is properly qualified).
What are the benefits of using a mortgage broker?
A mortgage broker is in the simplest terms a middleman – using their expertise and resources to take the heavy lifting out of your mortgage application. There are several benefits to using a mortgage broker, not limited to making your life easier when looking for a mortgage.
Applying for a mortgage is a timely, complicated and often drawn out procedure, and by handing over your application to a broker, you can remove a lot of the stress of applying for a mortgage.
You can save heaps of time when using a broker to apply for your mortgage. Between researching mortgages, filling in forms and chasing lenders, mortgage applications are by no means speedy. By letting a broker manage your mortgage application, you can free up time to focus on what matters most to you. Buying or moving home can be a challenging experience, so any free time you can claw back is always a positive.
There are over 20,000 mortgages currently on the market, so choosing the best value mortgage can be tricky without the help of a mortgage broker. They will review your financial circumstances and find the best one for you from the mortgages available to them.
3) Avoid overpaying in the future
When you take out a new mortgage, you are usually offered a discounted rate for a set number of years, known as your introductory period. This is usually for 2, 3 or 5 years, and the interest rate is fixed.
Following this, you will be transferred to your lenders more expensive Standard Variable Rate (SVR), which is often several percent greater interest than your introductory rate. This can lead to an increase in monthly payments by hundreds of pounds.
A mortgage broker will keep track of this for you and find you a new deal via a remortgage when your introductory period ends, to keep you from ever overpaying when you don’t have to.
Aren’t all mortgage brokers the same?
Far from it – fees and levels of service vary considerably between brokers, and this can make a big difference to your stress levels and bank balance.
There are two main types of mortgage broker in the UK: those who are tied to one particular lender or a panel of lenders, and those who are totally independent and not tied to any lenders at all.
Tied mortgage brokers
Brokers who are tied to a particular lender or group of lenders are so limited on the range of mortgages they can offer and this means they may not be able to find you the best deal.
Independent mortgage brokers
Independent brokers are whole-of-market, which means they have access to a far wider range of lenders and are able to offer totally impartial advice and recommendations based solely on what’s best for you.
One element that’s common to all brokers, tied or independent, is that once they recommend a mortgage, they must provide you with a document outlining the key facts and figures. The Key Facts Illustration (also known as ESIS, for European Standardised Information Sheet) shows the mortgage amount, mortgage term, interest rates during and after the fixed period, monthly payments, any fees (including when and how they need to be paid), and any other additional features.
Do I need a mortgage broker?
It’s not compulsory to use a broker and it’s possible to source your own mortgage by scanning comparison sites for a deal that looks tempting (although bear in mind that just because you spot a great rate online doesn’t mean you’re actually eligible for it or won’t incur hefty fees on top).
However, while comparison sites can give a decent overview of the market, what they can’t give you is the start-to-finish guidance and back-up of a qualified broker, or the added protection of the Financial Ombudsman if things go awry. Not only that, a broker will take a lot of the legwork out of the application process, leaving you with more time to get on with the important things in life – like deciding what colour to paint the kitchen.
Mortgage brokers vs banks
You could also take a walk down the high street and pop into your local bank or building society branch. Again this is a good starting point, as they know you and your financial situation, but they’ll only tell you about their own mortgages rather than the thousands that exist across the market. And you’ll have to dig out all your financial background information each time you approach a new bank, whereas a broker will only need your details once to search the mortgage market for the most suitable deal.
How much do mortgage advisors charge?
That depends on who you’re dealing with. Some mortgage brokers bill clients for sourcing and arranging a mortgage, and this fee can come in the form of a lump sum (typically £500 or so), an hourly rate or a commission on the value of the mortgage, which can put extra strain on budget-conscious borrowers. Always make sure that you double-check the cost of the mortgage advisor fees up front.
On the other hand, some brokers don’t charge customers a penny for their services. Instead, they receive a small ‘procuration’ fee from the lender for processing the mortgage application. This is also normally claimed by advisers who also charges a fee to the customer for their advice.
