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.
Despite all the financial doom and gloom of the last few years, one bright light for homeowners has been the rapid rise in property values. Average UK house prices have shot up by nearly 30% over the last five years, and now many of us are taking advantage of that extra cash we’ve built up in bricks and mortar by taking out what’s known as a second mortgage (or homeowner loan). During the last year, Brits have borrowed more than £1 billion in second mortgages to help cover everything from loft extensions to wedding bills.
A second mortgage is basically an additional long-term loan (usually with a new lender) on the home you already have your main mortgage on, and it can be a brilliant way to release equity to fund some of life’s big-ticket items – all without having to pay any early remortgage penalties or max out your monthly budget with a high-interest unsecured loan.
How do I work out my equity?
As the value of your home (hopefully) goes up, your equity goes up too. But what is equity? Simply put, it’s the share of the value of your property that you actually own as opposed to borrow as part of a mortgage.
Let’s say that you bought your home five years ago for £300,000 with a mortgage of £200,000 – that means your equity at the time was £100,000. Now let’s say, today, the value of your house has gone up to £390,000 and you’ve paid off £10,000 of your mortgage. Your equity would now be £200,000: £390,000 minus £190,000 remaining mortgage debt. This is the maximum sum you could theoretically borrow on a second mortgage (although the minimum loan size usually starts from around £10,000).
What can I use a second mortgage for?
Unlike your primary mortgage, the answer is pretty much anything you like. The most common reason for taking out a second mortgage is to fund major home improvements such as a new kitchen, but other reasons might be starting a business, paying the school fees, helping the kids with a deposit on their first flat or even treating yourself to that dream Caribbean cruise.
However, before you pack your suitcase, bear in mind that this is a loan secured on your home. So you need to be 110% sure that you’ll be able to afford both your mortgage payments every month, because the last thing you want to do is turn your shabby flat into a show home only to end up getting the place repossessed because you’ve stretched your finances too far.
Do I have to be a homeowner to apply?
A second mortgage is guaranteed against the value of your home, so it makes sense that only existing homeowners are allowed to apply for one – although as long as you’re the owner, you don’t have to actually be living in the property that you’re securing the new loan against.
Do I have to pass an affordability check?
Getting a second mortgage is very similar to getting a first mortgage and you’ll have to pass the same stringent checks to prove that you can afford the repayments. You’ll need to provide evidence of your income and your regular outgoings (including your current mortgage payments), and undergo a search of your credit history before you can get the financial thumbs-up.
Why don’t I just remortgage or take out an unsecured loan?
Good question. Second mortgages won’t be the best solution for everyone, so it’s crucial to take advice from an independent mortgage broker before signing on the dotted line.
Second mortgage vs remortgage
Second mortgages often have a higher rate of interest than first mortgages to reflect the added risk involved for the lender – in the event of repossession, the second lender has to wait their turn to recover their loan as the primary lender gets to recoup their share first. So remortgaging (paying off your current mortgage and replacing it with a new, lower interest one) can sometimes be a cheaper way to raise extra funds.
However, if remortgaging would involve paying a hefty early repayment charge because you’re still in a fixed rate deal period, or switching to a higher interest rate because your credit has taken a turn for the worse since you took out your original loan, then a second mortgage can be a great idea: there’s no ERC as you’re keeping your primary mortgage, and that higher interest rate will only apply to the new loan amount (for example, the cost of that fancy kitchen) rather than your entire home loan.
Second mortgage vs unsecured loan
If you only need to borrow a small amount, you’ll almost certainly be better off going for a personal loan or credit card. Let’s say you want to borrow £5,000 and you take out a second mortgage with 5% interest over 20 years, you’ll pay nearly £3,000 extra in interest. But if you repay the same amount with a much higher 15% interest, over a period of three years directly to your credit card or personal loan provider, you’ll pay just £1,200 extra in interest.
However, if you’re finding it tricky to get an unsecured loan (perhaps because you’re self-employed or your credit rating has taken a dip), then a second mortgage can be easier to secure. Why? Because all that equity in your home is acting as a solid guarantee that the lender will get their money back even if you default on the loan.
Should I use a second mortgage to consolidate my debts?
Consolidating your high-interest debt into a low-interest, long-term second mortgage can seem like a tempting idea, but you’ll almost certainly end up paying more in the long run. The other major issue with consolidating debt this way is that you’re switching unsecured debt to secured debt. This means you could be putting your home at risk if you can’t afford the monthly repayments and the debts will stay with you for the length of the loan term. Instead, try and clear the debts by contacting lenders and negotiating a payment plan that you can keep up with.
Is a second mortgage the same as a second home mortgage?
In a word, no. A second mortgage is an additional loan on a home you already own, whereas a second home mortgage is a brand new loan to purchase a property other than the one that’s your main residence. Second home mortgages are often used to buy a holiday home or buy-to-let property.
Whether you’re looking for a second mortgage, a second home mortgage or a remortgage, our expert advisors are always on hand to talk you through your options and let you know what the best move would be for you. Get a quote 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.
A remortgage – taking out a new mortgage on a property you already ready own, either by switching to a new lender or a new mortgage rate with your current lender, can save you a lot of money.
When? It all comes down to timing the remortgage to when your initial fixed-term mortgage rate ends (the initial low-rate period) and avoiding the standard-variable rate (a typically higher rate) that kicks in after the fixed-term ends.
So read on and find out all you need to know about when you should leave your current mortgage deal, when you should stay and how to find your new best deal.
When should I think about remortgaging?
Preparation is key when it comes to getting yourself remortgage-ready. You need to leave enough time to weigh up the pros and cons of all the current offers on the market, and get all that pesky paperwork done and dusted so that your shiny new fixed rate deal is ready to roll the day your current one runs out.
Why is this so important? Because once your introductory fixed rate comes to an end (usually between two and five years), you’ll automatically be switched on to the lender’s much higher standard variable rate – and your monthly payments will almost certainly go up as a result.
You should ideally start looking into all your available options at least three months before your current fixed rate expires (you won’t have to switch lenders the second you’re approved: once you successfully apply, you’ll receive a remortgage offer with an expiry date attached).
However, don’t give up hope of homeowner happiness if you’ve already slipped onto your standard variable rate, you can still remortgage!
How long does remortgaging take?
Chances are, when you start eyeing up all the best-buy remortgage deals, you’ll want to jump ship from your current deal as soon as you can. However, the process can be slow if complications crop up along the way, such as a vital piece of missing paperwork.
You remember all that information you had to dig out for your original mortgage application? You’ll need to do much the same this time round, so it’s worth hunting down all the relevant documents such as payslips, utility bills, ID and bank statements (you can find a full list here) in plenty of time.
You’ll also need to be clued up on your current mortgage:
- Is it interest-only or repayment?
