OneFamily: Over-50s using equity release to stay in homes

The experiences of the past 18 months mean three-quarters (76%) of over-50s are now more likely to stay in their current home for life, according to research from financial provider OneFamily.

Having had a garden during lockdown was a factor in the choice to stay for more than half (53%), while 26% simply realised how much they love their home.

OneFamily also found that 23% of over-50s were keen on keeping space at home for loved ones to visit, while 21% wanted to remain in their current house in order to pass it on to family.

On the financial side, factors such as high house prices (10%), as well as the hassle and cost of moving (31%) were major influences.

Three in five (60%) over-50s said they are unlikely to move house any time soon.

Of these, 24% would consider taking out equity release to free up cash from the value of their property.

Meanwhile, 17% say they would rather spend money to make their house more accessible than relocate.

The same proportion (17%) say they would be very reluctant to move to a smaller warden-assisted flat or care home in old age.

While one in 20 (5%) over-50s had already taken out equity release, OneFamily said this appetite for renovation rather than relocation could drive new uptake.

Paul Bridgwater, head of products at OneFamily, said: “One side effect of the pandemic is that homeowners have grown more attached to where they are living.

“Whether that’s down to having appreciated access to green space, or more intangible factors like family ties and memories attached to a home, our research suggests people seem to be more reluctant to look into downsizing or relocating than they were before.

“But staying in a forever home can mean extra expenses.

“As such, we may be set to see a rise in equity release uptake to fund renovations and adjustments to improve or adapt homes to allow for the more complex needs of later life.

“Taking out equity release is a decision to be weighed up carefully with input from family members.

“It won’t be the right solution for everyone but if this trend for staying in the family home continues to grow, advisers will play a key role in helping over-50s explore their options and make the right choices.”

Source: OneFamily: Over-50s using equity release to stay in homes – Mortgage Introducer

ERS: Younger clients seeking equity release

Equity Release Supermarket’s (ERS) Q3 data shows that younger clients are now seeking equity release which ERS put down to the need to pay maturing interest only residential mortgages.

It was the case that those aged between 60 and 64 accounted for 25% of ERS clients, with 23% aged 65-69 and 19% aged between 70 and 74.

However, more ERS clients are now aged between 55 and 59 than within the 75 to 79 bracket (13% vs 11%)

The types of plans taken out were also reflective in the desire to borrow a single lump sum – to repay a mortgage, make a property purchase or pay a debt for example.

Throughout the year, a lump sum plan proved to be the most sought after, with Q1 of this year representing 57%, Q2 equating to 60%, Q3 equalling 58% and the year-to-date coming in at 58%.

In Q1, ‘repay mortgage’ was the reason 23% took out their plan; in Q2 it amounted to 19%); and in Q3 24% took out a plan to repay a mortgage.

Drawdown plans come in just behind lump sums, in second place. In Q1 this year they represented 35%, Q3 hit 31% and year-to-date equated to 33%.

Similarly to last year, ERS also noted that London and the South East were the most buoyant areas for demand, accounting for 37% of plans in Q1, 34% in Q3 and 35% year-to-date.

When it comes to regional property variances, London remained top of the charts with the average release reported at £227,000 year-to-date, twice the national average of £113,000. The North East borrowed the least, standing at just £56,000 so far in 2021.

Mark Gregory, founder and CEO at Equity Release Supermarket, said: “Now that the lockdown restrictions have come to an end, Equity Release Supermarket’s customers have returned to face-to-face advice, growing from 9% in Q1 of this year to 28% in Q3 and 20% year-to-date.

“Business has increased each quarter as we’ve moved out of lockdown, with the total amount clients release also rising in line with the general confidence in the market.

“The need for great flexibility for spending equity has evolved over the past 18-months and we’ve seen consumer behaviour continuing to change.

“In fact, interestingly our clients were not borrowing more just to take advantage of the Stamp Duty Holiday on house purchases. Instead, money released this year has been influenced by a combination of the Stamp Duty Holiday, the desire to support children financially and a need to reduce stress on outgoings.”

Source: ERS: Younger clients seeking equity release – Mortgage Introducer

Is Equity Release A Good Idea for 2022

What is equity release?

Equity Release is a way to unlock money from the value of your property.

You normally do this by taking out a mortgage loan secured against your home. However, you can also do so by selling a share of your property to an insurance company. It depends on the specific product you choose.

People typically use these products to top up the money from their pensions, help out younger family members, or make home improvements.

To use these services, you must be at least 55 years old. This is the minimum age for a life mortgage. However, you must be at least 65 for a home for life plan. 

You also need to own a property in the UK worth a minimum of £70,000. It must be in good condition.

There are usually no monthly payments to be made, and you get to continue living in your home without paying rent.

What are the advantages of equity release?

Lifetime Mortgages

  • Lifetime mortgage equity release interest rates are fixed for life. Standard equity release rates of interest in 2020 are between 4-6% AER, although you may find that the cheapest schemes start at around 2% AER.
  • Because the percentage of interest on your loan is fixed, debt can build up quickly and the product can become very expensive. Interest will continue to roll up on the amount you borrow for the rest of your life.
  • You will not be able to leave your home to your family as inheritance. This is because your house will be sold either upon your death, or after you enter long-term care, in order for your loan and its interest to be repaid.
  • Like their name suggests, a lifetime mortgage is a lifelong commitment. It is very difficult to terminate the plan early. If you do later decide that you want to end the agreement, you will need to pay an Early Repayment Charge which can be very costly.
  • You cannot take out any other mortgages secured against your home will you have a lifetime mortgage. Any outstanding debts of this kind must be paid off when you receive your cash lump sum.
  • There are additional costs that you must pay during the application process. For instance, you may need to pay a fee for the valuation of your property, or pay for independent financial advice.
  • The maximum loan you can receive with a lifetime mortgage is calculated using a certain percentage (LTV) of your property’s true market value. An average LTV is about 25-35% of the price your property is worth.
  • Getting an equity release loan can negatively impact your tax position. You may also lose your eligibility for means-tested benefits and pension credit, both now and in the future.
  • Equity release is not an appropriate option for you if you are currently living with any dependants.