Many online brokers are able to offer ‘fee-free’ services as cutting-edge technology has replaced the need for bricks-and-mortar branches.
Why use an online mortgage broker?
While traditional, offline brokers might once have looked at a handful of lenders at best and processed your application in the space of a few weeks, now smart algorithms can analyse your financial data and access thousands of deals in a fraction a second – and also alert you when a better remortgage deal comes along in the future. Which means that prospective buyers can be matched up with their perfect mortgage in record time, all the time – and all without having to leave the comfort of their sofa.
Traditional mortgage brokers
- Often charge the customer a fee
- Analyse a limited range of lenders
- Limited office hours
- The recommendation can take weeks
Online mortgage brokers
- Service is often fee-free
- Analyse a vast range of lenders
- Service available 24/7
- Recommendation within days
Get a mortgage quote today
What are they?
When you take out a mortgage, you will typically repay the money you borrow, the ‘capital’, along with interest on the loan. The interest you pay on the loan can vary depending on the mortgage you take out. Interest rates offered are either fixed or variable. If you’d like some more information on fixed-rate mortgages you can head over to a blog post we have on them here. The two main variable rates are the standard variable rate and the tracker rate.
Standard Variable Rate
A standard variable rate mortgage or SVR is an interest rate that is set by, and varies, between lender. Each lender’s SVR will differ and is based on a number of factors. The SVR can be thought of as the default interest rate lenders charge on mortgages. When your fixed term ends, you will be moved over to the SVR automatically. Whilst SVR rates may rise and fall with Bank of England interest rates, lenders set the SVR arbitrarily and can adjust it at their discretion.
There are some positives to standard variable rates. The main benefit of being on an SVR is that there are often no early repayment charges on these loans. These are charges you incur for paying off your whole loan in order to remortgage. Overpaying means paying more than the agreed monthly amount. There are a number of reasons why people overpay. The most common are coming into a large sum of money, such as a severance/redundancy payout or inheritance. Repayment is when you repay the whole current balance in order to remortgage. Lenders will often charge hefty fees for doing this on fixed-rate mortgages, something you need to watch out for.
Tracker rates, you guessed it, track another interest rate. This is usually the Bank of England’s base rate, plus a fixed amount e.g. 2.5%. This means when central bank interest rates increase, your monthly payments will increase. Conversely, where they to drop, you would pay less per month in interest. However, with tracker mortgages, you are usually not free from early repayment charges if you want to switch and remortgage.
Which Do I Choose?
About that, neither really. Right now, fixed-rate mortgages are being offered for very low-interest rates (for low loan-to-value mortgages). Even the lowest standard variable rate (SVR) is likely to be 1.5-2.0% higher interest than the lowest fixed rate at the moment. This means if you are on your lender’s SVR, chances are you’re paying over the odds. Not to worry, Habito can help with this. In around fifteen minutes you can create your account, fill in your details, and speak to one of our mortgage experts for personalised mortgage advice on how to save. People who switch from their lenders SVR to a fixed rate can save hundreds, if not thousands a year. For more advice on remortgages, we have an area of our blog dedicated to them right here.
What’s a rate, and how do I fix it?
A mortgage is a contract where you agree to pay back an amount of money over a period of time. Whilst you are paying back the money you borrowed, you will be paying interest on this amount. Different mortgage products offered will have different interest rates that will be set for specific amounts of time. Mortgages typically have 20-30 year length terms. This means it’s unlikely you will be paying the same interest rate for the whole duration.
This is because the global economy affects how much it costs banks to borrow money. This cost is then transferred onto the consumer. Because of this, your interest rates are likely to change every few years. It is vital that you take control of this, and keep your rates as low as possible.
A fixed rate mortgage means the interest you pay will not change for the period of time you agree. As mentioned above, this rate is unlikely to be fixed for the duration of the mortgage, but more like 2-7 years. The lower the current interest rates, the more advisable it is to lengthen the term of your fixed rate.