- Is it fixed or variable rate?
- How many years is the contract for?
You can find all of this out by checking your offer letter or asking your lender for a redemption statement.
The remortgage process can take as little as a month to complete, but applications will inevitably take a few weeks longer if you’re applying to switch lenders rather than simply moving to a new deal with your existing lender (officially known as a product transfer).
If you do decide to stay put to speed up the process, though, remember that you’ll have all the time in the world to count the cost if you were able to get a better deal by going elsewhere but didn’t.
The list below give you an idea of the timeline involved in finding and securing your remortgage deal:
- You get your property valued
- You submit your mortgage application
- Once your application is approved, you get a mortgage offer from the lender to confirm you’re ready to transfer your mortgage
Once that’s done, the solicitor handles the transfer of deeds from one lender to another
- At completion, a letter is sent through for you to sign
- You receive a letter from the new lender confirming that your mortgage has been transferred and your new mortgage payment will be taken based on your requested date and account details
Should I remortgage before my current deal ends?
Even if you’re still locked into a two-, three- or five-year fixed rate contract, you can get out early. It’ll cost you, though, and chances are you’re best off staying put for now as the penalties for switching will probably outweigh the benefits.
The early repayment charge (ERC) that accompanies most fixed-rate mortgages is a penalty fee that kicks in if you want to remortgage with a different lender while you’re still in the initial tie-in period – and it can make splitting up from your current lender a costly move.
Let’s say you have a remaining loan of £100,000 and the ERC in your contract is currently 4%. If you wanted to leave your lender right now, you’d be landed with an extra fee of £4,000.
On the flip side, ERCs are worked out on a sliding scale – it might be 5% in Year 1, but only 1% in Year 5 – so you need to do your sums very carefully to work out whether cutting your losses and switching early will be worth it in the long run.
Is remortgaging worth the effort?
100% yes! UK consumers are currently losing out on an estimated £29 billion annually by sticking with the same mortgage year on year, so remortgaging at the right time is a no-brainer.
Add in the event of the Bank of England raising interest rates in the future, you could end up paying thousands of pounds extra each year by staying loyal to your current lender.
According to analysis from estate agent Savills, a 1% rate rise would add around £10 billion to the UK’s mortgage bill, so it’s more important than ever for homeowners to get the best deal they can on their mortgage.
How do I find the best remortgage deal?
Remortgaging can be a great way to reduce your monthly payments, but when you’re choosing a new deal it’s essential to weigh up all the various costs involved rather than just the hot headline rate.
There are several potential fees to factor in – both for paying off your old loan and setting up your new one – and it’s important to know how much they’ll all cost and whether they’ll apply to you.
On top of any exit fees for splitting from your existing lender, you’ll also need to factor in the cost of conveyancing fees, valuation fees and arrangement fees for your remortgage (although many deals will pick up the tab for some of these).
You should also check the remortgage doesn’t have a sky-high standard variable rate (SVR) in case you have difficulty remortgaging again next time round.
Getting approved for mortgages is much tougher than it used to be, so it’s worth being aware of the potential extra costs involved once your new fixed rate deal runs out.
To get an accurate overview of the remortgage market, you need to use a mortgage calculator that produces a personalised estimate, which includes all the costs you’ll pay – rather than a basic estimate that only uses tempting teaser rates.
After entering details about yourself and your financial situation into the calculator, you’ll receive a reliable, whole-of-market picture of how much you can realistically expect to borrow, and from whom. And then you can work out whether remortgaging now is right for you.
Should I switch to a new lender or stay put?
The advantages of sticking with the same lender for your remortgage are that you’ll almost certainly make savings on fees and time – there’ll potentially be less paperwork to complete, fewer fees to pay and a much faster turnaround.
But just like staying with the same energy or insurance provider, fuss-free doesn’t necessarily equate to financially sound, and staying put may not be the best deal for you in the long term as you’ll only have access to a handful of deals from one lender.
As with anything, it’s important to do your research thoroughly and shop around for the best deal for you – which may end up being with your original lender or someone completely different.
By using a fee-free, online mortgage broker such as Habito, who scans every mortgage in the UK, do the legwork for you means you’ll not only save on money, time, stress and paperwork, but you’ll also have the whole of the remortgage market at your fingertips.
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.”
Finally getting the keys to your new home and making the switch from Generation Rent to Generation Buy is a hugely exciting moment, but becoming a property owner is also a massive commitment. With many UK loan terms getting longer (according to recent research, the number of first-time buyers taking out 31- to 35-year mortgages has doubled in the last decade), and average outstanding debt inching above £120,000, your mortgage is almost certainly the biggest investment you’ll make in your life.
However, one relatively easy way to speed up the path to becoming blissfully mortgage-free is overpaying on your mortgage – that is, pay more than the minimum to your lender each month to eat into your outstanding debt. Done right, overpaying can save you both time and money on your mortgage. But it won’t suit everyone. So before you ask your lender for the green light, read our in-depth guide and find out whether overpaying is the right move for you.
What is a mortgage overpayment?
Overpaying on your mortgage simply means contributing more towards your home loan than the amount originally agreed with your lender, with that extra cash injection either coming in the form of a lump sum or a regular top-up. For example, you might have recently come into some savings and want to make a single £5,000 overpayment. Or maybe you’ve just got a juicy pay rise at work and want to increase your payments by a couple of hundred pounds every month. Or maybe you want to do both.
The only potential barrier might be the lender’s restrictions on how much you can overpay. But even a fairly small monthly top-up – £50 or £100 a month, say – can make a sizeable impact both on how long it takes to make yourself mortgage-free and how much interest you end up paying in total. This is because overpaying doesn’t just wipe out some of your debt – it wipes out any interest you would have paid on that bit of borrowing as well. Result!
Are mortgage overpayments worth it?
We get asked that question a lot here at Habito, and most of the time the answer is an emphatic ‘yes, it’s a no-brainer’. Why? Because the current rock-bottom interest rates in the UK mean that overpaying on your mortgage and moving a step closer to being debt-free is far more logical than sticking your hard-earned cash in a measly instant-access account with pitiful returns. Yes, you may have heard lots of chat in the news about possible interest rate hikes in 2018. But for now the Bank of England’s official base rate remains firmly rooted at a saver-unfriendly 0.5%. However, before you start emptying your savings account and speed-dialling your lender, it’s important to work out whether overpaying on your mortgage is worth it for you.
Making sense of the overpayment equation
You don’t need to be a financial whizz to work out that the cost of debt is currently higher than earnings from saving, so chipping away at that debt can make a whole lot of financial sense. To illustrate the point, let’s say you stuck £10,000 of your hard-earned savings into a 1.5% easy-access account. It would earn you a grand total of £150 interest over the course of a year. But if you ploughed that same £10,000 into overpaying on your 5% mortgage debt instead, you’d claw back a much healthier £500 in saved interest – leaving your long-term balance sheet £350 better off.