What are the disadvantages of equity release?

Again,  the exact disadvantages depend on your financial situation and the type of equity release product you select. Below are some of the pitfalls that you might come across.

Speak to an independent adviser to receive more personalised financial advice about how equity release might affect your individual situation both now and in the future.

Lifetime Mortgages

  • Lifetime mortgage equity release interest rates are fixed for life. Standard equity release rates of interest in 2020 are between 4-6% AER, although you may find that the cheapest schemes start at around 2% AER.
  • Because the percentage of interest on your loan is fixed, debt can build up quickly and the product can become very expensive. Interest will continue to roll up on the amount you borrow for the rest of your life.
  • You will not be able to leave your home to your family as inheritance. This is because your house will be sold either upon your death, or after you enter long-term care, in order for your loan and its interest to be repaid.
  • Like their name suggests, a lifetime mortgage is a lifelong commitment. It is very difficult to terminate the plan early. If you do later decide that you want to end the agreement, you will need to pay an Early Repayment Charge which can be very costly.
  • You cannot take out any other mortgages secured against your home will you have a lifetime mortgage. Any outstanding debts of this kind must be paid off when you receive your cash lump sum.
  • There are additional costs that you must pay during the application process. For instance, you may need to pay a fee for the valuation of your property, or pay for independent financial advice.
  • The maximum loan you can receive with a lifetime mortgage is calculated using a certain percentage (LTV) of your property’s true market value. An average LTV is about 25-35% of the price your property is worth.
  • Getting an equity release loan can negatively impact your tax position. You may also lose your eligibility for means-tested benefits and pension credit, both now and in the future.
  • Equity release is not an appropriate option for you if you are currently living with any dependants.

Is equity release safe?

It is only natural that you want to answer the question “how safe is equity release or is equity release safe”.

You will be pleased to hear that all equity release products are authorised and regulated by the Financial Conduct Authority and Equity Release Council.  The Equity Release Council build protections into every approved provider’s plans. Therefore, they can be viewed as relatively safe.

For example, they include a no negative equity guarantee. This ensures that you will never have to pay back more than the total value of your property.

The no negative equity guarantee can reduce worries because you will know that despite the fixed interest rate, your loved ones will never end up owing more than you can afford.

In a home reversion scheme, you will also be granted a Lifetime Lease. This legal document promises:

  • That you will be permitted to continue living at home for the rest of your life even though you are no longer the sole homeowner;
  • And that you will never owe any money as rent while you live there (unless your deal specifies that you pay a small amount of money as nominal rent to the landlord, such as £1 or £2 a month).

 

Is it worth taking equity release?

As outlined above,  the risks associated with equity release depend on which type of equity release you are interested in. It is important to remember that any kind of equity release may impact your tax position and your eligibility for means-tested benefits both in the present and in the future.

Using equity release to unlock some extra income or a lump sum will also mean that your family have less to inherit.

When you unlock equity from your property, you are making a lifelong commitment. It is extremely difficult to back out once you have signed the deal.

If you decide you no longer want the agreement, you will need to pay a large Early Repayment Charge.

You should contact us for more information about the pros and cons of releasing equity from your home.

We can give you more details about the range of plans on offer, the featured content, and the difference in rates across the services providers.

We will also explain the alternatives that you have available.

Glossary of Mortgage Terms A-Z

APRC

The Annual Percentage Rate of Charge, often referred to as APRC is the total cost of the credit to a consumer, expressed as an annual percentage of the total amount of credit.

AVM

AVM stands for Automated Valuation Model.  It is a search used by some lenders to establish the value of your property based on recent local sales and value trends.  This is instant and means that they do not have to send a surveyor to your property.

Base Rate

The UK’s core interest rate, set by the Bank of England. The lender’s Standard Variable Rate (SVR) is higher than the Base Rate, but is often adjusted by reference to it.

Bonding Scheme

An agreement by members of a profession or trade to establish a central compensation fund which consumers can draw on in cases of fraud or insolvency.

Buildings Insurance

Insurance cover which protects the holder against damage to the property itself (although it can be linked with contents insurance in a combined policy). The amount insured may vary from the purchase price/valuation of the property depending on the type of location of the property. The valuer will usually provide a rebuild cost for insurance purposes.

Business Buy to Let

The practice of buying a house or flat for investment purposes. Income is provided by the tenants’ rent, and capital growth (if any) by the property’s increasing resale value.

Capital and interest

In the context of mortgages, a capital and interest mortgage is also known as a repayment mortgage. It involves paying all of the interest plus repayment of a little of the capital each month; an interest only mortgage involves only paying off the interest.

Capped Rate

A mortgage which allows your interest rate to climb no higher than a specified level, usually for the first few years of the loan.

Cashback

A cash amount paid by a mortgage lender to a customer (typically at the beginning of a contract) as an inducement to enter into a mortgage contract with the mortgage lender.

Completion

The final stage of the house-buying process, which comes after exchange of contracts. The sale must proceed after Exchange, but Completion occurs when the property’s agreed sale price (less any deposit already paid) safely reaches the seller’s bank account.

Compulsories

This is shorthand for compulsory insurances. Some lenders, at least for certain mortgages, insist that you take out their buildings insurance – which needn’t necessarily be the most cost effective on the market.

Consumer Buy to let:

Buy-to-let mortgages that are driven by certain circumstances where the potential borrower (a) did not set out to borrow for business or investment purposes, (b) does not have any other buy-to-let properties and (c) is only looking for a remortgage. For this reason these mortgages are regulated giving you greater protection than with a business buy to let mortgage.

Contents Insurance

Insurance cover which protects the personal belongings your home contains. In the case of rented accommodation, the landlord is responsible for insuring those contents which he owns, but not those owned by his tenants.

Conveyancing

Normally carried out by a solicitor or licensed conveyancer on the buyer’s behalf, conveyancing includes proving the property is really owned by its seller, making sure that all the loans secured on it are discharged, establishing its legal boundaries and searching local planning information for upcoming developments which could affect the property’s value.