What are the benefits?
Fixing your mortgage interest rate protects you from fluctuations in bank interest rates. This works as a form of insurance on the interest you pay on your mortgage. Fixing your rate may mean you pay more over the period it is fixed, but this is the premium you pay for knowing your rates won’t suddenly increase.
These rates are only fixed for an agreed period of time, and once this is up you will go onto your lender’s standard variable rate. This rate, also known as the SVR, is tied to interbank lending rates and national interest rates. The interest you pay on an SVR is usually a lot greater than that of a fixed rate, so making sure you’re not on your lender’s SVR can be a valuable endeavour. Ending up on your lender’s SVR for even a short period of time can cost you serious money. Check out our blog post covering the ‘mortgage loyalty penalty’ for more information on why it’s worth checking you’re safe from excess fees.
If you’re currently on your lender’s SVR, we can save you hundreds, possibly thousands of pounds by remortgaging. If you’re wondering when it’s time to think about a remortgage, we have a dedicated blog post. This is usually five months before your fixed term ends, and the time to speak to one of our mortgage experts.
Our mortgage promise means we won’t let you end up on your SVR once you take a mortgage out through Habito. We watch your mortgage, and when it looks like it’s time to think about remortgaging, we’ll let you know. This means you’ll never end up on your lender’s SVR, and you’ll never end up overpaying. Genius.
Taking a career gap is becoming more popular with more than 90,000 Britons a year taking unpaid leave or a sabbatical according to the Independent. Career gaps can actually be beneficial for your career and you shouldn’t be penalised for taking one!
When it comes to lenders assessing your finances for a mortgage, it’s all about your ability to repay the loan. So if you can provide evidence that you’re suitable for a mortgage, a career gap shouldn’t be a worry. If you’ve recently started a new job, we have a blog post covering any questions you might have as well.
This obviously depends on which lender you’re applying to and what mortgage you’re looking for. Just with any mortgage application lenders will take your current income into account. When looking for a mortgage, evidence of consistent long-term income is always good.
If your career break has a good explanation and you have since returned to work, there shouldn’t be a problem and it’s likely that there’s a deal out there for you.
As with so much of this, it depends on the lender. Each UK lender has its own eligibility criteria. Some won’t care whether or not you’re still on probation in a new job. Other lenders may have conditions that you be employed a certain length of time before approving a mortgage.
Is it a problem?
How do I prove my income if I have a new job?
Lenders want to get to know you
If you’re after a mortgage, lenders are going to want to see some information about you. Before your mortgage application is approved, lenders need to perform an affordability assessment. This is to make sure you’ll be able to manage mortgage repayments. For them to conduct this assessment they need some vital information about any of the applicants.
So What Do I Need?
There are three main forms of documents you’ll need to provide. These are proof of identity, proof of address, and proof of income.
Applicants will also have to provide proof of any credit commitments. Depending on what type of buyer you are, you’ll also be asked for some purchase specific documents.
These documents are either physical copies such as passports or paper bills, or electronic copies such as bank statements. We can verify your documents electronically which is great because it means you don’t have to send any precious originals and sensitive information in the post to us. However, we do need full colour, high-quality files in PDF format, scanned on a flatbed scanner. All documents must be legible and complete. Illegible documents are a major cause of delays to mortgage applications and something we want to help you avoid. Digital copies of documents can be downloaded and sent directly by email or web chat.
Proof of Identity Documents
- Photographic ID – You’ll need to submit at least two forms of photographic ID. These are usually a passport and a driver’s license.
Proof of Address Documents
- Bank Statement – Lenders will require at least three months worth of bank statements for a mortgage application. These should show your income being credited.
- Council Tax Statement – These are another form of proof of address. This should be addressed to your correct name and address.