Overpaying on your mortgage means that you’ll increase your equity (the value of your house once your debts have been subtracted from it), pay less interest on the remaining debt and reduce the term of your loan all in one go. Get your calculations right and you could slice several years and thousands of pounds off your remaining mortgage term. Like we said, no-brainer.
So, does that mean it makes sense to lump together every single penny of your savings and plough it all into overpaying? That depends on all sorts of variables: your individual liquidity (how much cash you’d still have easily accessible if life suddenly took a turn for the worse); the small print of the mortgage contract you currently have in place (does your lender even allow overpayments and what are the charges involved); and finally whether you’ve got any more pressing debts that you need to turn your attention to first, such as that maxed-out store card with a sky-high interest rate attached.
Can overpaying help when it comes to remortgaging?
Definitely – overpaying on your current mortgage could well give you access to much better deals when the time comes to remortgage. Why? Because one of the keys to securing the very best rate when you remortgage is to reduce your loan-to-value (LTV). LTV is the size of your mortgage expressed as a percentage of the value of your property, so if your property is valued at £200,000 and you have an outstanding mortgage of £150,000 then your LTV will be 75%. LTV works across pricing bands (95%, 90%, 85%, 80%, 75%, 70%, 65%, 60%, etc) and the lower your band when you apply for a remortgage, the wider your choice of deals will be. Let’s say your current LTV is 62% and you’re thinking about remortgaging soon – overpaying on your current mortgage could help you drop down to the next LTV band and open up some brilliant new deals.
If you’re thinking about remortgaging soon, Habito’s real-time remortgage calculator is a great place to start. After entering details about yourself and your financial situation, you’ll receive a reliable, whole-of-market estimate of how much you can realistically expect to borrow, and from whom. And then you can work out whether remortgaging really is right for you.
Why shouldn’t I overpay on my mortgage?
Hefty early repayment charges
Mortgage lending isn’t a charity (surprise, surprise), and when you take out a home loan the lender will have budgeted that they’ll make a certain amount of profit from your debt during the length of the mortgage term. So the last thing they want you to do is take full advantage of their generous fixed-term teaser rate for a year or two and then simply remortgage with someone else or make a massive overpayment that brings down how much you owe and eats away at their overall margins.
To stop this happening, lenders include an early repayment penalty clause in your mortgage contract and also cap how much you’re allowed to overpay on your mortgage during this introductory discount period (usually two to five years). This cap is commonly set at a maximum of 10% of your remaining mortgage balance each year. Go over that amount and you’ll almost certainly incur an early repayment charge (ERC) on the excess.
For example, let’s say you have £200,000 left to pay on your mortgage with an ERC of 5% and a maximum annual overpayment cap of 10%. The most you’re allowed to overpay without incurring any penalty charges is 10% of £200,000, or £20,000. But if you double your overpayment to £40,000, you’ll be hit with an ERC of 5% on the additional £20,000. Get the calculator out and you’ll see that comes to a sizeable £1,000 fee.
Sometimes the benefits of exceeding the maximum overpayment limit may still outweigh the cost of the fees, but it’s crucial to get your facts straight by talking to your lender about the rules on early repayment and digging out your original mortgage offer letter, which will detail any early repayment charges that apply to you. Once you’ve got all the information in front of you, you can work out what’s best. And if you find that the fees for overpaying outweigh what you’re going to save, then it probably makes more sense to stick the extra cash in a savings account for the time being – at least until you reach the end of the fixed-term teaser period.
Once that period comes to an end, you’ll be automatically switched on to the lender’s SVR (standard variable rate) – unless you decide to remortgage. The good news is that once you’re on the SVR, you’re usually allowed to overpay by as much as you want. But the bad news is this will be significantly higher than the teaser rate you started on, so make sure you double-check whether you might not be better off remortgaging to a new discounted deal rather than overpaying on your existing loan.
More expensive debts to pay off first
When it comes to dealing with your outstanding debts, the best rule of thumb is to pay off the most expensive ones first. For instance, if you’ve racked up a £2,000 spend on a high-interest credit card or loan, it makes sense to use any spare savings you might have to clear that debt first before overpaying on your lower-interest mortgage loan or squirrelling the money away in a low-interest savings account:
|Pay off £2,000 debt on 18% credit card||£360 saved|
|Overpay £2,000 on 5% mortgage||£100 saved|
|Put £2,000 into 1.5% savings account||£30 saved|
And don’t be tempted to switch that high-interest credit card debt on to your low-interest, long-term mortgage loan either. It may seem like a tempting idea – after all, your monthly repayments will be much lower than those mega-APR credit cards and your finances will have a bit more breathing space at the end of each month – but the truth is you’ll almost certainly end up paying more in the long run. On top of this, there’s a real danger that clearing your credit card debt by extending your mortgage means you’re switching unsecured debt to secured debt. This means you could be putting your home at risk if you can’t afford to make the monthly repayments and the debts will stay with you for the length of the loan term.
Nothing left for a rainy day (or a leaky washing machine)
The problem with sticking every penny of your savings into overpaying your mortgage is that you won’t generally be able to get the money back if you suddenly need to replace the boiler, fix the car, or you lose your job and have to survive on your savings for a few months. Which means you might have to end up borrowing more money at a much higher interest rate, putting the family finances under severe strain and undoing all the benefits of overpaying on your mortgage in the first place.
To avoid being left high and dry if life takes an unexpected turn for the worse, it’s best to keep an emergency fund tucked away in an easy-access savings account. How much you should keep in reserve is up to you, but as a rough guide it’s good to have a few months’ worth of survival money to get you through a redundancy or the like.
The exception to this rule is if you already have a flexible mortgage that gives you a little bit of breathing space. Some providers now offer current account or offset mortgages that allow you to offset your savings and the balance of your current account against your mortgage debt, meaning you can use your savings to overpay or move some of that money back to your current account if and when you need to. The price for all this financial freedom is a relatively high interest rate, though, so you may still be better off with a separate emergency fund and the best mortgage deal on the market.
Overpaying sounds great, where do I start?