Council Tax

A local authority charge which replaced the Community Charge in 1993/94. Generally speaking, the more valuable your property is, the higher your Council Tax bill will be, although the amount for an identical property can vary considerably between different local authorities. In rented or buy to let accommodation, the tenants are usually responsible for the Council tax.

County Court Judgement (CCJ)

If a County Court rules against you for defaulting on a debt, that ruling is listed on your credit record. Having such a judgement listed against you may mean you are turned down for future loans, or be expected to pay a higher rate than other customers. The Scottish equivalent of an English CCJ is a Decree.

Credit Reference Agency

When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies, and contain information from many different aspects of your life.

Current Account

A bank account linked to a cheque book and/or debit card. In exchange for instant access and the ability use cheque or debit facilities, most pay little or no interest on the balance they contain.

Deeds

The formal written document which lists exactly who owns a property and enables transfer of a property’s ownership from seller to buyer. A mortgage lender will record details of their mortgage on these deeds (which means they can take ownership of the property if you default on the loan payments).

Deposit

In the context of mortgages, the deposit is the initial lump sum payment which the buyer must contribute to the property’s total purchase price. Commonly set at around 5% to 10%.

Deposit-based Savings

A method of saving which pays regular, usually variable interest based on the amount invested (instead of relying, for example, on the unpredictable returns from stock market investment).

Discounted Rate

A mortgage which has an interest rate below the lender’s standard variable rate (SVR), Bank Base Rate or Libor rate, typically for the first few months or years of the loan. The rate payable may move up and down, but the discount on SVR remains constant.

Distance mortgage mediation contract

Mortgages completed at distance – namely not face-to-face – are classed as a distance contract.

Diversification

The principle that wise investors should spread their risk among many different types of investment. A properly balanced portfolio will contain elements of share, deposit-based and property investments. Fund performance and objective achievement are not guaranteed.

Durable Medium

A document which meets the following criteria is said to be in a durable medium:

  • Capable of being used by the recipient.
  • Enables the recipient to store the information in a way accessible for future reference for a period of time adequate for the purposes of the information.
  • Allows the unchanged reproduction of the information.

Early Repayment Charges (ERC’s)

A charge levied by the mortgage lender on the customer in the event that the loan is repaid in full or in part before a date specified in the contract. Fixed-rate, capped-rate, cashback and discount rate mortgages commonly carry early repayment charges that can in some cases persist long after the initial special rate itself has expired. This can make it prohibitively expensive to move to a rival lender in the first few years of the loan. The John Charcol web site shows you the size of any early repayment charge and how it changes over time.

Employment Status

A term used by lenders to describe potential borrowers’ working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees are. But many specialist lenders and mortgages have emerged in recent years designed specially for different types of employment status, and the John Charcol website has a wide variety of these in its database.

Endowment Mortgage

A mortgage funded by an insurance-based savings plan. The borrower only pays interest during the mortgage term and the savings plan is designed to repay the mortgage at the end of the mortgage term. As the returns payable under the savings plan depend on stock market performance, shortfalls and in some instances overpayments can occur.

Exchange of Contracts

The terms of a property’s purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that you are covered by building insurance from this date, because even if the property were damaged badly, you would still have to buy it.

Execution-only/Non-advice

A service which offers no advice, but merely carries out the customer’s orders.

Fixed Rate

A mortgage which fixes your interest rate at a specified level, typically for the first few years of the loan.

Fixed rate mortgage

A fixed rate mortgage charges a set interest rate over an agreed period of time, which could be anything from 1 year, 3 years, 5 years, or occasionally even longer. At the end of the fixed rate, the mortgage will normally revert to the lender’s standard variable rate.

Usually you will find that a fixed rate mortgage offers very favourable terms, but early repayment charges will limit any flexibility to switch away from it.

The good thing about a fixed rate mortgage is that you know how much you’ll be repaying each month for the length of the fixed period, which can make budgeting much easier. Where fixed rate mortgages don’t necessarily work is if the standard rates begin to fall – and you end up fixed on a higher rate with prohibitive early repayment charges.

Flexible Mortgage

A mortgage which allows borrowers to make overpayments when they have spare cash. Other features could include the option to reduce or miss payments altogether when times are tight, and to reborrow any overpayments. Not all flexible mortgages offer all of these features. Often useful for self-employed people whose income varies from one month to the next. The most flexible form of mortgage is a Current Account Mortgage (CAM), which can potentially save you money by linking your current account and mortgage together.

Graduate mortgage

Some lenders offer specialist graduate mortgage products. These tend to require no deposit and in some cases can lend up to 100% of the value of the property.

If you would like to find a competitively priced graduate mortgage and get out of the renting game, take a look at the options today.

Gross

Before tax or deductions.

Growth

A growth strategy is one which seeks to maximise the capital value of your investment without the requirement to generate any minimum level of income. Any income may be reinvested.

Higher Lending Charge

This is an insurance premium that you have to pay for some mortgages, usually when the Loan To Value is higher than a certain figure. It protects the lender to some extent if you default on the mortgage for any reason. It is important to understand that although you have to pay the premium, the lender benefits from any payout, and that if the payout doesn’t cover their costs they may seek further money from you. With many mortgages you can add the Higher Lender Charge to the loan, unless this takes your Loan To Value over a certain figure. The insurer may pursue the defaulter for reimbursement of any monies which have been paid out in respect of lenders claim.

Home and Contents Insurance

A joint term, referring to both buildings cover and contents cover. The two policies may or may not be bought from the same insurer, but buying them together can sometimes save money or make life simpler.

Illustration

In the context of mortgages, a lender’s estimate of the monthly payments you would have to make under a particular loan arrangement, together with the costs to set it up.

Impaired Credit

Impaired credit mortgages are specialist loans for customers whose credit problems disqualify them from using mainstream lenders’ standard products. Some lenders specialise in loans like these, which are also known as adverse credit loans.

Income

An income strategy for investments is one which seeks to achieve a minimum level of income from the investment to fund day-to-day spending (often used by retired people).