- Utility Bill – You’ll need to provide a utility bill from the last three months as proof of address. These include phone, electricity and gas bills.
Proof of Income Documents
The proof of income documents you’ll be required to provide will vary depending on how you’re employed. For most applicants, the proof of income they’ll need is super simple, but those who are self-employed needn’t worry.
- Full-time employment – If you are in regular full-time employment you’ll only need two forms of proof of income. You will need your last three months payslips and your latest P60.
- New Job – If you’ve recently started a job (less than a month) you’ll need a copy of your employment contract.
- Maternity Leave – If you’re currently on maternity leave you’ll need a letter from your employer confirming your income when you return to work. Lenders will also want to see a payslip from before you left work.
- Contractor – If you’re a contractor, you’ll need your employment contract showing your day rate.
- Self-Employed – If you’re a sole trader or in a partnership, you’ll need your tax year computations (SA302) and tax year overview for the last two years.
- Limited Company Partner – If you’re self-employed in a limited company, you’ll need your tax year computations (SA302), tax year overview and company accounts for the last two years.
If you receive any form of secondary income which you intend on using to pay your mortgage, you will be asked for proof. This includes monthly, quarterly or yearly bonuses. For bonuses, you’ll need the payslips which show the bonuses and your latest P60.
If you receive rental income you’ll need your tax year overviews and tax computations (SA302) for the last two years.
- Credit Cards – If you have any credit cards, please confirm the lender and the current balance.
- Personal Loans – If you have any personal loans, please confirm the lender, current balance and monthly payments.
- Car Finance – If you have any car finance, please confirm the provider, the balance remaining, and the monthly payment.
- Hire Purchase Agreements – If you have any hire purchase agreements please confirm any purchases on 0% that may become payments over the next two years.
- Memorandum of Sale – If you’re buying a house or moving, lenders will want to see a memorandum of sale.
- Mortgage Deposit Balance – If you’re a first-time buyer or moving home, lenders will need proof of your deposit in the form of a bank statement.
- Mortgage Statement – If you’re looking to remortgage, you will have to present your latest mortgage statement.
The largest expense associated with buying a house, apart from the mortgage, is the stamp duty. This is a form of tax you pay when you purchase property or land. Stamp Duty has to be paid within 30 days of completion of the sale of your property. First-time buyers will receive Stamp Duty relief on all property sales completed after 23/11/17, paying no Stamp Duty on property up to £300,000. First-time buyers will also receive relief on property up to £500,000 paying 5% Stamp Duty on the portion of the property price between £300,000-£500,000.
Your solicitor should handle Stamp Duty tax return and payment on your behalf on the day of completion. There’s plenty of info on stamp duty, including how much it is and when you pay it here.
This is a fee you pay the lender for organising the mortgage. Back in the days of stacks of paperwork, this used to reflect the administrative costs of the application. Now, it is now a major cost of the loan and competitively priced. Some lender’s arrangement fees are paid as a percentage of the loan instead of a flat rate, so choosing the right mortgage for you is key to reducing costs.
Arrangement fees vary depending on factors such as the lenders and size of the mortgage. They typically start around £1,000 and go all the way up to around £2,000.
These are the fees you pay your solicitor or conveyancer for legal work during the home buying process. Property purchases usually require professional legal help due to the complex and costly nature of the purchase. These fees are associated with paperwork and administrative costs. This includes property searches, dealing with the other party’s solicitor, and the exchange and completion of contracts.
A portion of the fees are paid upfront for services like property searches, with the rest paid upon completion of the sale. The costs will be different depending on whether you use a conveyancer or solicitor. A conveyancer is a legal adviser specialising in property law, whilst solicitors specialise in all areas of law. Solicitors generally provide a more thorough service at a larger price. Fees also depend on the property tenure, price, and whether it is a remortgage or outright purchase. Average legal fees are around £1000-£1500.