The best place to start is by using an overpayment calculator (there are loads available online) to work out what your potential savings might be. To do this, you’ll need to dig out the following information:
- How much you still owe on your mortgage
- How long you have left on your mortgage
- What type of mortgage you have (repayment or interest-only)
- What your current interest rate is
- How much you’re looking to overpay, and whether you want to make a lump-sum or regular overpayment
If the sums add up, then you’ll need to get in touch with your lender and let them know you want to make overpayments to reduce your mortgage term (make sure you’re clear about wanting to reduce your mortgage term rather than simply reducing your monthly payments, otherwise the long-term benefits will be minimal). You’ll also need to double-check when the interest on your mortgage is calculated. Most are worked out daily, but if it’s monthly or annually you’ll need to time your overpayment to land a day or two before the interest is calculated to have the maximum effect. And finally, have a quick last recap to work out whether overpaying is a no-brainer or a no-go:
- You’ll pay less mortgage interest overall
- You’ll have a smaller mortgage if interest rates go up in the future
- You’ll reduce your mortgage term and own your home outright more quickly
- You’ll incur significant penalty charges for overpaying
- You’ve got higher-interest debts that need paying first
- You won’t have access to any cash in an emergency
Overpayment A-Z: Common Terms Explained
APR stands for annual percentage rate and shows you the amount of interest you’ll pay each year on any money borrowed, such as a mortgage.
Bank of England base rate
This is the official interest rate set by the Bank of England’s Monetary Policy Committee and is used by lenders to calculate some mortgage interest rates. The base rate currently stands at 0.5%.
ERC (Early Repayment Charges)
ERCs are penalty fees that you’ll have to factor in if you want to switch your mortgage lender or make an overpayment that’s more than your allowance. ERCs usually apply during the initial tie-in period of a fixed-rate mortgage deal and will be listed in your original offer.
This is the amount of your home that you own outright. To work it out, you deduct your outstanding mortgage balance from the current market value of the property. So if your home is worth £300,000, and you have a mortgage worth £150,000, then your equity is £150,000.
Flexible mortgage deals allow you to offset your savings and the balance of your current account against your mortgage debt, meaning you can use your savings to overpay or move some of that money back to your current account if and when you need to.
LTV stands for loan to value and is the size of your mortgage calculated as a percentage of the overall value of the property you’re buying. When it comes to remortgaging, a low LTV will open up the best deals.
Standard Varible Rate
The SVR (standard variable rate) is a bog-standard interest rate that’s set by, and varies, between each lender. It doesn’t usually have any ERCs attached. When your fixed term ends, you’ll automatically be moved over to this rate – unless you remortgage.
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.
Rising house prices and tough affordability stress tests mean that more than a quarter of all first-time buyer mortgages now rely on couples combining their earnings to get approved for a joint loan and secure their dream home. But what happens if things turn sour and the relationship breaks down?
The good news is that more than half of all married couples in England and Wales do manage to stay ‘together forever’. But an average divorce rate of 42% shows that it’s not always such a happy ending, and as a result there are an awful lot of joint assets that need dividing up before you can go your separate ways. And we don’t just mean that set of crystal glasses you were given as a wedding present or the treasured collection of DVD box sets.
Getting divorced means there might be joint bills; joint bank accounts; and potentially the most stressful of all, a joint mortgage, to sort out. With divorce most likely to occur between the fourth and eighth wedding anniversary, there’s a strong chance that the seven-year itch will be made even worse because you’ve got a long-term joint loan on the marital home.
However, there are ways to help both of you get back on your feet financially, from selling up and splitting the profits to staying put for the sake of the children. Read on and find out how to deal with the financial upheaval of a mortgage break-up when you’re already going through the emotional upheaval of a marriage break-up.
Keep the communication channels open
Whatever you both decide to do with the marital home when you split up, it’s really important to try and stay on good terms for the sake of everyone involved – you, your ex-partner and your children. Otherwise, things can end up having to be settled through the divorce courts, which is stressful, time-consuming and potentially pretty costly, not least because you’ll need to get legal advice on your rights.
Let your lender know what’s happening
First things first, let your lender know about the situation. OK, so they’re not going to just let you off your mortgage payments because you’re splitting up, but they’re generally pretty sympathetic when it comes to couples going through a divorce. Let them know about the split as soon as you can – that way they may be able to ease the pain a bit, perhaps with a payment holiday to give you both a bit of much-needed breathing and thinking space while you decide about the best way forward.
You could… sell up and split the difference
In many ways, the most straightforward solution to sorting out a joint mortgage when you decide to get divorced is to sell the marital home, pay off the outstanding loan balance, amicably split whatever money is left over and each have enough to put down a deposit on a new property. But while selling up may well be the best thing for both of you in the long term, the emotional and logistical upheaval of having to move out of the family home – especially when children are involved (48% of divorcing couples have at least one child under 16 living with them) – can be hugely damaging in the here and now.
The idea of selling up and downsizing to a new, unfamiliar home can feel like a massive change for youngsters – perhaps they’ve always had their own bedrooms but now they’ll have to share, or you’re being forced to move much further away from their school to be able to afford a new property. So, what alternatives do you have if you don’t want to sell the family home? Or maybe you simply can’t – negative equity can sometimes mean that the house isn’t worth enough to pay off the remaining mortgage balance in full, let alone cover a deposit for each of you to buy a new place to live.
You could… hold on to your home
One possible alternative is to hold on to the family home and carry on paying off the original mortgage jointly, with one of you living there with the kids – at least until they have left school and are ready to branch out on their own. This can make a great deal of sense, both emotionally and financially. Staying put will have less of a negative impact on the children’s status quo, and it also means you won’t be hit with any high early-release fees if you’re currently on a fixed rate loan deal with several years still to run.
For this to work, though, you need to be doubly sure that both of you can afford the ongoing monthly payments and any extra living costs once you’ve gone your separate ways. It also helps if you’re on friendly speaking terms with each other. Why? Because when two people take out a joint mortgage, they’re both agreeing to be equally liable for the debt for the duration of the mortgage, not just while they’re living together. As a result, if your ex suddenly fails to pay their share of the mortgage on time one month, you could end up having to chase them or cough up the full amount yourself to avoid damaging your credit rating – or, worse, putting your home at risk.
Or you could… buy your partner out
Many couples with a joint mortgage opt to change the contract when they divorce so that it only has one of their names on it (commonly known as a transfer of equity). Buying one partner out of a mortgage can have several advantages: the person whose name is taken off the contract should then be eligible to borrow more money to buy a new home; the person who stays on the mortgage deeds won’t have to rely on their unreliable ex to help make the monthly payments; and both sides should be able to unlink their credit files so they can’t be tarnished with one another’s bad credit in the future.
Moving to a sole name isn’t as simple as just calling your lender, though. For a start, you’ll need to have your ex’s signed permission to remove them from the mortgage. You’ll also have to prove that you can afford the increased monthly mortgage payments, so you can expect a thorough investigation of your affordability and credit rating before getting the thumbs-up to going solo.
Last but definitely not least, you’ll have to pay your ex their rightful share of the equity (the money you jointly invested in the house) based on an up-to-date valuation of the property. And chances are you won’t have that sort of capital just sitting around, so you’ll need to increase the overall loan amount to release some cash. This may ring alarm bells with your existing lender, so don’t be too surprised if they turn you down as a newly single borrower.
