Category: Mortgages

All mortgages are not created equal, and if you have savings in your account, an offset mortgage can help you reduce the amount of interest you pay.

Read on to find out everything you need to know about offset mortgages and what to consider for the best offset mortgages in the UK.

What Are Offset Mortgages?

Offset mortgages are mortgages where your mortgage account is linked to your savings or current account.

The savings in the account are then used in reducing or ‘offsetting’ the size of your outstanding home loan on which you pay interest.

The lender deducts the savings in your account from the outstanding mortgage balance, and you only pay interest on the remaining amount.

You pay less interest on the mortgage than if your savings weren’t considered.

The higher the credit balance in your savings or current account, the lower your debt since the balance offsets the debt, and you only pay interest on the difference.

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How Do Offset Mortgages Work?

Offset mortgages allow you to reduce the interest you pay on a mortgage.

For example, if your mortgage is £120,000 and you have £30,000 in a linked account, you would only pay interest on £90,000.

If the interest rate is 3.5%, then you pay £3,150 in interest annually on £90,000 instead of £4,200 on £120,000.

The savings are not used to pay off the mortgage, and they don’t reduce your loan amount. Your savings only help reduce how much interest you’re charged on the mortgage.

You can still access your savings and withdraw and deposit money, but you won’t earn interest on the savings in the linked account.

However, if the balance goes up or down, it affects how much interest you’re charged.

If the balance goes down, the mortgage payment increases because there’s a lower amount to offset.

If there’s no money in your offset savings account, you won’t get any offset benefit.

Is An Offset Mortgage Right for You?

Offset mortgages can help you slash the amount of interest you pay and help you pay off your mortgage early, but they’re not for everyone.

A traditional repayment mortgage is a better fit if you’re a basic taxpayer with a regular salary and limited savings.

Offset mortgages are more suited for you if:

• You have decent savings, and you don’t rely on them to supplement your monthly income.
• Your savings earn less interest than you would save by offsetting them against your mortgage.
• You’re not reliant on the interest earned on your savings account.
• You’re an additional or higher rate taxpayer who pays income tax on savings interest.
• Instead of gifting money to your child, you want to link your savings to your child’s mortgage with a family offset account.

Individual circumstances will ultimately influence whether an offset mortgage is suitable for you.

Lenders will assess your finances and whether the mortgage will be affordable for you now and in the future. They’ll look at things like your income and outgoings and the size of your loan.

When making your decision, you need to ensure you’ll make the best out of it to get the best deal overall.

Benefits Of Offset Mortgages

• Pay less overall interest on your mortgage for significant interest savings over the loan term.
• Lower payments each month with a payment reduction offset since you’re charged less interest.
• Choose to make overpayments where you pay the same amount each month and pay off your mortgage early with term reduction offsets.
• There is no tax to pay on savings interest because your linked account won’t earn interest.
• You can access your savings whenever you like if you wish to draw on them.

Apply for a mortgage today

Drawbacks Of Offset Mortgages

• Even with the cheapest offset mortgage, the interest rates may be higher than standard mortgages.
• You must be confident you can leave your savings untouched to reap full benefits. There is a high temptation to dip into your savings because there’s no penalty, and if you do, the balance reduces, and interest goes up.
• Limited choice. Fewer lenders offer these products, and you may have less choice of deals and providers than with standard mortgages.
• You may need a lower loan to value (LTV) ratio than standard mortgages with equity or deposits of at least 25%.
• Your mortgage and the linked savings account will need to be from the same lender or provider.
• Some lenders require a minimum balance that you have to maintain in the account, meaning you can’t always get all your savings if you need them.
• It’s only good if you’re in it for the long term. You must stick with an offset mortgage for most of the mortgage term to significantly lower your monthly payments or pay it off sooner.

Difference Between Offsetting And Overpaying

Overpaying refers to paying more than the amount set out in your contract. When you overpay on a standard mortgage, you can’t dip into those funds unless you can remortgage.

Most mortgages allow you to overpay by up to 10% monthly, and you can be penalized if you exceed that threshold.

With offsetting your savings, don’t pay off what you owe. They only sit alongside your mortgage and reduce the interest you pay.

If you pay more into your linked savings account, it reduces how much interest you’re charged, reducing the overall mortgage debt.

Any repayments you make cut deeper into the loan and reduce the mortgage term, similar to penalty-free mortgage overpayments.

Things To Consider

You may find a few differences between lenders who offer offset mortgages. A few things you should consider when taking out offset mortgages include:

• How many accounts you can link to your mortgage
• Whether or not the lender accepts savings from a family member to offset the mortgage
• The access you have to your savings if you need them
• The type of offset mortgage benefits you get. They can include term reduction, payment reduction, or both.

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Final Thoughts

You can get offset mortgages for purchases or remortgages, and they’re excellent if you have significant savings and require a mortgage.

They’re also suitable if you wish to overpay and still access the overpayments over time.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Working with a mortgage broker can help you get in-depth advice and expertise in the housing market to ensure you get the best mortgage deal available to suit your circumstances.

There are many different mortgage brokers in the UK, and they don’t all offer the same level of service.

Here’s a comprehensive review of mortgage broker fees across the housing market in the UK.

How Much Do Mortgage Brokers Charge?

Each mortgage broker has a different pricing structure, and the fees can vary significantly.

Most brokers charge around £500, while others don’t charge any fees to mortgage applicants.

Mortgage broker fees usually vary because each case is different. Some may require more work and time than others, while others are straightforward.

A mortgage broker should always tell you their fees to ensure you make an informed decision in advance.

Different pricing models to expect include:

Fee-Free Brokers

No fee mortgage brokers exist, and they can be a cost-effective solution.

Such brokers make their money by charging a commission to the mortgage lenders instead.

You’ll get their expert services without any cost, and this can be a huge save as you deal with other costs associated with purchasing a property.

Hourly Rate Brokers

Some mortgage brokers can charge by the hour, and if your application has any complications that need more time, you’ll find such fees quickly escalating.

Ensure you get estimates of how many hours a broker will charge you.

Fixed Charge Brokers

Some brokers charge a fixed fee, and it’s usually a more transparent approach.

It typically ranges from £300 to £600, with the majority charging £500 if no further costs are included.

Such fees can be charged upfront or after completing the mortgage transaction.

Apply for a mortgage today

Need more help? Check our quick help guides: 

• Reasons why a mortgage could be declined on affordability. 
• How reliable is a mortgage in principle?
• How do joint mortgages work?
• Can you get a mortgage on a fixed-term contract?

Percentage

In such models, the mortgage broker charges a percentage of the mortgage you’re taking out.

It’s usually 0.3% to 1% of the loan amount, and you can end up paying more than the average mortgage broker fee for higher-value properties.

Combination

Some mortgage brokers can use a combination of these pricing models. They can get a commission from the lender and still charge you an hourly rate.

Brokers who don’t work solely on commission aim to mitigate the risk of a client changing their mind, resulting in wasting their time and effort.

Why Do Mortgage Brokers Charge a Fee?

Mortgage brokers charge a fee for a variety of their services. These can include:

• Find you a cost-effective mortgage by calculating your affordability.
• Finding you the best deals by comparing the whole of the market.
• Filling out and managing your mortgage paperwork.
• Negotiating your mortgage terms and conditions with a suitable lender.
• Guiding you through and overseeing the mortgage application and meeting all deadlines.
• Comparing the available range of mortgage products to find one better suited to your needs.

Which is Best Between a Fee-free and Paid Broker?

The best choice will depend on your circumstances, the fee charged, and whether the broker can reduce any lending fees. While not paying any broker fees sounds great, you may find some very unethical.

Some may advertise as fee-free, but you may find that it only relates to the initial consultation.

Others may actively recommend unsuitable mortgages with lenders because they want to earn a commission.