Lenders will need to carry out an inspection of the property before approving your mortgage. This is to ensure it’s a sound investment to lend on and valued appropriately. Lenders will also charge an administrative fee for covering the costs of the processing the mortgage valuation.
Valuation fees are paid upfront when you submit the mortgage application. The valuation administration fee is often included or paid at the same time as the valuation fee. This will vary depending on the price and condition of the house. Typical valuation costs are around £400 but can exceed £1000 in some cases. If the sale falls through after the valuation, this fee is usually non-refundable.
A booking fee is an upfront fee intended to cover the cost of ‘booking’ or ‘reserving’ your mortgage while it is in the process of being approved. The booking fee is paid upfront when you submit the mortgage application. Some lenders do not charge a booking fee, or incorporate it into the arrangement fee. The booking fee is typically £100, but can be as much as £250.
Telegraphic Transfer (CHAPS) Fee
This covers the cost of transferring money from the mortgage provider to the solicitor when purchasing the property. This is paid to the solicitor on completion of the purchase. The cost of the CHAPS fee is usually £25-£30.
Most brokers charge a fee for their service, but here at Habito, we never charge a penny. Because we charge lenders, not customers, we are able to provide our service free of charge. Some lenders charge hundreds, even thousands of pounds for arranging your mortgage. You can read more about broker fees here. Our service is free, and always will be, because we want to help you find mortgage bliss without any extra expense.
What is a guarantor mortgage?
The name “guarantor mortgage” comes from the fact that a family member or friend guarantees the mortgage for you. When a mortgage is guaranteed it means that the guarantor becomes responsible for the mortgage payments in the event that the mortgage holder misses or cannot afford them.
What’s different about a guarantor mortgage?
Guarantor mortgages can allow you to take up to a 100% loan, meaning you don’t need a deposit. In these situations, lenders will require your guarantor to provide collateral to secure the mortgage. This in case you cannot make payments or the property loses value.
Other guarantor mortgages allow people to take out 100% loans, but have special requirements. One common requirement is that the borrowers’ parents deposit an agreed amount into an account run by the lender. This account is then frozen until a set portion of the mortgage is paid off, and the risk to the lender and borrower is reduced.
Often people take out guarantor mortgages because they are finding it difficult to save for a deposit. If you have a stable income, but are finding it hard to save a deposit, there are other options. The government has some advice on getting a mortgage with a small deposit here. There are other government schemes in place to help people get on the property ladder. These include help to buy equity loans and shared ownership schemes.
What makes an acceptable guarantor?
Mortgage guarantors do not own a share of the property they are guaranteeing. They are however financially responsible if repayments are missed. This means lenders will not accept everyone as a guarantor. They will need to have significant equity in their property and a stable income for lenders to accept them. This is most often the borrower’s parents, who have bought part or all of their home.
Who said you couldn’t have a mortgage?
Of course you can get a mortgage if you’re self-employed! If you have a steady income and a good credit history, you should be able to get a mortgage just like anyone else in full-time employment.
The UK is home to 4.6 million entrepreneurs, which equates to 15% of the nation’s workforce – a 26% rise in the last 10 years. This is a huge market for mortgage lenders to pass over, so fear not budding entrepreneur, we have you covered.
Just like with any mortgage, lenders have to assess the affordability of the loan they are offering. This means examining your income to see if you’ll be able to maintain repayments. Proof of income for self-employed people can be a little bit trickier than being employed by someone else, and we find it’s the area where we get the most questions.
Proof of income
If you’re self-employed, be it a sole trader, contractor or part of a limited company, we’ve got you covered. If you’ve been filing self-assessment tax returns, you should be able to prove your income just as easily as anyone else.
All you’ll need for proof of income are your tax calculations (SA302) and tax year overviews for the last two years. Some lenders may ask for these documents going back three years, but this will vary from lender to lender. If you’re part of your own limited company, you’ll also have to provide company accounts for the last two years.