Back to the drawing board? Well, not quite. It may well be possible (and preferable) to switch to a new lender by remortgaging instead. And with access to more than 90 lenders, Habito’s expert advisors can help you find the best remortgage deal on the market – which means you can hopefully secure a better rate, raise enough capital to buy out your ex and start to focus on the future rather than stressing about splitting up.
Whether you’re on the hunt for a better interest rate, need more payment flexibility or want to release some extra cash to finish off that loft conversion, remortgaging can make huge financial sense and possibly save you thousands – yes, thousands – of pounds a year. But should you remortgage with the same lender?
None of us like to pay over the odds – whether it’s for car insurance, the weekly grocery shop or the monthly mortgage bill. But the truth is that some two million Brits are overpaying on their lender’s SVR (standard variable rate). What’s an SVR? Basically, it’s the bog-standard interest rate your lender shifts you to when your initial fixed-term teaser rate expires – and being stuck on it is pretty much the same as throwing money down the drain.
With interest rates set to rise further over the next couple of years, it’s more important than ever to check if you could save some cash by remortgaging to a new fixed-term deal. Don’t think it’s worth the hassle? Think again – it really isn’t that much hassle, especially when you have the experts at Habito helping you out, and the savings can be seriously significant. We’re talking week-in-the-sun, new-flatscreen-TV significant! In fact, the only question you should be asking is whether it makes more sense to remortgage with the lender you’re already with or take advantage of a better deal elsewhere. So read on as we explain the pros and cons of staying put or switching.
Should I Remortgage with the same lender or should I switch?
The answer to this depends on all sorts of things, from what exit fees are involved to how healthy your credit rating is. But one thing it definitely doesn’t depend on is loyalty. Staying loyal to your partner, pet or favourite footie team is usually worth the effort. Staying loyal to your mortgage lender usually isn’t – what we call the ‘mortgage loyalty penalty’ costs the nation an estimated £29 billion every year in excessive mortgage payments. You’re free to take your mortgage elsewhere when your fixed term comes to an end (usually two to five years), so do your research and work out whether it’s a better deal to stay or switch. But whatever you do, don’t do nothing.
STAY – You can skip the fees
When you remortgage with a new lender, you need a conveyancer (a solicitor who specialises in property law) to sort out the paperwork involved in swapping over your outstanding loan. You’ll also need to get a current valuation and probably have to pay an exit fee for jumping ship from your existing lender. In other words, switching to a better deal elsewhere usually means a degree of financial and logistical pain for your remortgage gain (although many deals pick up the tab for some of these fees).
However, things are different if you simply want to move to a new mortgage deal with your existing lender. This is officially known as a product transfer, but it could just as easily be called a minimum fuss remortgage. Why? Because your biggest reward for staying put is a fee-free, hassle-free switch. No extra legal paperwork, no new valuation and, as you’re not actually going anywhere, no exit fee either.
STAY – You can save time
You may be in a mad rush to remortgage, but all that extra paperwork means switching to a new lender can take a fair amount of time – ideally you need to start looking into the available options roughly 4 weeks to three months before your current rate expires.
On the other hand, pick a no-fuss product transfer with your current lender and you could be remortgaged to a new deal in the time it takes to say: ‘Why did we stay on that dreaded SVR rate for so long?’. Just remember, though: you’ll have all the time in the world to count the cost if you could have got a better deal by going elsewhere.
STAY – You’re already a trusted borrower
Just because you were approved for a mortgage a few years ago, there’s no guarantee you’ll get a remortgage with a new lender. They’ll carry out a fresh credit check, and if your circumstances have changed then you may not match their affordability criteria. Maybe you’ve been made redundant, switched to being self-employed or you’re currently on maternity/paternity leave – major changes such as these can make securing a new remortgage deal trickier.
However, your current lender doesn’t have to perform a credit check when you remortgage, as long as you’re not borrowing more money or making major changes – after all, they already know whether you can make the monthly payments or not. Obviously this can be a real bonus if your affordability rating has taken a bit of a knock recently. Beware, though, this isn’t a blanket rule – some lenders still carry out credit checks on existing customers to be on the safe side, so double-check the fine print.
SWITCH – You can access the best deals
Stick with the same lender and you’re only going to be able to access their deals, which is just a tiny fraction of the overall remortgage market. Even worse, as an existing customer you might not even be able to take advantage of all their shiny ‘new customer’ deals either.
There’s a whole world of discounted rates and juicy incentives out there, so even if your existing lender is offering a good deal you’d be mad not to compare it with what else is on offer. The easiest way to do this is via an online broker such as Habito. We search far and wide – more than 20,000 mortgages and 90 lenders – to bring you the very best deals out there. And we’re free, so no more dreaded fees to add to the spreadsheet.
Another problem with sticking with the same lender is that your property will probably get a drive-by valuation at best. Why does this matter? Because you won’t benefit if the market value has increased significantly and the LTV (loan to value) has changed as a result. LTV is the size of your mortgage as a percentage of the value of your property and works across pricing bands (95%, 90%, 85%, 80%, 75%, etc) – the lower your band when you apply for a remortgage, the wider your choice of deals will be.
SWITCH – You can make your loan more flexible
As well as saving you money, remortgaging with a new lender can give you increased flexibility over your finances. For instance, you might have had a windfall or promotion at work and want to start making overpayments to reduce your overall loan. Or you might want the option to take a payment holiday at some point in the future. Whichever mortgage bolt-on you’re after, chances are there’s a deal out there for you. But remember that increased flexibility will probably mean a slightly increased interest rate, so make sure your bolt-ons are going to be put to good use.
SWITCH – You’ll be welcomed with open arms
As 21st-century consumers we’re bombarded with incentive deals all the time, from BOGOFs to cuddly meerkats, and the remortgage market is no different. That’s great news for switchers as there’s a huge range of ‘golden hellos’ to pick from as a new customer – from free legal work to juicy cash-back offers. One word of warning, though: sometimes the rates on these deals are higher than the no-frills rates, so they could end up costing you more in the long run.
Ready to find the best remortgage deal for you? Our expert advisors can start helping you find your next mortgage up to four months before your existing deal finishes. We’re always happy to take a look and tell you if it would be worth switching early or waiting. You’ll only have to enter your details once and we’ll handle the rest for you when the time is right. You can start the process here or get a quote using our mortgage calculator here.
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.
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.
This week sees the first mortgage repayments made by UK consumers under the new Bank of England interest rate of 0.5%. The increase, from 0.25%, was the first rise in over a decade and will mean monthly mortgage payments just got more expensive for 43% of UK mortgage holders.