Fee-free brokers are more suited to borrowers with less complex needs like an easy-to-prove income, a perfect credit score, and can put down a higher deposit.

Those with more complex needs like bad credit or low deposit may benefit from a paid, experienced mortgage broker who specialises in bad credit mortgages.

Working with a competent, experienced and trustworthy mortgage broker can ensure you get your dream mortgage, whether you pay or not.

You’ll benefit from their unparalleled expertise, and they can give you access to more competitive products.

How Much Commission Do Mortgage Brokers Get?

Almost all mortgages involve paying a commission to the broker, and the commission they get will vary among lenders.

The commission is usually a percentage of the mortgage, around 0.35% of the full mortgage amount after completion.

For example, the mortgage broker would receive £350 for a £100,000 mortgage or £700 for a £200,000 mortgage. Larger loans attract higher commissions.

Regulators have often scrutinised mortgage commissions with concerns that brokers may recommend products that only benefit themselves and don’t offer the best deal for the client.

You need to ensure the mortgage broker chooses the best deal for you and not just themselves.

Ensure you only work with mortgage brokers regulated by the Financial Conduct Authority (FCA) or is an agent of a regulated firm.

When Do You Pay Mortgage Broker Fees?

You may find mortgage brokers who charge their fees upfront, while others request to be paid after the mortgage application has been successfully approved.

You’ll find that the lender pays most mortgage broker fees, and they’ll not cost you a thing.

However, it’s a good idea always to be clear on when the mortgage broker should be paid and whether or not you’re the one making the payment.

Can I Negotiate Mortgage Broker Fees?

Yes! Some mortgage fees can be negotiable. Even in circumstances where the broker fees are fixed, you’ll find various opportunities to save money. Brokers pride themselves in negotiation skills, so it’s encouraged and can be a way to test whether they’re worth their salt.

The broker’s negotiation skills will enable them to find you the best deals and keep the mortgage costs down.

Related guides: 

• Mortgage 5 times salary.
• Can you get a mortgage on land? 
• Refurbishment mortgages.
• Part and part mortgages.
• HMO mortgages.

Are Mortgage Broker Fees Refundable?

Some brokers have refund policies in their mortgage broker agreements, while others do not.

You have every right to make a complaint if you’ve already paid a fee and later feel that you were mis-sold a product or recommended to a lender that isn’t suitable for you.

When possible, it’s a good idea to raise any issues before making any payments if you’re dissatisfied with the services provided by a mortgage broker. Before you sign any agreement, it’s wise to check if there’s a refund policy.

You can ask them to include one if it’s not stated within the contract or ask for written confirmation that you’ll not pay any fee if the mortgage deal falls through.

Are There Any Other Fees?

In addition to other expenses like removal costs, stamp duty, and financial advisor mortgage fees, you may find brokers who charge borrowers extra fees.

While the amounts can be different, they can include some, all or none of the following:

• Underwriting fees.
• Broker finder fees.
• Broker application fees.
• Cancellation fees.

Some of these fees can be for the mortgage broker themselves, and they’ll not reflect on your final bill.

Expert mortgage advisors can provide valuable advice on which payments are worth paying and how to avoid such extra fees. They can even connect you to reputable brokers who don’t charge fees.

Are Second Mortgages and Banks Cheaper?

No. It will not make any difference whether the mortgage product you’re applying for is a first or second mortgage. Mortgage broker fees will remain the same, usually 0.3% to 1% of the mortgage amount.

While you may think going straight to traditional lenders as banks will give you the best deal, it isn’t always the case.

You’ll not have access to all the deals available in the entire market. The chances that the bank has the best available pick are very low because there are thousands of mortgages and hundreds of lenders to compare.

Mortgage Broker Fees Final Thoughts

It’s important to find a mortgage broker you can trust, and that’s where expert advice is invaluable.

Some of the best brokers will agree for you to pay after you’ve scrutinised the mortgage they’re recommending and not before. It will allow you to determine whether you’re making any savings to justify the fee.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading: 

• How much does the average mortgage cost?
• Modern method of auction 
• What mortgage can I get for £500? 
• Mortgages for discharged bankrupts

Millions of people in the UK hold a criminal record, and you may worry about how you can get a mortgage with a conviction on your record.

However, it’s possible to get a mortgage with a criminal record, and with the right advice, it shouldn’t cause you too many problems.

Here’s some expert advice on how you can get a mortgage with a criminal record in the UK.

How a Criminal Record Affects a Mortgage

Your mortgage application can be affected depending on whether your criminal conviction is spent or unspent.

Getting a mortgage can be challenging if you’ve been convicted for a crime or have been in prison.

Some lenders have rules restricting lending in such circumstances. Some may be willing to loan to you, while others may decline your mortgage application.

Whether or not your conviction is spent or unpent is an essential factor since it affects if you should legally disclose your conviction or not.

Spent Convictions

The Rehabilitation of Offenders Act of 1974 stipulates that you don’t have to disclose a spent criminal conviction to banks, building societies, or other lenders and mortgage brokers, irrespective of what questions they ask.

A spent conviction can be effectively ignored after a specified time. The amount of time it takes for a criminal conviction to become spent will vary depending on the sentence given on the day of prosecution.

Take, for example, a criminal conviction that results in a fine. It would not become spent until after one year has passed.

However, a conviction with a sentence of between 2 ½ years and four years can take the length of the sentence plus an additional seven years to pass or become spent.

Apply for a mortgage today

Need more help? Check our quick help guides: 

• Reasons why a mortgage could be declined on affordability. 
• How reliable is a mortgage in principle?
• How do joint mortgages work?
• Can you get a mortgage on a fixed-term contract?

Unspent Convictions

Criminal records that are unspent convictions have usually not reached this defined time and appear in a Basic Criminal Record Check until they do. A conviction or criminal record will always remain unspent for sentences over four years, given for more severe crimes.

By law, you must disclose unspent convictions to building societies, banks, or mortgage lenders, and you can be prosecuted if you fail to disclose them.

If a lender discovers that you’ve not disclosed an unspent conviction, they can invalidate your mortgage agreement, and any insurance policy connected to it can also be deemed invalid.

How to Check If Your Conviction is Spent

Various charities in the UK can help you determine if your conviction is spent or unspent.

Charities like Unlock aim to build a better future for people with criminal records by advocating for and supporting them to move on positively with their lives.

Independent national charities like Unlock often support people with criminal records because of the stigma associated with criminal records.

You can confidently log on to an online disclosure calculator through their website and determine whether your conviction is spent on unspent.

Such charities also provide support, information, and advice about any previous convictions you may have.

Do Mortgage Lenders Check for Criminal Records?

Most lenders will ask about criminal records, and the questions may vary. Some may ask broad questions that suggest you disclose both spent and unspent convictions, but you’re entitled to answer no if your criminal record is entirely spent.

You’ll find that you can apply for a mortgage in principle among most lenders, and this process doesn’t usually involve questions about criminal records. However, although the lender may initially agree to a mortgage in principle, the full application may include providing details of any unspent convictions.

Resultantly, the lender may reject your application at this point, depending on their policy on borrowers with a criminal record. Some reject those with criminal records automatically, while others simply ask whether you meet their criteria.

You may also find lenders who ask for details of your addresses over the past six years. If you’ve been in prison for significant periods, it can flag up gaps in your address history and require you to disclose your criminal record even if they’ve not asked about it directly.

How to Apply for a Mortgage With a Criminal Record

The easiest way to apply for a mortgage with a criminal record is through a mortgage broker. Provided you’re honest and upfront with the broker about your criminal record, they can concentrate on finding you lenders whose criteria you meet.

Ensure you find brokers who have successfully found mortgages for borrowers in similar circumstances before applying. Some lenders may claim to have a whole of market experience but may be incapable of finding you a suitable lender for niche areas like criminal record mortgages.