If you’re like the 90% of people who submit their self-assessment tax return online, this should all be a doddle. Your tax year calculations and overviews are accessible through the HMRC website where you can download copies. These copies can then be attached to an email or sent as images directly to our expert team. For a full list of documents you’ll need to submit, and how to send them into Habito, read our dedicated blog post.
So, there you go, not as complicated as you thought!
Lenders have minimum amounts you will need as a deposit to be approved for a mortgage. This is usually 5% of the property value, although the minimum is 10% with some lenders. Lenders use the ratio of deposit to property value to assign interest rates. The greater the deposit you can put down, the smaller the interest rate on the loan.
This is what is referred to as the loan-to-value (LTV) ratio. The lower this ratio is, the more money you have invested in your house as a deposit. As you continue to pay off your mortgage, assuming your property doesn’t lose value, this ratio will continue to go down. The more you pay off, the greater equity you will have in the property. This is the value of the property which you own outright.
Find out what you could borrow based on your savings
If you’d like a brief idea of what you could borrow, head over to our Mortgage Calculator for a quick mortgage rundown. This takes into account your income and deposit size, and will give you an estimated borrowing amount, as well as your Loan to Value (LTV) ratio. For a more detailed idea of how much you could borrow, sign up, create an account, and fill in some personal details. This shouldn’t take more than ten minutes, and allows us to give you free, personalised mortgage advice. Using these details, your mortgage expert can advise you on your best options, and answer any questions you might have.
In some cases, you may be required to put down a deposit greater than 10% to be approved for a certain mortgage. High-value mortgages, often £1 million plus, may have a maximum LTV ratio of 60 – 70%. This means you’ll need a 30-40% mortgage, which is a considerable amount of cash. Lenders do this because the greater the deposit you put down on the property, the more secure the mortgage is as an investment. As the value of the mortgage increases, the risk to the lender also increases, so they will need greater security.
Other costs to consider in addition to your deposit
The deposit you’ll need for a mortgage isn’t the only upfront cost associated with buying property. You will have to pay stamp duty and lender fees, which can either come out of your deposit, other savings, or be bundled into your mortgage. Stamp duty is a form of tax you pay when you buy property or land. You can read more about stamp duty here. Lenders will usually charge fees for arranging the loan and administrative costs, and these can range anywhere between £500 – £2,000.
What to do with your deposit
During your mortgage application journey, you will be asked for a bank statement as proof of your deposit. All applicants will have to submit bank statements from their personal current accounts. However, lenders will need proof that you actually have the deposit you intend on using for the purchase of your home. We advise making sure the balance of this account is equal to the deposit you intend on using before you begin your mortgage application.
The simple answer to this question is no. All applicants will undergo the same affordability assessment and document submission process.
Can joint applicants borrow more?
Before lenders agree to a mortgage, they perform an affordability assessment on all applicants. This involves examining your income and credit commitments. If you have a good credit score and a clear credit history you should be able to borrow, as a very rough guide, up to 4.5 times your income. This means how much you can borrow is dependant on your income. Therefore, a joint application combining two incomes should allow you to borrow more money.
Applying for a mortgage with someone else doesn’t make the application more complicated. Plus, the benefit is that you are usually able to borrow more. This is why so many people choose to apply for a mortgage with someone else, be it a partner or a friend. When it comes to document submission, the type of documents required are pretty much the same whether it’s a joint or single applicant. Each applicant will need to provide proof of address, identity and income, and proof of any credit commitments. If you’re making a joint application to buy a house, only one memorandum of sale will be needed. This is the same with deposit balances and mortgage statements when moving or getting a remortgage. A full list of documents required can be found in this post.
Submitting your documents for a joint application
One thing that is different when you’re applying with someone else is keeping track of documents. Picture this: you’re applying for a mortgage on your own. You know which folder you saved your bank statements in, you know where the scans of your passport are, your P60 form is in front of you. Then imagine doing this for two people with different documents in different forms. Stressful, we know.