The rise is set to cost an average household on a variable mortgage an extra £20 a month, which over 12 months amounts to £240 a year – a pretty unwelcome expense coming ahead of Christmas and New Year.
But, if you are on your lender’s standard variable rate, you should be able to switch on to a fixed rate and save thousands in the process (before the rate rise HSBC estimated that by switching to a fixed rate, households could save £4,000 a year!).
Here’s our 7 ways to get the best remortgage deal:
Timing is everything
It can take time to switch on to a new mortgage rate so you should start looking roughly 14 weeks to three months before your current rate expires. Planning ahead will save you being automatically transferred onto a more expensive variable rate mortgage. Likewise, if you switch too soon, some mortgages will include an early repayment charge. This charge can be as much as 5% of your outstanding loan, which can add up to several thousands of pounds. If there is a charge, arrange for the remortgage to start the day after the penalty period ends on your current deal.
Don’t be drawn into the lowest rate
The lowest interest rates and seemingly cheapest deals are used by banks and lenders to market to customers, but they typically have larger fees – some over £1,000, which increase the overall price of the mortgage. It is better to look at the total cost – taking into account any associated fees and special offers, as well as the rate, to get the cheapest deal overall.
Look out for freebies (and what they really cost)
Many mortgages now come with free valuations, no legal fees, the promise of cashback and more. But these usually come with higher interest rates – so they could still work out as more expensive overall compared to a deal that has a lower rate but higher fees and no free services or cashback rewards. Be savvy and look at the cost of legal fees vs cash-back offers to see which is the bigger incentive. With some cashback offers paying as much as £500, you could be better off taking the money and still spending on associated fees.
In this market, don’t be scared to fix
Two-year fixes usually offer the lowest fixed interest rates, but after the bank of England increased its base rate and with more rate rises anticipated in 2018, many people are now looking to lock into the current low fixed rates for longer. Opting for a 5-year fixed rate mortgage could be a good strategy to keep your mortgage payments consistently low and avoid any further rate surprises until 2022!
Hold off on applying for a loan or credit card
Any lender will need to know that you’re sensible with your money and can afford to make repayments on your mortgage. So, in the weeks and months running up to applying to a remortgage, it makes sense to manage any existing debts and hold off applying for extra credit cards or loans, to get the best credit score and unlock the best mortgage deal for your needs.
Beware of the loyalty trap
Rather than staying with your incumbent lender or current bank account provider, it pays to shop around. There are over 80 lenders in the UK and many offer lower rates for new customers than they do for existing customers. If you do find another lender with a better deal, don’t fear the break-up admin. Your new lender will appoint solicitors and talk to the old lender to switch your mortgage for you at no extra cost.
Be smart with your time and your money – use a (free) broker
A broker can help you navigate the mortgage market minefield, make the application for you and chase the lender on your behalf – saving you hours of time and heaps money. Brokers usually charge £200 – £400 in fees, but there are brokers out there, including Habito, that offer their services for free and without the need to take any time off work to meet face to face. Take up the offer of impartial online mortgage advice – it doesn’t need to cost you a thing.
So what are you waiting for?
It’s more important than ever to secure the best deal you possibly can on your mortgage and we have invested in the technology to do it record time and with minimal form filling. Get in touch before December’s mortgage repayment comes out of your current account!
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.
Remortgages – What’s all the fuss?
More UK consumers are remortgaging, according to new data released by UK Finance this week, with rates up 15% year on year. Yet millions are still in the dark about the benefits of switching their lender or mortgage, costing the nation an estimated £29 billion every year.
Research undertaken by Habito and YouGov found that:
- Around half (47%) of British adults are more likely to associate remortgaging with taking on more debt (35%), home renovations (7%) or failing to meet existing repayments (5%) rather than switching to secure a better interest rate (37%).
- 1 in 5 (20%) of mortgage holders haven’t changed their mortgage in the last three years because they think they can’t save money by changing lender while 9% said that the process is too complicated and stressful and 5% felt the application process is too time-consuming.
- Consequently, almost 2 in 5 (39%) Brits with a mortgage have not changed their deal in the last five years, with 13% of these never doing so.
So Habito is here to bust five remortgaging myths once and for all.
I can’t save money by changing
Lots of people can! Lender’s use low initial ‘teaser’ rates to attract new customers, but these low rates usually only last 2, 3 or 5 years. Once that rate has expired, you are moved onto your lender’s standard variable rate – which averages 4.6%. HSBC found that homeowners stuck on a standard variable rate mortgage (3 million people in the UK) could find themselves paying in excess of £4,000 a year more compared to swapping to a new fixed-rate deal. Most likely, you will save money by remortgaging once your initial rate has expired.
It’s really complicated and there will be fees
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 use a mortgage intermediary (broker) such as Habito, which will act on your behalf with the lender.
You’ll need to be prepared with all the correct documentation, and there will probably be a conveyancing fee from your solicitor. This is due to the legal work 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!
It’s only for people in financial trouble or those who need to get money out of their homes
There is a misconception that people only remortgage when they want to raise money by taking on extra debt. Remortgaging can be for this, but actually it is more often used just to simply switch to a new mortgage deal – either with the same or a different lender. In principle, it’s just like switching your energy, mobile or broadband provider, only with the potential for much bigger returns.
I’m now self-employed so I wouldn’t get approved
Even if your work situation has changed, there are still deals to be had. There are thousands of mortgage on the market designed for self-employed, contract or freelance workers. You might need to leave a bit more time to find the right deal, or be prepared to have different terms. However, here at Habito, we have saved many self-employed customers money on their remortgage and it is definitely not a reason (on it’s own) as to why a lender would not approve you for remortgage.
I don’t need to think about moving my mortgage unless I am moving my house
The most commonly purchased initial term for a mortgage is two years, but most people stay in their homes for five years or more. This means you could be overpaying on your lender’s standard variable rate (SVR) for at least three years, if you didn’t consider moving your mortgage whilst in the same property. According to HSBC stats, that would cost over £12,000! It always pays to think about remortgaging after your initial rate has expired, new house or not.
So what can I do if I want to remortgage my home?
The first step is heading over to our Mortgage Calculator. This can help you to have an idea of how much you could save, and what deal would be right for you. Getting an idea of what your remortgage could look like takes minutes, and doesn’t require any credit checks. With the thoughts of major savings in mind, the next step is to sign up, and provide some more information about yourself and your future plans. We never share your information with third-parties, and recognise the importance of privacy in the digital age.
Once you’ve completed these two online steps, you can speak to one of our friendly mortgage experts. They’re available either by phone, or on a live web chat. This means we can fit our communication around you, freeing your time for what matters most. They will help guide you through the process of your remortgage, answering any questions you might have, and dealing with your lender. We keep you updated every step of the way, letting you know when we make progress with lenders and underwriters.