Independent Mortgage Advice

Independence in regard to mortgage advisers is defined by the FSA as advice given in respect of the whole of the market, and offers the client a fee-only option, in other words is able to accept no other payments apart from those levied on the client, thereby eliminating any conflict of interest that could arise.

Interest

The premium which a borrower must pay a lender in return for use of the lender’s money.

Interest-Only Mortgage

An interest-only mortgage or interest only remortgage is where you simply pay the lender the minimum amount to cover the interest on your loan and invest enough each month in an investment vehicle to build up a large enough fund to pay off the capital part of the mortgage, when it becomes due at the end of the agreed term.

ISA Mortgage

A mortgage loan funded by contributions to an Individual Savings Account. ISAs provide tax-free growth, generated mainly by stockmarket investment. The ISA aims to repay the loan’s capital at the end of its term, but the interest element must be paid separately as you go along. It’s important to remember that past performance is not necessarily a guide to future performance.

Letting Agent

A property agent who can help landlords locate suitable properties for purchase, and who finds tenants to occupy those properties and can manages the rental process which follows. Our guide for landlords has more information about letting your property.

Loan To Value

This is the amount you want to borrow divided by the purchase price. In other words, it reflects the size of your deposit. Generally, the lower the loan to value, the safer the lender will view the loan.

Local Search

See Search.

London Inter-Bank Offered Rate (LIBOR)

The interest rate at which leading banks lend to one another. Sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. There are separate LIBOR rates for different periods up to a year but either “1” or “3” months LIBOR is what is normally used in setting mortgage rates.

Money Markets

The wholesale markets in which banks and other financial institutions lend money to one another. Mortgage lenders often borrow money in these markets, particularly for funding fixed rate mortgages.

Mortgage Adviser

A firm/ individual with permission for advising on regulated mortgage contracts.

Mortgage refinancing

Mortgage refinancing typically refers to using a lower rate mortgage to consolidate other loans and reduce monthly outgoings.

The mortgage refinancing rate – as long as you choose carefully – should be a great deal less than you are paying for credit cards, unsecured loans or other finance and can therefore save you a significant amount each month. However, you may pay more over the term of the loan.

Net

After tax or deductions have been deducted.

Non-Status Loan

This is where your income is not disclosed.

Offset Mortgages

Most mortgage borrowers also have savings, even if they are small, and using this money to cancel out mortgage debt makes sense. This is the basic principal behind offset mortgages.  With interest only paid on the balance between savings and mortgage debt you achieve the same effect as overpaying a home loan: but you retain the ability to get the money back if you need it. Check out the best offset mortgage rates with our Best Buy table.

Overpayment

A mortgage repayment bigger than the one needed to meet the loan’s minimum requirements. Mortgages that allow these without penalty are often useful for people whose type of employment means that from time to time they receive significant bonuses or other influxes of money. Our mortgage overpayment calculator can give you an idea of how much you could save by overpaying your mortgage.

Payment Holiday

A short break from regular mortgage repayments, sometimes offered with flexible mortgages. This can sometimes be a useful feature for self-employed people or others with irregular income.

Pension Mortgage

A mortgage whose capital repayment is funded by using a personal pension. The generous tax breaks given to pension saving boost contributions by making them gross instead of net of tax. There is an option available to take a lump sum, of up to 25% of the value of the accumulated pension fund. This lump sum aims to repay the loan’s capital at the end of the term.

Premium

In the context of insurance, a premium is the regular sum you pay to keep your cover in force.

Procurement Fee

The total amount paid by the mortgage lender to a mortgage adviser/ intermediary, whether directly or indirectly, in connection with providing applications from customers to enter into regulated mortgage contracts with the mortgage lender.

Remortgaging

The process of switching your mortgage loan from one lender to another without moving house. Visit our guide to remortgaging your property or take a look at our best remortgaging rates. 

Repayment Mortgage

A mortgage loan funded by simple monthly repayments, calculated to repay capital and interest usually over a term of 25 years (less if preferred).

Repayment vehicle

The means by which a mortgage loan’s capital is repaid. Examples include endowment policies, ISAs, and personal pensions.

Search

A local authority search is an examination of local planning records to uncover details of any upcoming developments near the property which could affect its future value or existing restrictions on the site.

Secured (loan)

If you should default on your mortgage, the lender can ultimately repossess your property to recover their money. The loan is hence said to be “secured” on the property. A second charge mortgage is a type of secured loan.

Self certification mortgage

A self certification (sometimes called self-cert) mortgage is a mortgage for self-employed people who do not have pay slips or do not necessarily have a regular income to confirm their earnings to a lender.

It used to be the case that the UK self certification mortgage rate tended to be substantially higher because lenders perceived this as a more risky sector to deal with. These days, by shopping around, it is possible to get a competitive self-cert mortgage, with just as many of the benefits regularly employed people enjoy.

With a self cert mortgage, you declare your annual earnings and in nearly all cases the lender will not require any proof of income.  This can be particularly beneficial to people who are self-employed and might struggle to provide detailed accounts, or people with additional incomes that are not included in traditional income calculations.

Self build mortgage

A self build mortgage is designed to help you finance the building and ownership of a house that you are about to build. The UK self build mortgage market is a specialist area, because you are asking lenders to put forward money against an asset which does not exist at the beginning of the project.

Stamp Duty

Stamp duty, or stamp duty land tax to give it its full title, is the tax levied by the government on house purchases. The amount of stamp duty you’ll pay depends on if you are a first time buyer and whether you’re buying a main, secondary residential property or a buy to let investment. For the latest stamp duty rates use our stamp duty calculator.

Status

A shorthand term for the borrower’s credit record and employment situation. See “Non-Status Loan”.

Standard Variable Rate (SVR)

A mortgage lender’s main interest rate. Fixed-rate and discount loans usually switch to SVR when the special offer period expires. Conversely, tracker mortgages switch to a fixed percentage above Bank Of England Base rate (or LIBOR)

Surrender

The process of cashing in an unwanted endowment policy with the insurer who sold it to you. Doing this often produces a poor return for the money invested to date in the policy’s early years.