A suitable mortgage broker should know which lender will likely approve your application to avoid unnecessary mortgage rejections on your file. It’s also wise to consult a mortgage adviser before applying for a mortgage with a criminal record. They’ll consider your situation and guide you on the best way to prepare your application.

Mortgage brokers and advisers not only increase your chances of successfully getting a mortgage but also:

• Help complete your application and prepare your paperwork.
• Assess offers and lenders not available to the general public.
• Help you avoid damaging your credit score.
• Help you get the best deals and interest rates for your circumstances.

Related guides: 

• Mortgage 5 times salary.
• Can you get a mortgage on land? 
• Refurbishment mortgages.
• Part and part mortgages.
• HMO mortgages.

Applying Directly with a Mortgage Provider

Another option when applying for a criminal record mortgage is to go directly to a lender. Independent mortgage lenders often have flexible criteria surrounding criminal convictions, but it can vary from lender to lender, especially if it’s done on a case-by-case basis.

Some criteria may be vague when accepting borrowers with criminal convictions. They may not have specific policies for applications of this nature, and you may find they have additional rules when considering unspent or spent convictions.

Therefore, a scattergun approach is usually not recommended because it can result in a string of declined applications. It can leave many marks on your credit file and make it difficult to get accepted any time soon.

Are There any Other Checks You Need to Pass?

As with any other mortgage application, you’ll need to pass the lender’s affordability checks to qualify for a criminal record mortgage. It can include questions about your employment type, income, credit history, and age.

However, these can vary depending on the lender and your specific situation. You can get approved or rejected, or the lender may ask for higher deposits if they consider you a higher than usual risk.

Generally, mortgage providers don’t check for criminal records, and they don’t have access to the police national computer. They’ll often rely on the information you provide on your application form.

When seeking official confirmation, a mortgage provider may ask you for a basic disclosure that will reveal any unspent convictions. Most will perform credit checks and consult the Credit Industry Fraud Avoidance System (CIFAS) to check for any issues relating to money laundering, fraud, and other financial crimes.

When providers search on the CIFAS database, they’re informed whether they should investigate through a flagged warning. They’re often advised to investigate the case instead of automatically rejecting the application because it may prove genuine.

While most mortgage providers will refuse borrowers with a poor credit rating, mortgage brokers or advisers can help you find lenders who specialise in helping bad credit borrowers.

Criminal Record Mortgage Final Thoughts

It can be complicated to get a mortgage with a criminal record, but it’s not impossible.

Not all mortgage lenders will accept borrowers with a conviction, and your best chance is to speak to a broker or adviser who can help you get a suitable lender for a criminal record mortgage.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading: 

• How much does the average mortgage cost?
• Modern method of auction 
• What mortgage can I get for £500? 
• Mortgages for discharged bankrupts

If you have dreams of purchasing property, a mortgage can help make your dreams a reality, whether it’s a home or buy-to-let property.

Getting onto the property ladder can be daunting, but it doesn’t have to be stressful with a bit of planning and the correct information.

Here’s everything you need to know about getting a mortgage in the UK, including how much you need to earn, what factors lenders consider, the repayments to expect, and how the deposit affects your chances.

How Much You Need To Earn To Get A Mortgage 

How much you need to earn to get a mortgage will vary from lender to lender.

Most lenders will determine how much they’re willing to lend you depending on multiples of your salary.

Provided you’re eligible, most offer four times your annual salary, and some will offer five times, while a few can stretch it to up to six times under the right circumstances.

Lenders will usually base their decision 0n your loan to income ratio, which refers to the amount you want to borrow divided by how much you earn.

Affordability assessments are usually based on:

Income

One of the things the lender will look at when calculating how much you can afford to borrow is your income.

It can include your primary income, income from other sources like your investments, pension, financial support, child maintenance, or other earnings like freelancing or a second job.

Bank statements or payslips may be necessary to prove your income. If you’re self-employed, lenders may require business accounts, bank statements, or details of the income tax you’ve paid.

Typically, they’ll ask for two to three years’ worth of business accounts or tax returns.

Apply for a mortgage today

Need more help? Check our quick help guides: 

• Reasons why a mortgage could be declined on affordability. 
• How reliable is a mortgage in principle?
• How do joint mortgages work?
• Can you get a mortgage on a fixed-term contract?

Outgoings

Your outgoings include the monthly or daily expenses you have to make for everyday living.

They can consist of maintenance payments, credit card payments, insurance for buildings, life, travel, or pets, any credit agreements or loans you might have, and any bills incurred like water, electricity, gas, broadband, or phone.

You may also need to provide estimates of your living costs, like how much you spend on child care, primary recreation, or clothing. Recent bank statements or receipts may be needed to back up the figures you provide.

The lender’s decision can be impacted if you already have significant financial commitments like car finance, personal loans, and debt.

Possible Changes

Mortgage affordability assessments will also consider any future changes that might impact your ability to repay the mortgage amount.

They’ll stress test your situation to ensure you’re capable of repaying the mortgage if there are changes in your lifestyle like having a baby, redundancy, or taking a career break.

Interest rates can also increase, you may fall ill, or you and your partner may lose their jobs.

A mortgage is one of the biggest and longest commitments you’ll ever make, and you must plan to ensure you can meet your obligations in case anything happens.

You can try and invest in other forms of income when you can or protect yourself against income reductions by making savings when possible.

A lender can limit how much you can borrow if they suspect you won’t afford your mortgage repayments in case of such circumstances.

Apply for a mortgage today

Related guides: 

• Mortgage 5 times salary.
• Can you get a mortgage on land? 
• Refurbishment mortgages.
• Part and part mortgages.
• HMO mortgages.

What Repayments Will You Make?

Different factors will influence your monthly repayments for a mortgage. The interest rate you get from the lender and the length of the mortgage are the most critical factors.

Remember, all lenders are not the same, and they’ll use different criteria in determining the rates they give you. Your profile, credit history, and deposit you put down can influence the rate a lender is willing to provide you with.

Interest Rates

The monthly repayments for all loans are affected by the interest rate. The mortgage rate you get will largely be influenced by your deposit level and your profile as a borrower.

Most mortgage lenders in the UK provide interest rates from 1% to 5%. The interest is usually added to a portion of the capital or loan amount and repaid each month for the mortgage duration until you clear the loan.

Lenders may provide you with an interest-only or capital repayment plan. In an interest-only plan, you’ll only repay the interest on the mortgage every month and nothing off the capital.

The capital or borrowed amount becomes due at the end of the loan term in a huge lump sum.

With interest-only plans, it’s easy to accumulate a huge debt that can be difficult to repay. Lenders will require you to show a viable repayment strategy that assures them you’re capable of covering the entire balance at the end of the loan term.

You’ll get lower monthly repayments because you’re not paying anything off the capital amount.

However, you may also need a large deposit to qualify. If you get a capital repayment mortgage, you repay the interest plus a percentage of the capital every month for the entire loan duration.

The Duration

The duration or term of the mortgage also significantly affects monthly repayments and how much you’ll ultimately pay in total. Most lenders in the UK offer mortgages with durations of 5 to 30 years.

You’ll get cheaper monthly repayments with an extended loan period, but you’ll repay a higher total amount for the mortgage than a shorter period. You can save a lot by repaying your loan earlier because the interest compounds each month.

Although the monthly repayments will be higher, you’ll pay less on the amount with a shorter mortgage duration.

It’s recommended that you only choose a mortgage term or period based on the amount you can realistically afford to repay each month.

How The Deposit Affects Your Chances For A Mortgage

The deposit you’ll need for a mortgage will depend on the ratio of the loan to value (LTV). It’s basically what the lender is willing to offer relative to the value of the property you’re eyeing and is usually expressed as a percentage.