Keeping track of all the documents you’ll need can be hard work. The mix of photos, scans and downloaded documents can cause some confusion. When making a joint application, we recommend storing all your documents and correspondence in one place. This might sound simple, but is a great tip. If one person is managing most of the application, and the other applicant has to unexpectedly complete the next step, knowing where all your documents are stored is a lifesaver. We would also advise trying to package all your documents on the computer, avoiding literal paperwork and making them easy to keep track of.
What’s next in my joint application?
This is where the expert advice of our team of mortgage experts will be indispensable. If you’d like to speak to one of them, you can start by visiting our homepage and creating an account. After entering some details about yourself and your co-applicant, you can have a chat with one of our mortgage experts who can advise you on your options. Once your ready to submit an application our mortgage experts and case managers will guide you through each step of the process.
How do they decide?
Lenders need to follow strict suitability guidelines when approving someone for a mortgage. To make sure they are lending responsibly, they have to carry out checks on all applicants. These are called affordability assessments. They take into account your income, debt, future plans and any past issues you may have had with credit. These checks are more aimed at lending responsible amounts of money, rather than saying yes or no to an application.
There are several fairly clear requirements for taking out a loan. You need stable income and savings to use for a deposit. You will also need a solid credit history. Without these three things, you’ll struggle to find a mortgage provider who will approve you.
Who are lenders?
Mortgage lenders can be split into two groups: banks and building societies. In the past, these two groups were fairly distinct. In the 1980s building societies were offered the chance to demutualise. This helped them to keep up competition with banks, giving them many of the same rights as the banks. There is no hard and fast rule about which offer better rates, it just depends on your circumstances. All lenders are regulated by the Financial Conduct Authority, and this regulation should create a level playing field between them.
What makes someone viable
There are some fairly consistent rules as to what qualifies someone for a mortgage. First things first you will need a solid and consistent income. Being unemployed will make it almost impossible to get a mortgage (sorry guys). Having a good credit history is also key to being approved for a mortgage. Issues such as County Court Judgments (CCJs), Individual Voluntary Agreement (IVAs), bankruptcies and loan defaults will all affect your chance of a successful mortgage application. Further information on mortgage eligibility can be found here, courtesy of the Money Advice Service.
This is the process where lenders analyse the risk of lending you money. This assesses the likelihood that you will default on the loan, and the outcome of the application hangs on it. All of the documents that lenders will want are analysed for any warning signs pointing towards high risk. Whilst this might all sound cold and unreceptive, lenders have good reason to be so careful. The financial disaster that was 2007-2012 was spurred on by subprime lending, which means lending to people who can’t afford it. Subprime lending on a mass scale caused financial institutions to topple, and this is a situation none of us wants to see again. This is why the Financial Conduct Authority is so strict with lenders, ensuring they are lending money responsibly.
Still not clear?
If you’re still wondering about whether you will be eligible for a mortgage, sign up and create an account. Within minutes you can have an idea of what you could expect to borrow, all for free and without any credit checks. You can do this by having a quick chat with one of our friendly mortgage experts. They can answer any questions you might have concerning mortgage eligibility. Our mortgage experts will guide you through your application from sign-up to completion.
This is all part of our mortgage promise. We want to find you the right mortgage, whilst saving you time and money. This allows you to focus on the things most important to you, and get one step closer to mortgage bliss.
You are correct in thinking mortgages aren’t the most exciting thing in the world. And that’s okay, because we’re here to do the thinking for you. By moving the process online, and charging lenders not customers, Habito can save you time and money. From first time buyers, to the most experienced of remortgagers, we can help you. So what exactly is a mortgage, and who needs one?
A mortgage is a type of loan used to buy property, agreed between a borrower and a lender. Borrowers are people just like you looking to own their property. Lenders are banks or building societies, that agree to lend you the money on a set of principles. These are paying it back, with interest, over an agreed period of time.