Survey

An expert examination of the property you are considering buying, aimed at discovering any structural flaws or repairs needed which you may have failed to notice yourself.

Tracker

Tracker mortgages link your interest rate to a benchmark, such as Bank of England base rate. The rate you pay moves up and down in line with the benchmark selected. Check out the best tracker mortgage rates with our Best Buy table.

Term

The period of time over which your mortgage will run. Typically 25 Years or to expected retirement date if that comes first.

Underpayment

A mortgage repayment smaller than the regular agreed sum. Some flexible mortgages have this feature, which can be useful for people with irregular income.

Poor Credit Mortgages

Can I get a mortgage with bad credit?

When you apply for a mortgage, lenders will check your credit history to understand how well you manage your finances. They’ll also need an I get a mortgage with bad credit?

It’s possible to get a mortgage with poor credit, but it helps to show yourself in the best possible light. That means taking care of your credit history and budgeting sensibly.

Can I get a mortgage with bad credit?

When you apply for a mortgage, lenders will check your credit history to understand how well you manage your finances. They’ll also need an I get a mortgage with bad credit?

It’s possible to get a mortgage with poor credit, but it helps to show yourself in the best possible light. That means taking care of your credit history and budgeting sensibly.

  • Show lenders you’re a responsible borrower by meeting all your regular payments – e.g. utility bills and credit card payments – on time and in full.
  • Review your spending – try to reduce costs where you can, and keep your monthly outgoings consistent. Aim to have money left over at the end of each month.
  • Try to review your credit report regularly – make sure it’s up to date, and that the information on it is accurate. If you do find anything that needs correcting, contact the relevant lender and ask for an amendment – or get in touch with us, and we’ll speak to the lender for you.
  • If you have a good explanation for past financial difficulties, such as redundancy or ill health, consider adding a note of correction to your report for lenders to see.
  • Only set your sights on a property you can realistically afford, as there aren’t too many mortgages around at 95-100% loan to value.
  • You may need a guarantor, typically a parent or an older relative, to reassure lenders that monthly payments will be covered if you can’t keep up with them.
  • You can check your eligibility for a mortgage with us. Whether you’re a first-time buyer, moving house or looking to re-mortgage, we can show you which lenders are more likely to accept you.

Remember, you’ll also need a decent deposit in place – at least 10-20% of the property price.

Data Protection Notice

Data protection:

During the initial meeting, clients are given a Statement that explains how the data is handled under the General Data Protection Regulation (GDPR) 2018.

Missing Element is an Appointed Representative of Sesame Limited (“Sesame”) which is part of Sesame Bankhall Group Limited.

Missing Element, (and Sesame) hold records concerning the financial relationship with us during your time as a client and following the closure of our business if we are required to do so.

Sesame is responsible for ensuring that all sales and advice we provide is compliant with the rules and regulations applied to Financial Services in the UK and in accordance with their policies and procedures.

Client details are passed from us to Sesame, who may make direct contact in order to check that we are treating clients with care and respect and that there are no complaints.

With power comes responsibly, which that Sesame may be required to pass on clients’ details to legal and regulatory bodies, including the Financial Conduct Authority and the Financial Ombudsman Service.

Sesame also shares client information with other financial service organisations, (including product providers), law enforcement agencies, and fraud prevention agencies. This is required in order to prevent and detect financial crime while ensuring that we are complying with all relevant laws and regulations.

Remortgage

When you remortgage, you take out a new loan on a property you already own. You do this to either replace your existing mortgage product to get cheaper interest rates, or to release some cash from your home to meet your current financial needs or fund a lifestyle decision.
Decades ago, it wasn’t unusual for homeowners to stay with the same provider throughout the course of their entire mortgage. Nowadays, however, Remortgaging for better terms or to access some equity is commonplace. It’s a bit like searching around for the best energy rates or the more affordable broadband contracts, although the financial consequences are much greater if you choose the wrong mortgage – and this is why it’s so important to seek professional advice before making the switch.

When you remortgage, you take out a new loan on a property you already own. You do this to either replace your existing mortgage product to get cheaper interest rates, or to release some cash from your home to meet your current financial needs or fund a lifestyle decision.
Decades ago, it wasn’t unusual for homeowners to stay with the same provider throughout the course of their entire mortgage. Nowadays, however, Remortgaging for better terms or to access some equity is commonplace. It’s a bit like searching around for the best energy rates or the more affordable broadband contracts, although the financial consequences are much greater if you choose the wrong mortgage – and this is why it’s so important to seek professional advice before making the switch.

Home Movers

Mortgage advice for Home Movers

Are you ready to buy your next home?
It’s an amazing feeling when you move into a new property, a fresh start, new neighbours, different layout, maybe even an extra bedroom or two. But, buying and selling properties at the same time can be stressful.

There are a lot of individual parties that you will need to deal with, solicitors, estate agents, your new mortgage provider, vendors, as well as looking into moving companies, home insurance, life insurance… I’m sure you get the picture. It’s a lot of phone calls, emails and documents – something we could all do without!

Mortgage advice for Home Movers

Are you ready to buy your next home?

It’s an amazing feeling when you move into a new property, a fresh start, new neighbours, different layout, maybe even an extra bedroom or two. But, buying and selling properties at the same time can be stressful.

There are a lot of individual parties that you will need to deal with, solicitors, estate agents, your new mortgage provider, vendors, as well as looking into moving companies, home insurance, life insurance… I’m sure you get the picture. It’s a lot of phone calls, emails and documents – something we could all do without!

The stress of moving is sometimes not even the worse bit.

You can become so occupied with everything else, you might not secure the best deal on your new mortgage, this will mean higher monthly payments and potentially even an extra couple of years until you pay it all off.

Moving home is a great time to review your current mortgage, the rates you are offered are generally very competitive. But switching mortgage provider all together isn’t the only option; you can look into porting the mortgage with your current lender onto the new property.

Now, this might sound great on the surface, but again this is just another avenue for you to explore; a bullet point on the never-ending list of moving.