Mortgage applications with low deposits are seen as higher risk resulting in fewer lenders giving it due consideration. Those who consider it can apply unfavourable terms and higher interest rates to mitigate the perceived risks.

The best rates and terms are offered to borrowers with low LTV ratios. While it’s possible to find lenders who offer mortgages with up to 95% of the property value, they’ll not feature the best deals available.

You should always aim for 20% and above deposits to ensure you get the best terms with affordable monthly repayments. Such deposits are the standard for attractive mortgages. With a high deposit, you’ll have a lower interest and loan amount to repay monthly and in total.

Mortgages With Bad Credit

Having bad credit isn’t necessarily a deal-breaker when you’re looking for a mortgage. The number of lenders available to you may be limited, but you can still find lenders who specialise in providing mortgages to bad credit borrowers in the UK.

Mortgage lenders will view you as higher risk when you have bad credit, and you may need a higher deposit and pay higher interest rates to offset the risk. With higher interest, you get higher monthly repayments.

However, all lenders are different, and you can still qualify for reasonable rates and terms depending on the severity and recency of your bad credit issue.

Mortgage advisers and brokers can be beneficial as they have access to the entire market. They can help you get the best deals based on your circumstances.

How Much Do You Need To Earn To Get A Mortgage? Final Thoughts

Getting a mortgage is about more than how much you earn each month, and you have to consider your monthly expenses, affordability, the deposit you can put down and your profile as a borrower.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading: 

• How much does the average mortgage cost?
• Modern method of auction 
• What mortgage can I get for £500? 
• Mortgages for discharged bankrupts

If you have dreams of purchasing property, a mortgage can help make your dreams a reality, whether it’s a home or buy-to-let property.

Getting onto the property ladder can be daunting, but it doesn’t have to be stressful with a bit of planning and the correct information.

Here’s everything you need to know about getting a mortgage in the UK, including how much you need to earn, what factors lenders consider, the repayments to expect, and how the deposit affects your chances.

How Much You Need To Earn To Get A Mortgage 

How much you need to earn to get a mortgage will vary from lender to lender.

Most lenders will determine how much they’re willing to lend you depending on multiples of your salary.

Provided you’re eligible, most offer four times your annual salary, and some will offer five times, while a few can stretch it to up to six times under the right circumstances.

Lenders will usually base their decision on your loan-to-income ratio, which refers to the amount you want to borrow divided by how much you earn.

Affordability assessments are usually based on:

Income

One of the things the lender will look at when calculating how much you can afford to borrow is your income.

It can include your primary income, income from other sources like your investments, pension, financial support, child maintenance, or other earnings like freelancing or a second job.

Bank statements or payslips may be necessary to prove your income. If you’re self-employed, lenders may require business accounts, bank statements, or details of the income tax you’ve paid.

Typically, they’ll ask for two to three years’ worth of business accounts or tax returns.

Apply for a mortgage today

Need more help? Check our quick help guides: 

• Reasons why a mortgage could be declined on affordability. 
• How reliable is a mortgage in principle?
• How do joint mortgages work?
• Can you get a mortgage on a fixed-term contract?

Outgoings

Your outgoings include the monthly or daily expenses you have to make for everyday living.

They can consist of maintenance payments, credit card payments, insurance for buildings, life, travel, or pets, any credit agreements or loans you might have, and any bills incurred like water, electricity, gas, broadband, or phone.

You may also need to provide estimates of your living costs, like how much you spend on child care, primary recreation, or clothing. Recent bank statements or receipts may be needed to back up the figures you provide.

The lender’s decision can be impacted if you already have significant financial commitments like car finance, personal loans, and debt.

Possible Changes

Mortgage affordability assessments will also consider any future changes that might impact your ability to repay the mortgage amount.

They’ll stress test your situation to ensure you’re capable of repaying the mortgage if there are changes in your lifestyle like having a baby, redundancy, or taking a career break.

Interest rates can also increase, you may fall ill, or you and your partner may lose their jobs.

A mortgage is one of the biggest and longest commitments you’ll ever make, and you must plan to ensure you can meet your obligations in case anything happens.

You can try and invest in other forms of income when you can or protect yourself against income reductions by making savings when possible.

A lender can limit how much you can borrow if they suspect you won’t afford your mortgage repayments in case of such circumstances.

Apply for a mortgage today

Related guides: 

• Mortgage 5 times salary.
• Can you get a mortgage on land? 
• Refurbishment mortgages.
• Part and part mortgages.
• HMO mortgages.

What Repayments Will You Make?

Different factors will influence your monthly repayments for a mortgage. The interest rate you get from the lender and the length of the mortgage are the most critical factors.

Remember, all lenders are not the same, and they’ll use different criteria in determining the rates they give you. Your profile, credit history, and deposit you put down can influence the rate a lender is willing to provide you with.

Interest Rates

The monthly repayments for all loans are affected by the interest rate. The mortgage rate you get will largely be influenced by your deposit level and your profile as a borrower.

Most mortgage lenders in the UK provide interest rates from 1% to 5%. The interest is usually added to a portion of the capital or loan amount and repaid each month for the mortgage duration until you clear the loan.

Lenders may provide you with an interest-only or capital repayment plan. In an interest-only plan, you’ll only repay the interest on the mortgage every month and nothing off the capital.

The capital or borrowed amount becomes due at the end of the loan term in a huge lump sum.

With interest-only plans, it’s easy to accumulate a huge debt that can be difficult to repay. Lenders will require you to show a viable repayment strategy that assures them you’re capable of covering the entire balance at the end of the loan term.

You’ll get lower monthly repayments because you’re not paying anything off the capital amount.

However, you may also need a large deposit to qualify. If you get a capital repayment mortgage, you repay the interest plus a percentage of the capital every month for the entire loan duration.

The duration

The duration or term of the mortgage also significantly affects monthly repayments and how much you’ll ultimately pay in total. Most lenders in the UK offer mortgages with durations of 5 to 30 years.

You’ll get cheaper monthly repayments with an extended loan period, but you’ll repay a higher total amount for the mortgage than a shorter period. You can save a lot by repaying your loan earlier because the interest compounds each month.

Although the monthly repayments will be higher, you’ll pay less on the amount with a shorter mortgage duration.

It’s recommended that you only choose a mortgage term or period based on the amount you can realistically afford to repay each month.

How The Deposit Affects Your Chances For A Mortgage

The deposit you’ll need for a mortgage will depend on the ratio of the loan to value (LTV). It’s basically what the lender is willing to offer relative to the value of the property you’re eyeing and is usually expressed as a percentage.

Mortgage applications with low deposits are seen as higher risk resulting in fewer lenders giving it due consideration. Those who consider it can apply unfavourable terms and higher interest rates to mitigate the perceived risks.

The best rates and terms are offered to borrowers with low LTV ratios. While it’s possible to find lenders who offer mortgages with up to 95% of the property value, they’ll not feature the best deals available.

You should always aim for 20% and above deposits to ensure you get the best terms with affordable monthly repayments. Such deposits are the standard for attractive mortgages. With a high deposit, you’ll have a lower interest and loan amount to repay monthly and in total.

Mortgages With Bad Credit

Having bad credit isn’t necessarily a deal-breaker when you’re looking for a mortgage. The number of lenders available to you may be limited, but you can still find lenders who specialise in providing mortgages to bad credit borrowers in the UK.

Mortgage lenders will view you as a higher risk when you have bad credit, and you may need a higher deposit and pay higher interest rates to offset the risk. With higher interest, you get higher monthly repayments.

However, all lenders are different, and you can still qualify for reasonable rates and terms depending on the severity and recency of your bad credit issue.

Mortgage advisers and brokers can be beneficial as they have access to the entire market. They can help you get the best deals based on your circumstances.