Mortgages can seem complicated because of the huge range of lenders, borrowers and mortgage products. Do not be afraid! We are here to explain these differences and guide you through your application.
What are mortgages?
A mortgage is a contract between the lender and borrower that sets out several clear agreements. The first is that the loan is only intended for purchasing property. Mortgages are referred to as ‘secured loans’ because the lender secures their loan against the value of the property. This means mortgages can never be for a greater sum than the value of the property they are being used to buy.
When you take out a standard repayment mortgage you agree to pay back the capital and the interest. The capital is the sum of money you actually borrowed to buy the property. The interest is a percentage of the remaining capital left that you pay for borrowing the money. When you take out a mortgage, you and the lender agree on the term of the mortgage, which is how long you’ll take to pay it back. In the past, a typical mortgage term was considered to be 25-30 years. Lenders currently have products with varying term lengths available as long as you have a viable repayment strategy.
How much can I borrow?
The maximum you can borrow is usually around 90% of the property value, meaning you will need a deposit of 10% to purchase the property. This ratio between the loan size and the deposit size is called the loan-to-value (LTV) ratio.
If you were purchasing a £200,000 house, an £180,000 loan and a £20,000 deposit would equal a 90% loan to value ratio. This is because the loan is equal to 90% of the value of the house. Lenders use LTV brackets such as 60-65%, 65-70% and so on to adjust interest rates on loans. This means the more deposit you can put into your property, the lower the interest rate will be.
Our Mortgage Calculator will show you your current LTV ratio and interest rate. It lets you adjust your deposit amount and see the effect it has on your offered interest rate. Increasing your deposit by a small amount can lower your LTV bracket, getting you better interest rates. This is something we encourage you to check out and see if you can save some extra pounds.
Who are mortgage borrowers?
The short answer is people just like you and me. There are a few distinct categories of mortgage borrowers which we’ll address here.
For those looking to get on the property ladder, taking out your first mortgage is a major life event. Purchasing your own property for the first time is a proud moment, and can throw up a lot of questions. We’re here from the first moment on our chatbot, all the way through to completion, to answer any of these questions. You can find out more about the first time buyer experience with Habito here.
Habito can help you if you already have a home, whether you’re planning on moving or just looking for a remortgage. We advise home-movers looking to remortgage, and have an area of our blog dedicated to those wanting to find out more before they move home.
For homeowners approaching or already on their lender’s standard variable rate, we can help save you a fortune. We have a whole section of our blog dedicated to remortgages for your reading. From when to start looking at a remortgage, to what happens when you leave your existing provider, we have a wealth of information located there.
If you’re thinking about becoming a landlord, Habito also offer advice on buy to let mortgages. These mortgages are for those looking to buy rental property. Different rules apply to these mortgages compared to residential, and there is an area of our blog dedicated to explaining buy to let.
Who are mortgage lenders?
You may be asking yourself, “Who issues a mortgage?”. Institutions that lend mortgages are either banks or building societies. If you’re looking for a mortgage, chances are you’ve had dealings with banks before. Banks are public institutions that work in the interest of shareholders and themselves to be profitable. Building societies have a long history in the UK, dating back to the late 18th century. They are mutual organisations that work in the interest of members, who are typically investors. Becoming a member of a building society gives voting rights for decisions within the organisation, unlike with a bank.
The ‘demutualisation’ of building societies in the 1980s allowed them to offer banking services. Since then, building societies have changed considerably in Britain, but still lend mortgages.
We don’t have a dog in the fight when it comes to building society vs bank. The mortgage to go with is the one that is right for your personal situation. No two people are the same, and this is reflected in the range of mortgage products available. We have access to over 20,000 products from over 70 lenders. We have a list of our available lenders for further information on who we work with.
What do I do now?
If you’re still after more information, check out some of our other blog posts, neatly organised by buyer type. We encourage people to read up and educate themselves before starting the mortgage journey. We want you to feel informed and in control, and help you become one step closer to mortgage bliss.