Thankfully we are here to explore all of your options for you. Because we are a whole of market mortgage advisors, we have got access to every product from all lenders, we will secure you the absolute best deal on the market for your circumstances. Weighing up things like potential charges for your current product, to upfront fees on the new product. So, while you source cardboard boxes for the big move, we will source the best rates on the market for your pocket!

A free review from one of our expert mortgage advisors can provide you with loads of information, such as how much you can borrow, the mortgage term, rates and even monthly payments, we can also secure you an Agreement in Principle that’s no charge and no obligation.

When you are ready to move forward with your mortgage application, we will manage the whole process for you, liaising with your lender, solicitor and estate agent, so just sit back, relax, and think of how you are going to arrange your furniture in your new home!

First Time Buyers

You do not qualify as a first time buyer if you have owned a property in the past, or if you have inherited property from a friend or family member. Similarly, if you own a house or flat but your partner does not, and you want to purchase somewhere new together, you will not be eligible for first time buyer mortgage schemes.

Read on to learn more about first time buyer mortgages and discover what you can expect from the mortgage application process.

What is a first time buyer?

You are a first time buyer if you are looking to purchase your first home or investment property.
You do not qualify as a first time buyer if you have owned a property in the past, or if you have inherited property from a friend or family member. Similarly, if you own a house or flat but your partner does not, and you want to purchase somewhere new together, you will not be eligible for first time buyer mortgage schemes.

If I am a first time buyer, can I get a mortgage?

Mortgage providers are sometimes more wary about lending to people who have never had a mortgage before. But these companies also recognise that everybody has to start somewhere and will normally be happy to offer you a loan as long as you meet their eligibility criteria.
Typically, a lender will want to see that:

  • You earn enough to cover your monthly mortgage repayments (and then some)
  • You have saved a reasonable deposit
  • You have a good credit history, and your credit file doesn’t contain any recent evidence of defaults, CCJs, IVAs or bankruptcies

We’ll talk about each of these criteria in more detail shortly. But for now, rest assured that, as long as you have a regular income and can demonstrate that you can manage your money, there’s no reason why you shouldn’t be able to secure a mortgage.

Does being a first time buyer put me in a better position than someone who has been in the property market for some time?

Estate agents and vendors often dream of receiving offers from first time buyers like you!
You have no property to sell, so you’re probably going to be the person who completes the chain. You’re likely to be more flexible with move-in dates, too. All these factors combined mean that you’re a much more attractive choice to a seller than somebody who is waiting for a buyer of their own – and you can often use this unique position to your advantage when putting in an offer.

How much deposit will I need?

The more you can save for your initial deposit, the less you’ll need to borrow towards your purchase – and the better chance you’ll have of securing more competitive mortgage rates.
The minimum you will need is 5% of the price of the property you want to buy. This will leave you with a loan to value (LTV) ratio of 95% – the lowest accepted by most lenders. However, if you only have this relatively low amount to put towards your purchase, the range of mortgage deals that you qualify for will be limited.
If you can save 10% or even 15% of the purchase price, this will stand you in much better stead with a wider pool of lenders.
If you can saver 20% or more, you will have access to some of the best rates on the market, which means you will pay considerably less in interest to your lender over the course of your mortgage term.

How much will I be able to borrow?

The amount you will be able to take out on your mortgage will depend on a range of factors, which are often referred to as eligibility or affordability criteria. These include:

Your income:

You will need to tell your lender how much you earn – including how much you receive in government benefits, overtime payments, bonuses, holiday pay, investment income and/or pension payments – and provide evidence in the form of wage slips and bank statements.
If you are self-employed, you may also need to provide at least 12 months’ worth of accounts, along with SA302 forms from previous tax forms.
Your mortgage provider will then take your annual income and use it to determine how much you can feasibly afford to borrow. Most lenders will multiply your earnings by 4 or 5 to reach your maximum borrowing limit. So, for example, if you earn £30,000 per year, you will be able to apply for a £120,000 mortgage with a lender that uses income multiples of 4, and £150,000 with a company that will stretch to an income multiple of 5.

Your outgoings:

In order to calculate how much you can afford to set aside for your mortgage on a monthly basis, the lender will want to take a look at your bank statements to see how much of your income goes towards bills, groceries and other expenditure.

Your debts:

Be prepared to provide more information on your outstanding debts, including credit card bills and student loans. The lender will use your outgoings to calculate your debt-to-income (DTI) ratio, which essentially tells them how much debt you have as a percentage of your total income. The lower your DTI, the better chance you have of finding a good mortgage deal (or any deal at all).

Your age:

In the UK, you will normally be able to apply for a mortgage from the age of 18, although in exceptional circumstances lenders may require you to be over 21 or 25 years old. You may struggle to borrow towards a property if you are aged over 65, or if your mortgage term is due to end after you have turned 75. That said, there are some more niche lenders that specialise in lending to would-be homeowners in later life – so don’t assume that a mortgage is out of reach if you are keen to become a first time buyer in your twilight years!

Your credit history:

Most lenders will want to see that you can handle your financial affairs responsibly. When assessing your suitability for a loan, they will take a look at your credit reports for information on the credit accounts you have taken out in the last six years, and whether or not you have managed to meet all of your payments on time and in full.
The three main credit agencies – Experian, Equifax and TransUnion – produce their own versions of your credit report, and use your report to generate your credit score. Each of these agencies will calculate your score in different ways, but generally, if you have maintained all repayments and have no evidence of any money troubles in the last six years, you will be given a healthy credit rating.
If your credit report is scattered with evidence of defaults, County Court Judgements (CCJs), individual voluntary agreements (IVAs), debt management plans and/or bankruptcy, your score will be considerably lower.
Every mortgage company will assess your suitability in different ways. Some will be more concerned with your annual earnings, while others will base their decision largely on your credit score. If you’re concerned that previous mistakes with money might hold you back from securing a mortgage, check out our advice on adverse credit mortgages.