How Much Do You Need To Earn To Get A Mortgage? Final Thoughts

Getting a mortgage is about more than how much you earn each month, you have to consider your monthly expenses, affordability, the deposit you can put down and your profile as a borrower.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading: 

• How much does the average mortgage cost?
• Modern method of auction 
• What mortgage can I get for £500? 
• Mortgages for discharged bankrupts

A mortgage is among the biggest loans you’ll ever take out, and it can feel intimidating, especially if you’re a first-time buyer.

You need to ask yourself some vital questions before making your mortgage application to avoid stressful outcomes.

In this guide, we’ll explore what you should consider and the steps involved in the mortgage application process in the UK.

Mortgage Application Process

UK Steps – Before You Apply:

What’s Your Budget?

Knowing your budget can help you determine how much you can afford to borrow. You also need to have a price range in mind even if you haven’t decided on the specific property you want to buy.

Once you know the deposit size you can put down, you can determine how much you need to borrow to cover the rest of the property price.

A 20% deposit and higher is the standard for attractive mortgages in the UK, and most lenders can lend you up to 4 times your income. The bigger the deposit, the better the mortgage deal.

Other Costs Involved

Apart from the deposit, you may need additional fees to cover survey costs, stamp duty, broker fees, lender fees and legal charges.

Such amounts can mount up, so it’s wise to know how much they’ll cost you before embarking on the mortgage application process.

You can expect such costs to amount to around 2% to 3% of the house price.

Are You Mortgage Ready?

You can’t get a mortgage before you’re ready to buy a house, and it’s recommended that you first organize your mortgage before seriously looking for properties.

It involves getting your finances in order, doing your homework and getting advice from financial advisers or mortgage brokers to avoid any potential hiccups along the way.

You want to ensure you keep surprises to a minimum when buying a new home for a smooth experience.

Apply for a mortgage today

Need more help? Check our quick help guides: 

• Reasons why a mortgage could be declined on affordability. 
• How reliable is a mortgage in principle?
• How do joint mortgages work?
• Can you get a mortgage on a fixed-term contract?

Step By Step Mortgage Application Process

Step 1: Find A Mortgage

Before you can buy a home, you’ll first need to find the right mortgage deal for you. There are various things to consider, including the mortgage type that best works for you and how long a deal you should go for.

A mortgage broker can benefit you in such decisions as they have access to the whole market. They can help assess your circumstances and provide different suitable mortgage options.

They can tell you which lenders are likely to accept your application and the types of products that best fit your requirements.

You can also shop around online or speak to different lenders directly before making your decision.

Step 2: Gather Your Documents

Several documents are required when applying for a mortgage, and it’s a good idea to gather important paperwork and have it ready to avoid delays in the process.

Lenders will need you to provide:

• Proof Of Identity – It can include a driving license or passport. Ensure the address on your driving license is up to date because an old address can lead to complications.
• Proof Of Address – You’ll need to provide at least two documents as proof of address. They can include a utility bill, bank statement, credit card statement or council tax bill. They must be dated within the last three months, and your name needs to be spelt consistently and correctly.
• Bank Or Credit Card Statements – Statements from the last three to six months will be required to show details of your outgoings plus any hire purchase or car finance agreements, loans, regular payments and expenditures. Lenders may ask for proof of how you’ve built up your deposit, and you may need to back up any unusual transactions.
• Proof Of Employment – You may need your P60 from your employer if you’re informal employment and at least three months’ worth of payslips. You’ll need details of your accounts and tax assessments from the last three years if you’re self-employed.

Recommended reading for mortgage hunters: 

• Mortgage deposit gifts
• How much does a mortgage broker cost?
• Can you build on the green belt?
• Shortest term mortgage in the UK
• Buying a warehouse in the UK
• Porting a mortgage explained
• Transferring a mortgage

Step 3: Get A Mortgage Agreement In Principle (AIP)

A mortgage agreement in principle, also known as a decision in principle, can help your buying process go a lot smoother.

It refers to a lender agreeing ‘in principle’ to provide you with a mortgage subject to the approval and final checks of the property you intend to buy.

Having an AIP shows sellers you’re serious and ready to buy, which can help you negotiate and give you an edge against competitors.

The AIP will set your budget, enabling you to focus on houses within your price range instead of wasting time with unrealistic targets.

Getting an AIP is usually straightforward, and it involves the lender looking into your credit history to determine how much they can give you.

You can find a lender who only performs soft credit checks to keep hard credit checks to a minimum. An AIP lasts for six months, and if your property search takes longer, you may need to get a new one.

Apply for a mortgage today

Related guides: 

• Mortgage 5 times salary.
• Can you get a mortgage on land? 
• Refurbishment mortgages.
• Part and part mortgages.
• HMO mortgages.

Step 4: Make A Formal Mortgage Application

Once you’ve found a property and your offer is accepted, you should apply for a mortgage formally. A mortgage broker can help arrange this for you. You’ll need to provide evidence of your identity, income, and current address.

An underwriter will verify your information while considering your application, and this can take varying amounts of time depending on the lender.

The lender will undertake a valuation on the property you intend to buy to confirm that it’s worth roughly what you intend to pay for it.

Depending on the outcome, your loan to value ratio may be affected, which can impact the interest rate you’re offered.

They’ll thoroughly check your paperwork and credit record, and the search will appear on your credit file. If the lender turns you down at this stage, it’s wise to find out why and wait for a while before you apply with another lender.

You risk significantly damaging your credit score when you make multiple mortgage applications in close succession.

Step 5: Receive A Formal Mortgage Offer

If everything is in order and there are no issues in the valuation and application process, the lender will provide you with a formal mortgage offer. Mortgage offers usually last for six months, and you can expect to receive an offer within four weeks of making your application.

You may find that the process takes longer if there’s an issue with the valuation, additional documents or information is needed, the lender is busier than usual, or your application is complicated.

It’s vital to fully go through and understand the terms and conditions of the contract.

A mortgage agreement lasts for many years, and the last thing you want is to get nasty surprises down the road. Ensure you’re happy with the mortgage product before making any commitments.

Once you accept the formal mortgage offer, you can instruct a solicitor to act on your behalf and undertake the conveyancing process.

You’ll be required to pay a deposit to the conveyancer and get ready to exchange contracts and legally transfer property ownership.

Nothing is guaranteed until you’ve exchanged contracts, so you want to avoid any delays at this stage.

Exchange of contracts involves two legal firms representing the buyer and seller swapping signed contracts and the buyer paying the deposit.

The agreement to buy or sell a property becomes legally binding at this point, and no one can back out of the deal.

Ensure the funds you’re going to use are ready and accessible, whether it’s from a family member or a savings account, and the property will be yours to own!

Quick help mortgage guides: 

• Best offset mortgage rates UK
• Can you get a mortgage 7 times your salary?
• Contractor mortgages
• Best lifetime tracker mortgages
• Expat mortgages
• Mortgage repayments on a 300k a month mortgage

Mortgage Application Process Explained Final Thoughts

Following the above steps can ensure you complete the mortgage application process efficiently and smoothly.

It’s also important to always seek independent advice from FCA registered mortgage brokers when choosing a mortgage.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading: 

• How much does the average mortgage cost?
• Modern method of auction 
• What mortgage can I get for £500? 
• Mortgages for discharged bankrupts

A mortgage is among the biggest loans you’ll ever take out, and it can feel intimidating, especially if you’re a first-time buyer.

You need to ask yourself some vital questions before making your mortgage application to avoid stressful outcomes.

In this guide, we’ll explore what you should consider and the steps involved in the mortgage application process in the UK.

Mortgage Application Process Explained

UK Steps – Before You Apply

Determine how much you can afford to borrow

Knowing your budget can help you determine how much you can afford to borrow. You also need to have a price range in mind even if you haven’t decided on the specific property you want to buy.

Once you know the deposit size you can put down, you can determine how much you need to borrow to cover the rest of the property price.