So, if you’re thinking it’s the time to get off your SVR, or you’re looking to remortgage, don’t hesitate! Head over to Habito now, and start the journey towards lower rates and more pounds in your pocket.
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.
With interest rates at an all-time low and house prices creeping ever higher, more and more homeowners are choosing to stay put and improve rather than move. Recent figures from Lloyds Bank show that the number of people moving house has fallen for the first time since 2011 – 354,000 people moved home in 2016, a four per cent fall compared to the previous year.
And it’s not just rising property prices that are putting people off looking in estate agents’ windows; the 2014 hike in stamp duty means some potential upsizers could face a hefty additional fee on top of the purchase price. Properties under £125,000 are exempt, but that doesn’t help most of us – the average purchase price among first-time buyers in the UK was £205,170 in 2016. There are several rate bands (2% on £125,000 – £250,000; 5% on £250,001 – £925,000 and so on), but none make pretty reading: that dream three-bed maisonette for £400,000 means a stamp duty of £10,000.
Add in all the other extras, such as estate agent fees and conveyancing fees, and the average cost of moving home has now jumped to £11,000. So it’s no wonder that many people are opting to remortgage and smarten up their home instead.
What home improvements are people making?
How does it work?
The first thing to know is that it’s not as complicated as it sounds. As the value of your home goes up, your equity (the share of the value of your property that you actually own, as opposed to borrowing as part of a mortgage) goes up too. Let’s say your new home is worth £400,000 and you have a mortgage of £250,000 – your equity is £150,000. Now let’s say, two years later, the value of your house goes up from £400,000 to £450,000. This increase in equity could allow you to take out a new mortgage of £300,000, giving you £50,000 in cash for home improvements without drastically increasing the cost of your monthly repayments.
Just think what you could do. If you dream of upsizing for more space, you could extend into the loft, build a side return or even dig out the basement! A bit too ambitious? Even smaller improvements such as a new kitchen or bathroom can add value to your home and improve your quality of life. It’s a win-win!
Equity release customer story
Names: Gab and Lisa Santoro
Mind the fees
Tempted? Well, before you start planning what colour you want the new kitchen cupboards to be, there are a few important things to consider and potential pitfalls to bear in mind with remortgaging, including that dreaded four-letter word: fees.
Early exit fee
The most common time to remortgage is when the fixed or introductory tracker or discounted rate comes to an end. However, you don’t want to switch too soon because some mortgage terms include an early repayment charge if you switch while you’re still under contract. This charge can be as much as 2%-5% of your outstanding loan, so timing your remortgage right is crucial!
Beware that some mortgage brokers charge a fee for their services – usually between £200 – £500 per client. Here at Habito, though, we do things a little differently. We think mortgages are a big enough financial commitment without adding another set of costs on top, so our service is completely free from start to finish.
Your lender will need to value your property to see the difference from when you first took out your mortgage. This is so they can lend you the right amount of money and make sure it’s secured against the value of your property. Before having your home valued, it’s worth reading up on the different types of valuations. Properties of varying size and age will need different levels of inspection, and these come at varying prices. For more information on the different types of valuation, head over here and have a read.
There’ll probably also 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.
Will my property increase in value?
Unfortunately, even with the smartest technology in the world, we can’t predict the future for sure (no one can!). So there’s always an outside chance that house prices could tumble and interest rates could soar in the next few years, draining all that magic equity away. But while some fancy postcodes in London have seen a drop in property values recently, the national prediction for 2017 is a two per cent rise – not exactly boom time but reassuring all the same.
Would a personal loan be better?
That depends. Personal loans have some advantages: they’re generally quicker to arrange, are paid off over a shorter space of time, and they’re not secured against your property (so it can’t be repossessed if you default on your repayments). However, you’ll have higher monthly payments compared to a longer-term mortgage and accessing the very best deals (or any deal at all) will require a squeaky-clean credit score.
Ready, steady, remortgage!
When you start your remortgage, it’s natural to have anxiety about the process. So check out the bullet points below to see the key things that happen when you find a new mortgage lender and save thousands of pounds a year through Habito.
- You get your property valued.
- You submit your mortgage application through Habito.
- Once your case is agreed you receive a mortgage offer from the lender. You can now confirm you’re ready to transfer your mortgage.
- Once that’s done, the solicitor handles the transfer of deeds from one lender to another.
- They transfer money and deeds.
- At completion, a letter is sent through for you to sign.
- You then receive a letter from the new lender confirming that your mortgage has been transferred. Your new mortgage payment will be taken based on your requested date and account details.
We built Habito to make mortgages simpler, and we’ll always give you a clear breakdown of all the costs and fees associated with the deals we recommend. This way, you can see exactly how much you’re paying and for what. So if you think you could be eligible for a remortgage, click here to get started and start planning those renovations today!
Habito’s Mortgage Expert top tips:
Get a mortgage quote today
So What Can You Do About It
Know when your current rate will be coming to an end. Set a reminder to talk to your bank and speak to a broker 3 months before it does.
Finding out if you are eligible for a better deal doesn’t involve a credit search. So don’t be afraid, check it out.
If you do decide to switch, look out for fee free deals, it doesn’t have to cost money to remortgage.
Don’t fear the break-up admin. Your new lender will usually appoint solicitors and talk to the old lender for you.
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.
Moving Stories: What did buying your first home mean to you?
That first home feeling
Why buying was the best thing you ever did
Surviving the buying process
So here are a few pointers to keep you on the right side of homebuyer sanity:
Between estate agents, solicitors, mortgage brokers and lenders there are numerous parties involved. There are on average 10 people involved in every single house purchase – which means an awful lot of pressure on you as a buyer to get the job done. But remember, this is the biggest investment of your life, so don’t be pushed into anything rash.
Estate agent rushing you to put in an offer? Lender pressuring you to buy one of its ‘add-on’ products or services? Remember that you will eventually get over the threshold and have the keys in your hand. Whether it takes an extra couple of weeks or not, you’ll still feel great. So don’t get distracted by people wanting to rush the deal through, and don’t put up with bad service.
Scare tactics are there to do exactly that – scare you into making a rash decision. So don’t just use the estate agent’s in-house broker or conveyancer because they make it sound like the easiest option. Instead, shop around for your advice. That way, you’ll end up with a better price and a lot more peace of mind.
How Habito can help
Owning your first home is an important step for millions of Britons. Fixing the outdated mortgage application process has been our mission at Habito from day one. We want to make sure the UK can access a free digital mortgage broker that puts customers first. It all starts with signing up, entering some personal details (this shouldn’t take more than ten minutes) and telling us about some of your future plans. From here, we can connect you with one of our mortgage experts for personalised mortgage advice.