The type of property you want to purchase:

Many companies will also want to know what kind of property you are looking to buy and where it is located. It is generally trickier to get a mortgage on a property that is in considerable disrepair or does not have a functioning kitchen and/or bathroom. Mainstream mortgage companies might also be dubious about lending on properties that are not of standard construction, that have thatched roofs or that are considered listed buildings (though some more niche lenders may be prepared to offer you a deal).

How much will I need to pay every month towards my mortgage?

The size of your monthly mortgage repayments will depend on three key things:

  • How much you borrow
  • The interest rate you have been offered
  • The length of your mortgage term

You will also need to consider any additional fees that will be added onto your mortgage product. We’ll explain these in more detail later.
The average length of a mortgage term is 25 years, but these days many lenders are willing to extend this to 30 or 35 years if you will still be under retirement age when the agreement comes to an end. Extending your term can result in lower monthly payments, but you will usually end up paying more in interest.
You can use a mortgage calculator to work out how much you can afford to pay back towards your mortgage every month, and how long your term will need to be to keep these repayments manageable.

Should I choose a repayment mortgage or an interest-only mortgage?

With a repayment mortgage, you will be paying back some of the loan itself, along with the lender’s added interest. At the end of the term, you will have paid off all your debt, and you will own the property outright.
Choose an interest-only mortgage, and your monthly repayments will only cover the interest on your loan. You will need to use other funds to pay the mortgage balance when your term finishes.
Repayment mortgages are usually cheaper overall, and the interest rates on these kinds of arrangements are much lower. Plus, you’ll have peace of mind that you are slowly but surely chipping away at your loan. However, interest-only mortgages do suit some first time buyers who want to keep their monthly outgoings to a minimum.

What are the different kinds of mortgage products for first time buyers?

Fixed rate mortgages

Some homeowners find it helpful to know exactly how much they need to set aside for their mortgage repayments every month. Fixed rate mortgages enable you to lock in a set interest rate for a certain amount of time – often 2, 3, 5 or 10 years. Some homeowners find it helpful to know exactly how much they need to set aside for their mortgage repayments every month.

Tracker mortgages

Tracker mortgage interest rates will fluctuate according to the Bank of England’s base rate. Opt for this type of product, and your interest rate will be set at a margin above the base rate. It will go up and down depending on across-the-board interest rate changes, which means your repayments may frequently change.

Offset mortgages

By offsetting your savings against your mortgage, you can use your own money to reduce the balance on which interest is charged.
If you have chosen an interest only deal, you can use an offset mortgage arrangement to lower your monthly mortgage payments; if you are on a repayment mortgage, you can use your savings to reduce the length of your term.

What if I have a poor credit score?

As a first time buyer, you may still be able to find a mortgage company that is willing to lend you the amount you need to purchase your home. However, if you have a less-than-desirable credit history, we would always recommend taking active steps to improve your credit score before starting the mortgage application process. You can watch our video on how to improve your credit score, read our page about bad credit mortgages and even access your free credit report to help you better understand and improve your chances of getting a mortgage, no matter your situation.

How long will it take to get a mortgage as a first time buyer?

This really depends on how quickly you can gather the information you need to satisfy a lender.
As long as you have all the necessary documents to hand, you can answer the lender’s questions without hesitation, and the owner of the property you wish to buy allows the lender to carry out a valuation or survey in good time, you should expect the mortgage application process to take between 4 to 6 weeks.

How could a mortgage broker help me?

An experienced mortgage advisor will gain an understanding of your current personal and financial situation, then find quotes from lenders who are likely to make you a mortgage offer based on their current eligibility criteria.
You could do this yourself by using online search engines, or approaching your current bank or building society – but by taking this approach, you won’t be able to take advantage of direct-to-broker deals, and you won’t find some of the more specialised mortgage companies that cater for borrowers with low income, low deposits and a history of adverse credit. A professional mortgage broker can help you find the perfect deal at the right rate, regardless of your circumstances.
What’s more, a mortgage broker can help you navigate your entire purchase by answering any questions you may have, and liaising with accountants, solicitors, conveyancers and everyone else involved to make sure you are on track for completion. This kind of support can be invaluable if you’re new to homeownership, as there’s a lot to consider and the process can often seem overwhelming.

Will I need a solicitor?

This is a question we get asked a lot, and the answer is always a resounding ‘yes’. we would recommend contacting one of our brokers so they can instruct a qualified solicitor to assist you with your purchase.
Your solicitor will be on hand to handle contracts, carry out all the necessary searches on your new home, liaise with the Land Registry and manage the fund transfers on completion. If there’s a bump in the road during the application process, or the searches throw up concerns with the property, he or she will be able to advise you on the best way forwards (and potentially prevent you from making the wrong commitment at the wrong time).
You will need to pay for a solicitor’s services, and you will also need to set aside some money to cover the necessary searches and Land Registry fees. Some solicitors will charge by the hour; others will charge a fixed fee. Be sure to confirm costs with your chosen conveyancer before you ask them to start work.
It’s often best to ask your friends, family members or independent financial advisor for recommendations. But if you need help sourcing a good solicitor, let us know and we’ll happily introduce you to someone with lots of experience in helping first time buyers buy their first home.

What are the costs involved in purchasing a property?

As well as making sure you have enough to cover your initial deposit, you will need to factor the following fees and charges into your house buying budget:

Stamp duty

Whenever you purchase a new property or a piece of land for more than £125,000 in England or Northern Ireland, you need to pay stamp duty. You will need to pay this type of property transaction tax regardless of whether you’re buying a home outright or with a mortgage.
The tax requirements are slightly different in Scotland and Wales.
The rate you pay will depend on which price band your property falls into:

  • Less than £125,000 – 0%
  • £125,001 to £250,000 – 2%
  • £250,001 to £925,000 – 5%
  • £925,001 to £1,500,000 – 10%
  • Over £1,500,000 – 12%

So, as an example, if you want to buy a house for £200,000, you will need to pay 2% of £75,000 (£1,500).
Stamp duty rates are slightly higher for Buy to Let properties, and you will need to be purchasing a property for less than £40,000 if you want to avoid stamp duty charges on a second home.