A 20% deposit and higher is the standard for attractive mortgages in the UK, and most lenders can lend you up to 4 times your income. The bigger the deposit, the better the mortgage deal.

Consider The Other Costs Involved

Apart from the deposit, you may need additional fees to cover survey costs, stamp duty, broker fees, lender fees and legal charges.

Such amounts can mount up, so it’s wise to know how much they’ll cost you before embarking on the mortgage application process.

You can expect such costs to amount to around 2% to 3% of the house price.

Are You Mortgage Ready?

You can’t get a mortgage before you’re ready to buy a house, and it’s recommended that you first organize your mortgage before seriously looking for properties.

It involves getting your finances in order, doing your homework and getting advice from financial advisers or mortgage brokers to avoid any potential hiccups along the way.

You want to ensure you keep surprises to a minimum when buying a new home for a smooth experience.

Apply for a mortgage today

Need more help? Check our quick help guides: 

• Reasons why a mortgage could be declined on affordability. 
• How reliable is a mortgage in principle?
• How do joint mortgages work?
• Can you get a mortgage on a fixed-term contract?

Step By Step Mortgage Application Process

Step 1: Find A Mortgage

Before you can buy a home, you’ll first need to find the right mortgage deal for you. There are various things to consider, including the mortgage type that best works for you and how long a deal you should go for.

A mortgage broker can benefit you in such decisions as they have access to the whole market. They can help assess your circumstances and provide different suitable mortgage options.

They can tell you which lenders are likely to accept your application and the types of products that best fit your requirements.

You can also shop around online or speak to different lenders directly before making your decision.

Step 2: Gather Your Documents

Several documents are required when applying for a mortgage, and it’s a good idea to gather important paperwork and have it ready to avoid delays in the process.

Lenders will need you to provide:

• Proof Of Identity – It can include a driver’s license or passport. Ensure the address on your driving license is up to date because an old address can lead to complications.
• Proof Of Address – You’ll need to provide at least two documents as proof of address. They can include a utility bill, bank statement, credit card statement or council tax bill. They must be dated within the last three months, and your name needs to be spelt consistently and correctly.
• Bank Or Credit Card Statements – Statements from the last three to six months will be required to show details of your outgoings plus any hire purchase or car finance agreements, loans, regular payments and expenditures. Lenders may ask for proof of how you’ve built up your deposit, and you may need to back up any unusual transactions.
• Proof Of Employment – You may need your P60 from your employer if you’re informal employment and at least three months’ worth of payslips. You’ll need details of your accounts and tax assessments from the last three years if you’re self-employed.

Recommended reading for mortgage hunters: 

• Mortgage deposit gifts
• How much does a mortgage broker cost?
• Can you build on the green belt?
• Shortest-term mortgage in the UK
• Buying a warehouse in the UK
• Porting a mortgage explained
• Transferring a mortgage

Step 3: Get A Mortgage Agreement In Principle (AIP)

A mortgage agreement in principle, also known as a decision in principle, can help your buying process go a lot smoother.

It refers to a lender agreeing ‘in principle’ to provide you with a mortgage subject to the approval and final checks of the property you intend to buy.

Having an AIP shows sellers you’re serious and ready to buy, which can help you negotiate and give you an edge against competitors.

The AIP will set your budget, enabling you to focus on houses within your price range instead of wasting time with unrealistic targets.

Getting an AIP is usually straightforward, and it involves the lender looking into your credit history to determine how much they can give you.

You can find a lender who only performs soft credit checks to keep hard credit checks to a minimum. An AIP lasts for six months, and if your property search takes longer, you may need to get a new one.

Apply for a mortgage today

Related guides: 

• Mortgage 5 times salary.
• Can you get a mortgage on land? 
• Refurbishment mortgages.
• Part and part mortgages.
• HMO mortgages.

Step 4: Make A Formal Mortgage Application

Once you’ve found a property and your offer is accepted, you should apply for a mortgage formally. A mortgage broker can help arrange this for you. You’ll need to provide evidence of your identity, income, and current address.

An underwriter will verify your information while considering your application, and this can take varying amounts of time depending on the lender.

The lender will undertake a valuation on the property you intend to buy to confirm that it’s worth roughly what you intend to pay for it.

Depending on the outcome, your loan-to-value ratio may be affected, which can impact the interest rate you’re offered.

They’ll thoroughly check your paperwork and credit record, and the search will appear on your credit file. If the lender turns you down at this stage, it’s wise to find out why and wait for a while before you apply with another lender.

You risk significantly damaging your credit score when you make multiple mortgage applications in close succession.

Step 5: Receive A Formal Mortgage Offer

If everything is in order and there are no issues in the valuation and application process, the lender will provide you with a formal mortgage offer. Mortgage offers usually last for six months, and you can expect to receive an offer within four weeks of making your application.

You may find that the process takes longer if there’s an issue with the valuation, additional documents or information is needed, the lender is busier than usual, or your application is complicated.

It’s vital to fully go through and understand the terms and conditions of the contract.

A mortgage agreement lasts for many years, and the last thing you want is to get nasty surprises down the road. Ensure you’re happy with the mortgage product before making any commitments.

Once you accept the formal mortgage offer, you can instruct a solicitor to act on your behalf and undertake the conveyancing process.

You’ll be required to pay a deposit to the conveyancer and get ready to exchange contracts and legally transfer property ownership.

Nothing is guaranteed until you’ve exchanged contracts, so you want to avoid any delays at this stage.

The exchange of contracts involves two legal firms representing the buyer and seller swapping signed contracts and the buyer paying the deposit.

The agreement to buy or sell a property becomes legally binding at this point, and no one can back out of the deal.

Ensure the funds you’re going to use are ready and accessible, whether it’s from a family member or a savings account, and the property will be yours to own!

Quick help mortgage guides: 

• Best offset mortgage rates UK
• Can you get a mortgage 7 times your salary?
• Contractor mortgages
• Best lifetime tracker mortgages
• Expat mortgages
• Mortgage repayments on a 300k-a-month mortgage

Mortgage Application Process Explained Final Thoughts

Following the above steps can ensure you complete the mortgage application process efficiently and smoothly.

It’s also important to always seek independent advice from FCA-registered mortgage brokers when choosing a mortgage.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading: 

• How much does the average mortgage cost?
• Modern method of auction 
• What mortgage can I get for £500? 
• Mortgages for discharged bankrupts

If you are looking to get onto the property ladder, you may have heard about an offset mortgage.

This is the newest addition to the mortgage world and is currently an attractive option for buyers with savings in the bank gaining little interest.

The additional tax relief benefits are also an excellent drawcard, as is the fact that, finally, your savings can work in your favour.

However, the first step to understanding whether this mortgage is suited to your requirements is understanding what it is and how it works.

An offset mortgage is a mortgage with a current or savings account linked to the mortgage account. The linked savings account is often referred to as the offset account.

It may sound extremely odd to have a savings account attached to your mortgage, but this unique mortgage is an excellent way of reducing the amount of interest you are charged on your mortgage.

How Does an Offset Mortgage Work?

Lenders deduct the savings balance in the linked account from the outstanding mortgage amount; this is essentially the net balance.

Interest is then charged on the net balance rather than on the total outstanding mortgage value.

Thus, effectively allowing you to use your savings as a means to reduce the interest payable on your mortgage.

The reduced interest charges can benefit you in one of two ways:

• Payment reduction offset

Lower monthly premiums can be made against the mortgage. This option is available on both repayment and interest-only mortgages.

•  Term reduction offset

Monthly premiums remain the same but are considered overpayments allowing you to pay the mortgage off over a shorter period. This option is best for repayment mortgages.

Benefits of an Offset Mortgage

An offset mortgage can be beneficial if you have a large amount of savings or anticipate receiving a significant lump sum in the future and require a mortgage.