You can do this using live chat they are available wherever you are – at home, in the office or on the beach. When we’re all clear on how to proceed you’ll continue to be personally looked after by one of our human experts. They take care of your entire mortgage application from start to finish. And what’s more our service will cost you absolutely nothing. Zip, zilch, nada!
Finally, enjoy your new home!
Congratulations on making it from homebuyer to homeowner! Remember that when your first mortgage deal expires, you don’t have to stay put on the lender’s standard rate. Again, it really pays to shop around as you could possibly save thousands – yes, thousands – of pounds a year just by switching to a new lender. Here at Habito, we make it simple – when it’s time to remortgage, we alert customers. We always help people switch quickly and easily so they never have to pay over the odds. Just think what grand designs that extra money could be put towards!
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
Finding the needle in the haystack
Taking the plunge
In the UK, over two million people are on the wrong mortgage. This is for one of two reasons: 1) They don’t know their rate, or 2) they’ve been so scarred by the process they cannot face switching. Thankfully for her, Katie is not prototypical. She’s now on a better monthly rate and has more financial freedom to continue her home renovations.
I’ve taken on a big project and getting this deal done quickly at no cost has been great. A lot less stress, a lot less expenditure and a much happier Katie.
Mortgages don’t have to be terrifying. And a remortgage is the easiest way to give yourself a well-deserved pay rise.
Time to break up?
When you start your remortgage, it’s natural to have anxiety about the process. What actually happens? Well, hopefully we can shed some light on the process of remortgaging once we’ve found you the right deal.
These are the key things that happen when you find a new mortgage lender through Habito (apart from saving money).
- You get your property valued.
- You submit your mortgage offer through Habito.
- Once your case is agreed you will receive a mortgage offer from the lender to confirm you are ready to transfer your mortgage.
- Once that’s done, the solicitor will handle the transfer of deeds from one lender to another. They transfer money and deeds.
- At completion, a letter will be sent through for you to sign.
- You will receive a letter from the new lender confirming that your mortgage has been transferred. Your new mortgage payment will be taken based on your requested date and account details.
That’s all. And we can help you through the entire process starting with Mortgage Calculator, which shows you how much you can potentially save. If you’re looking to change your mortgage terms, we have several detailed blog posts. We have a guide to moving your mortgage, and when to start looking to remortgage.
The time is right
If you have a mortgage, it’s a good idea to find out when your introductory rate is up. That being said, your introductory period might be up already. If that’s the case it’s time to head over to Habito and start the remortgaging process. This is because the day your introductory period is up, you’ll be moved over to your lender’s Standard Variable Rate.
When you take out a mortgage, you usually have an introductory period of cheaper fixed rates. This means your interest will be fairly low, and locked in for 2-7 years – most often 2-3 years. This gives you security in the event of interest rate hikes or financial shocks. The effect of moving from an introductory rate to your lenders’ standard variable rate (SVR) can have a significant impact on your wallet. The difference between the average SVR and average two-year fixed rate with a 25% deposit is 2.8%, which is a serious hike. This could add hundreds, possibly thousands, of pounds to your annual mortgage payments – something we want to help you avoid.
With interest rates at historical lows, now is the time to capitalise on them. If your introductory rate is coming to an end, it’s time to get in touch with the expert team at Habito.
So when should I start looking?
This is simple. If you are on your lender’s introductory rate, you should start the remortgaging process 3-4 months before it ends. If you are already on your lender’s SVR, then right now!
Once you take out your mortgage, it’s good to keep an eye on your monthly payments. This means putting a big fat X on the calendar the day your introductory period is up. Four months before this date, put another X on the calendar. When this time comes around, it’s worth beginning your remortgage journey. You can do this by heading over to our homepage and starting your remortgage journey. Once you’ve created an account you can complete your personal details, and speak to one of our mortgage experts.
The Habito experience doesn’t stop once we’ve successfully found the right mortgage for you. We’ll monitor your mortgage, and alert you when it’s time to start looking to remortgage. We will help you with this, doing all the heavy lifting, making sure you don’t end up paying more than you ought to. This is all part of our mortgage promise, to save you time and money, and find bliss in home ownership.
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.
Does it move with me?
Some mortgages are portable, allowing you to ‘port’ your mortgage across to a new property. Porting your mortgage means sticking with the same lender, but borrowing a different amount of money. This is usually more money, as people want to upgrade their property. You can also exit your mortgage by paying it off with the sale of your house, but this often incurs fees for exiting before the mortgage term is up.
The porting process will vary depending on the price of the property you are moving into. Also, it will depend on your lender and the terms of your unique mortgage. Some will be more flexible than others when it comes to porting and exiting.
If you want to move to a cheaper property, you may have to pay early repayment charges on the sum you are no longer borrowing. In this case, you essentially pay off the whole mortgage with the sale of your old home. You then borrow less than you originally did to pay for your new home. The difference in cost between the two properties is what you would pay early repayment fees on. This is because you agreed to pay off the sum over the mortgage term, so paying it all back at once will result in fees.
Moving on up
If you’re moving to a more expensive property, you may have increased fees on the loan amount. More expensive property usually means borrowing more money. If you use the same amount of equity, your loan to value ratio will increase. This will likely cause an increase in your interest rate, meaning even higher monthly payments. If you are able to maintain your loan to value ratio, you should be able to move to a more expensive property whilst maintaining your interest rate.
Here’s an example: You buy a £200,000 house with a £50,000 deposit. This means your loan to value ratio is 75%. If you were to move to a £300,000 house, and had a £50,000 deposit, your LTV will increase to 83.3%. To keep your interest rate the same, you would need a 25% deposit on your new house, £75,000. Therefore, it is unlikely you will be offered the same rate on a more expensive mortgage if you cannot increase the deposit by the same percentage.
Exiting your mortgage
Everyone has the right to leave their mortgage, as long as they meet the terms of the deal. This, of course, means paying back the amount you borrowed, plus any fees. Your mortgage contract has an agreement on the length of the term, for example, 25 years. If you repay the full amount before this term, you may be liable for charges. These are called early repayment charges (ERC) and vary depending on your lender and mortgage. Unless you are on your lender’s Standard Variable Rate it is likely you will pay these fees.
The fees are charged on the amount outstanding you are repaying, and can be anywhere between 1-5%. This can rack up some serious fees if you’re repaying a large amount. A 1.5% fee when repaying £200,000 from the sale of your home will incur a £3,000 fee.
However, it may be advisable to pay this fee in some cases. Interest rates have continued to fall since 2012, and are significantly lower than those of mid-2000s. This means stumping up some ERCs could be financially viable to shave a few percent interest off your remaining loan. In the end, it comes back to your specific circumstance, and the home you are moving into. Our team of mortgage experts are here to answer any of your moving house questions, so what’s the hold up? Head over to Habito and find out now the easiest way to move your mortgage.
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.
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.