Solicitors’ fees

We covered these briefly earlier in this article. In terms of costs, you’ll need to determine whether your solicitor charges by the hour or whether he or she is willing to carry out the work for a fixed fee. You will also need to factor in charges for searches and Land Registry fees.

Mortgage brokers’ fees

You should expect to pay for professional mortgaging advice. Contact us for more information on our charging structure.

Mortgage booking fees

Some mortgage lenders will take a non-refundable booking deposit to ensure you are serious about proceeding with the deal.

Mortgage arrangement fees

Lenders will often charge a fee on completion. Sometimes, you will be able to add this fee to your first time buyer mortgage to avoid paying extra costs upfront – but doing this will increase the amount you owe.

Valuation fees

Your lender will want to check that the property is worth the price you are willing to pay for it. Some will carry out the initial valuation for free, as part of their deal – but others will charge a fee.
If you have concerns regarding the condition of your property, you may want to arrange a homebuyer survey or a RICS survey. These reports don’t come cheap, but they do go into more detail about any structural and maintenance issues, and what you’ll need to do to fix them.
What happens if your lender finds your property to be worth less than your offer? Well, you have two options: you can contest their opinion and instruct another independent surveyor, or you can go back to the vendor (or their estate agent) with a lower offer and see if they accept it.

How does the Help to Buy scheme work?

The Help to Buy initiative, introduced in April 2013 in England and Wales, is designed to help first time buyers take the plunge into home ownership without having to put down an initial deposit of more than 5%.
With the Help to Buy equity loan scheme, the government will lend you up to 20% of the cost of a new build property that costs no more than £600,000. You will need to pay back this loan no later than 25 years after its start date, but you won’t be charged any fees on it for 5 years. In the 6th year, you will need to start paying interest at a rate of 1.75%, and in future years this rate will rise according to inflation in line with the Retail Prices Index (RPI), plus an additional 1%.
If you want to buy a new home in a London borough, you could be eligible for an equity loan of up to 40% of the property price.
To finance your purchase, you will need to arrange a repayment mortgage; interest-only mortgages are not allowed in this instance.
The Help to Buy Shared Ownership scheme enables you to buy a newly built leasehold property (or an existing one) from a housing association. The idea is, instead of buying the home in full, you buy a share of it that amounts to between 25% and 75% of its total value. You pay rent to the association or developer on the remaining share, but you can purchase a bigger share further down the line, when you can afford to.
It’s ideal for first time homeowners who could not otherwise afford the mortgage on their dream property, or those who want to purchase a home in London, the South East, or other highly priced areas. Bear in mind, however, that you will only be eligible for the Help to Buy Shared Ownership programme if your household earns less than £80,000 per year (or £90,000 per year if you’re in the capital).
The government has confirmed that these two remaining components of its Help to Buy scheme will remain in place until at least 2023 – so it’s not too late to see if it would work for you. Get in touch with our mortgage advisors for more information on the government help that could be available.

What other schemes are available for new property owners?

Another useful tool is the Right to Buy mortgage, which enables council tenants in England to buy their main place of residence, often at a substantial discount and sometimes without an initial deposit. Applicants will need to meet other eligibility criteria to qualify for this type of home loan, but it’s an attractive option for secure tenants already living in a self-contained property.

What if I’m having trouble getting together my deposit?

It’s no longer possible to arrange a mortgage without a deposit. All lenders will require you to put down some capital towards your purchase. However, some providers will accept a gifted deposit from a family member, and/or consider adding a guarantor to your application, you can also look into a concessionary purchase.
There are also lots of bank schemes out there for first-time buyers.

What insurance will I need?

To protect your new home – and everything in it – we would recommend taking out buildings and contents insurance cover, which will typically cover any damage to the building itself, along with damage to and theft of your belongings.
The price you pay for home insurance will ultimately depend on where you live, how much you paid for your property, and whether you want to add any extras to your policy, such as accidental damage cover. As with mortgages, it’s best to shop around to find a provider that meets your requirements at the right price, and consider approaching more specialist underwriters if your property is of unusual construction or has conditions of use, such as a flying freehold.
To protect your investment in the case of you becoming ill, being unable to work or passing away, you should also take out some kind of mortgage protection, or critical illness policy.
Ask our advisors to help you find and secure adequate protection insurance before you complete on your mortgage. Speak to them today to learn more about the different types of insurance policies that are available, and which ones you’ll need to consider for complete peace of mind.

Can I get a Buy to Let mortgage if I don’t have a residential mortgage?

If you would rather purchase a property as an investment opportunity instead of living in it permanently, getting a Buy to Let (BTL) mortgage as a first time buyer isn’t completely out of the question.
Your case may be automatically dismissed by the High Street banks and building societies, though, as they will consider you to be too high risk. You will need to approach the smaller, more specialist lenders that offer a limited range of products for would-be BTL landlords who have never owned their own home or applied for a mortgage before.
You will need to provide a deposit of at least 25%, and you will also need to prove that your expected rental income will cover your monthly mortgage repayments, plus 45%.
For more information on Buy to Let mortgages, click here.

Getting a mortgage as a first time buyer: your checklist

  • Book in for a free, no-obligation consultation with one of our experienced first time buyer mortgage brokers and get expert advice from day one!
  • Decide what and where you want to buy
  • Work out how much you would be willing to set aside every month for your mortgage payments
  • Collect your documents including, proof of your income, including pay slips and accounts/SA302s if you are self-employed
  • Print off your most recent bank statement(s) so your broker can assess your monthly expenditure
  • Tell your broker about any outstanding debts, click here to access your free credit report and see any outstanding debts
  • If you have a history of poor credit, take steps to tidy up your credit file and improve your credit score
  • Save as much towards your deposit as you can – at least 5% of the property price, and more if possible
  • Budget for the other costs involved in mortgaging and purchasing a new home
  • Consider if you are eligible for the government’s Help to Buy scheme
  • Find a good solicitor or specialist conveyancer
  • Choose your protection insurance products ahead of completion