In addition, buyers who want to make overpayments on their monthly premiums and want the flexibility of access to these overpayments at any point will also benefit from an offset mortgage.

Finally, this type of mortgage is available for re-mortgages and purchases making it extremely attractive to those new to the property market and current property owners.

Benefits of an Offset Mortgage

• Can help reduce tax.
• Reduces interest payable.
• Can reduce the mortgage term.
• Access to savings if required.
• Can reduce monthly repayments.
• Your savings work harder for you.
• Zero tax paid on interest saved.

Are There Any Draw Backs?

While the offset mortgage can help reduce your monthly repayments and mortgage term, there are a few negatives that should also be considered.

• Buyers usually need a larger deposit compared to a standard mortgage.
• Monthly repayments can increase if savings are withdrawn.
• Limited choice in comparison to other mortgage products.
• A limited number of lenders offer offset products.
• Mortgage rates are generally higher.
• Your savings won’t earn interest.

Please note that using a more significant portion of your savings towards your deposit instead of offsetting against your mortgage interest may be a better option. This is because a larger deposit can help you obtain a better interest rate.

Process for Purchasing a Home/Re-mortgaging

Below is a basic guide to buying a home or re-mortgaging your current home. Of course, each lender will have bespoke products, but the general process is the same.

• Step one:

Contact a reputable advisor to discuss your unique needs and circumstances. Your advisor will then look at the different options available to you.

• Step two:

Once you have accepted their recommendation, the advisor will secure a DIP (Decision in Principle). This is a guarantee from the lender saying they will loan you the funds if your information is correct and subject to the property valuation.

• Step three:

When the lender has agreed to the DIP, you can make an offer on a property or start the process of re-mortgaging.

• Step four:

Your advisor will assign you a client relationship manager if your offer is accepted. Next, your documents will be checked, and certified copies will be submitted to your lender. Once all the checks are done and documents received, your advisor will submit the mortgage application.

• Step five:

At this point, your lender will underwrite your application, which means they will check that the information you have provided is correct. This means your documents will be re-checked by them, and they will also obtain a valuation of the property to verify there are no problems.

• Step six:

After the underwriting is complete and the lender is happy, they will send a mortgage offer to you and a copy to your advisor.

• Step seven:

Conveyancing is the next step. This is the legal process where the solicitors or conveyancers draft the contracts and actual purchase or remortgaging of the property.

If you are purchasing the property, you will be required to arrange building insurance, ensuring that it is in place at the point of exchange.

• Step eight:

This step is when the exchange will happen. Your solicitor will exchange contracts with the seller’s solicitor. Your deposit will now be required, and you will now be legally responsible for the property.

The money will be transferred on a specified date, and the purchase will be considered complete. Re-mortgaging is slightly different; the solicitor will agree on a date to draw down the funds and pay off the existing lenders mortgage.

Considerations When Applying for an Offset Mortgage

Each lender offering an offset mortgage will have bespoke parameters for their product. And while most offset products achieve the same goal, they can have some significant differences you should consider, which include:

• Different products will allow different levels of access to your savings.
• Some lenders allow savings from family members to be offset against the mortgage (subject to certain requirements).
• Notice arrangements of these accounts may differ.
• Some products limit the number of accounts you can link to your mortgage.
• Depending on the lender, they may offer payment or term reduction products or both.

Frequently Asked Questions

Do offset mortgages cost more?

Unfortunately, most offset products attract higher interest rates when compared to standard mortgages.

However, the fees are usually in line with traditional mortgages, and the benefits that buyers enjoy from the linked savings account more than compensate for any additional cost.

Are offset mortgages only geared for high rate taxpayers?

Offset mortgages are especially beneficial for higher rate taxpayers, but all offset borrowers benefit from reducing their monthly payments or mortgage terms.

Is it possible to get an interest-only offset mortgage?

Interest-only offset mortgages are possible and work very well with payment reduction. Buyers can get an interest-only offset mortgage for a range of property purchase types, including purchasing, re-mortgaging and buy-to-let.

Can I purchase a Buy-to-let with an offset mortgage?

While it is possible to obtain an offset mortgage on a buy-to-let property, it can be pretty challenging.

Can I deposit funds and withdraw from my savings?

Depending on the lender’s product, you might be allowed to deposit additional funds and withdraw from the savings account attached to the offset mortgage.

Remember that the more you draw, the less you will save on the mortgage interest. However, if you continue to top up the savings account, you can reduce your interest rate.

Offset Mortgages Final Thoughts

While quite a few benefits can be enjoyed with the offset mortgage, each borrower’s circumstances are unique.

Therefore, it’s advisable to speak to a professional who can assess your situation and help you decide if this is the right mortgage for you. With so many different mortgages to choose from, there’s bound to be a mortgage that suits your bespoke circumstances.

Let’s be realistic; buying property in the United Kingdom can be confusing enough as it is, and then there are taxes and stamp duties and all other kinds of legalities to think about.

Many people already own their first property in the country or abroad, and once they’ve bought their second property, things get a little tricky. What taxes and stamp duties to pay can be a little overwhelming.

There seems to be some confusion about stamp duties and property tax on second homes in the UK.

And, of course, with the plethora of stamp duty rates out there, determining what you have to pay can be pretty challenging.

This brief guide provides an overview of everything you should know regarding stamp duties on your second property.

Understanding your responsibilities and obligations regarding stamp duties and taxes is important as a property owner – whether you decide to own one or two or even more properties.

This article looks at what stamp duties are, how they are calculated and how they can impact different scenarios in the property ownership world.

Second Home Stamp Duty UK

Here’s a quick overview of the important information you need to know:

Does all Property Come with Stamp Duties in the UK?

Any and every property or land over a certain value that’s purchased in the United Kingdom comes with stamp duty land tax attached. To pay stamp duties, your property must cost over £125,000.

This law came into effect on the 1st of October 2021, meaning that it impacts any properties purchased from that date onwards.

However, there are instances where buyers are exempt from duties only if they qualify for first-time buyers relief.

Stamp Duty Relief Second Home

When Do You Get Second Home Stamp Duty Exemption?

You’re only exempt from the Stamp Duty on a second home if you meet the following criteria:

• You purchase a property valued under £40,000, or the share of the property you buy is valued under £40,000.
• You buy a caravan, mobile home or house boat.

The good news is that even if you find that you are not exempt from stamp duty, you may  be able to claim it back.

For instance, if you bought a new property without selling your first, in affect you have bought a second home. As a result, you would have paid stamp duty on the second home e.g. the basic rate plus 3%.

Therefore, if you sell the property within 3 years of buying the new one, you may be eligible for a refund on the 3% surcharge.

What is First-Time Buyer Relief?

Of course, anyone getting into the property market wants to take advantage of any perks and advantages that they can, and buyers relief is a sought after one. What is first-time buyer relief? In the UK, first-time buyers may qualify for relief on stamp duties.

For instance, if you’re buying your very first property, there is no stamp duty on properties up to £300,000. If your first property costs more than that, you will have to pay stamp duties at a discounted rate on a property up to £500,000.

What Stamp Duty is Charged on My Main Residence?

If you’re purchasing a property that will be your sole residence, you will need to pay a standard stamp duty rate. You can find more information on the stamp duty rates in the table further down in this article.

What is the stamp duty on a second home?

Homes bought to serve as a second home or buy-to-let property come with a standard stamp duty plus a 3% surcharge on each band.

What if My First Property is a Holiday Property – Will I Still Pay Stamp Duties on My Second Residential Home?

Even if your current first property is abroad, serving as a holiday home, you will pay the surcharge when buying a property in the UK, whether it is for residential purposes or otherwise.

How do Stamp Duties Work if I am Not the Sole Owner of the Property?

Even if you’re not an outright owner of your existing property, you will still need to pay additional stamp duty on a new property that you buy. That means you pay additional stamp duties on a freehold, shared ownership, leasehold, or even as a joint owner of existing property.

What if I am Given Property? Will I Still Pay Stamp Duties?

Ownership of a property does not only refer to actually paying for the property yourself. Whether you are gifted the property or receive it as part of an inheritance – you are still seen as the “owner” and will therefore need to pay duties on the second property.

What Are the Stamp Duty Rates?

Knowing the stamp duty rates is important as a property investor or owner as it will impact the final amount of money you pay on a property. It’s important to remember that the stamp duty is calculated on the property price – it is not included in the property price.

Stamp duties are based on various different rate bands, and the tax you pay is calculated on the portion of the property’s price that falls within each of those various bands. Take a look at a stamp duty example below:

Scenario: You purchase a home that costs £350,000. In this case, you can expect to be charged stamp duty land tax as follows (these are the calculations).

• On the first £125,000: you pay 0%, which is £0.
• On amounts between £125,000 and £250,000: you pay 2%, which is £2,500.
• On amounts between £250,000 and £350,000: you pay 5%, which is £5,000.

The total stamp duty land tax that you will pay on this particular property purchase is £7,500.

The Stamp Duty Rates to Expect in the UK

Min property price Max property price Stamp duty tax rate

• £0 £125,000 0%
• £125,001 £250,000 2%
• £250,001 £925,000 5%
• £925,001 £1.5 million 10%
• More than £1.5 million 12%

What are the Stamp Duties for Non-Residents?

Suppose you’re a non-UK resident and have your heart set on buying residential property in either Northern Ireland or England.

In that case, you can expect to pay a further 2% on the existing stamp duty tax rate on any property that costs more than £40,000. There are additional rules for stamp duties for non-residents that can be found on the UK government website.

Getting Stamp Duty Refunds

You may think getting a refund on stamp duties seems impossible, but it’s not – you just need to know what the process is and what qualifies you as a candidate to request a refund.

There are instances where you may find yourself needing a refund on stamp duties that you have paid. Let’s say, for example, that you’re in the market for a new property.

You find the perfect property and snap it up quickly – you don’t want to lose it to anyone else.

The only problem is that in the urgency to ensure you don’t miss out on the property you want; you’ve experienced a delay in selling your previous property, which is your main residence.

As a result, you now own two properties, and you will have to pay the higher stamp duty rates.

So, what happens if you sell or gift your property to another person?

In the event that you do sell or happen to give away your previous main home within three years of the purchase of the second home, you can get a refund on the higher stamp duty land tax rate portion of your stamp duty bill.

If the stamp duty amount is above normal, you can claim a refund on the amount that’s higher only if the following scenarios are at play:

• The previous property is sold within three years.
•  You process the claim for your refund within one year of the sale of your previous property.
• You process the claim within one year of the stamp duty land tax return filing date.

Stamp Duty on Second Homes Final Thoughts

While stamp duties can seem confusing or complex, to begin with, taking the time to understand how it works will make all the difference.

Using the information above, you can confidently understand the stamp duty charges that are raised on your home or property.

If you’re in the market for a second property, it’s best to go into it, understanding the complexities and being accurately informed.

As you look to take out a mortgage, you’ll find lenders or brokers referring to a loan to value (LTV) ratio.

The LTV is among the most critical factors in the mortgage process, and it can have a massive impact on your borrowing power and the overall cost of the loan.

Therefore, it’s wise to use an LTV calculator to determine the LTV ratio, how much you can borrow, and what it will cost you.

Here’s a guide on what the LTV ratio means and how it affects your mortgage search, how to use an LTV calculator, how the ratio is worked out, and the benefits of using an LTV calculator.

What Is The Loan To Value Ratio?

The loan to value (LTV) ratio is the size of a mortgage the lender is prepared to offer you relative to the total value of the property you’re buying or remortgaging.

It’s expressed as a percentage figure reflecting the proportion of the mortgaged property and the amount that’s yours or equity.

For example, if you get a mortgage of £80,000 to buy a home worth £100,000, the loan to value ratio is 80%, and you only have equity of 20% because you got a loan for 80% of the home’s value.

The LTV ratio is crucial when buying or selling a property, remortgaging, or releasing equity.

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Need more help? Check our quick help guides: 

• Reasons why a mortgage could be declined on affordability. 
• How reliable is a mortgage in principle?
• How do joint mortgages work?
• Can you get a mortgage on a fixed-term contract?

What Does The LTV Mean For Your Mortgage?

Generally, a low loan to value (LTV) ratio is good, while a high LTV ratio is less desirable. The LTV will affect the amount you can borrow and the rate you can borrow at because a mortgage with a high LTV is riskier from the lender’s standpoint.

Lenders need assurance that they’ll not lose money by lending to you even if you can’t keep up with repayments. When you can’t repay the mortgage, the lender can repossess it and sell it to recover the loan value. However, if house prices fall, there is a risk that the sale of the house won’t cover the outstanding balance.

A lower LTV means there is more equity in the property, and if house prices fall, there is less risk that the property’s value will be less than the mortgage amount.

For example, with a 60% LTV, house prices have to drop by 40% before the lender loses money compared to a 90% LTV where an 11% drop in house value results in negative equity and the sales price can’t cover the balance on the mortgage.

As a result, lenders will insist on stricter terms if you have a high LTV ratio, which translates to higher interest rates or fees.  The best mortgage deals are offered to low LTV customers, and with low LTV, you’ll have lower interest payments and end up paying less for your property overall.

Related guides: 

• Mortgage 5 times salary.
• Can you get a mortgage on land? 
• Refurbishment mortgages.
• Part and part mortgages.
• HMO mortgages.

How To Use An LTV Calculator

To use an LTV calculator, you simply need to fill in the value of the property you want to buy and the amount of deposit you have to work out your loan to value ratio.

A key element as you prepare to buy your first home is the size of your deposit. This is the cash lump sum you’ve saved up to use alongside the mortgage. Once you’ve determined the deposit you have, start by subtracting it from the total value of the property to get the size of the mortgage loan you’ll need.

You’ll then divide the mortgage amount by the property’s value and multiply the result by 100 to get your LTV ratio. For example, if you want to buy a property worth £250,000 and have a £50,000 deposit, you’ll need to borrow £200,000. The LTV calculation is as follows:

£200,000/£250,000 = 0.8

0.8 x 100 = 80%

This means your LTV will be 80%, and your deposit is 20%, so you should seek mortgage deals with an 80% LTV.

What Is The Maximum LTV A Lender Can Allow?

This depends on the lenders criteria and sometimes the property type, credit score.

Some lenders can offer a higher LTV with certain conditions you have to meet i.e. like parents who can take responsibility for the loan if you can’t keep up repayments.

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Related guides: 

• When was my house built? 
• Buying out a sibling from an inherited house 
• How long does it take to release mortgage funds? 
• Does a valuation mean that a mortgage is approved? 
• Mortgage lenders that accept benefits 
• Can I extend my interest-only mortgage term? 

How A Drop In House Value Affects The LTV

As the economy changes over time, the value of your property is likely to change. If the value drops sharply, your LTV will likely increase, and you could end up in negative equity, meaning you owe the lender more than the current property value.

A drop in value can create problems if you need to sell the property or remortgage. The LTV ratio will affect the quality and choice of remortgage deals you’re offered, and it tends to be easier on a rising rather than a falling property market.

Final Thoughts

An LTV calculator is a valuable tool to help you determine what you can borrow and afford and how much deposit you need to save.

The higher the deposit amount, the lower your LTV ratio and the better the mortgage deals you’ll be offered.

Call us today on 03330 90 60 30 or contact us. One of our advisors can talk through all of your options with you.

Further reading: 

• How much does the average mortgage cost?
• Modern method of auction 
• What mortgage can I get for £500? 
• Mortgages for discharged bankrupts