Kelsey’s guide to mortgages and home loans, for beginners
NOT TRYING TO SELL YOU ANYTHING, JUST FREE INFORMATION THAT YOU MAY FIND HELPFUL
My name is Kelsey Wainwright and I’m here to explain mortgages to you, if you are just starting to consider the idea.
Why get a mortgage?
This is the first place to start for non-home-owners. The most obvious answer is because if you haven’t got a mortgage then you are most probably renting [or worse, staying with family or friends]. Now whilst there’s nothing wrong with renting, the most obvious disadvantage is that you don’t really get any thing for your money. But wait Kelsey I hear you say, surely I get a place to live in and a roof over my head? Well that is right , but think about it for a moment from your landlord’s point of view: A property constantly gains value in the housing market and a tenant will pay your mortgage, utilities, council tax, etc, etc – what a deal!
From your point of view: you will always pay more in rent than you will for the mortgage repayments on a home loan for the same value as your house, flat, bungalow..
Can I get a mortgage?
OK, so now you’re convinced that getting a place of your own is a great idea, the next issue for any potential home buyer is would you be able to get a mortgage?
In my experience, where there is a will there is a way, and what with the mortgage and loans market from building societies, banks and other lenders being so variable, in all but the most extreme cases, similar to search engine optimization you WILL be able to get a mortgage.
Types of mortgages
If you earn enough [1/6 of the value of the amount you need to borrow] and have a sensible credit rating you are straight in there with a standard mortgage [joint mortgage if applicable]. Just contact a financial advisor and they will sort out a deal for you.
Don’t forget that a mortgage is in essence a cash loan – the only difference from a standard loan is that it is secured against your property
Bad credit mortgages [Sub-Prime]
If you don’t meet the minimum income criteria then you can ‘self-certify’ – this is basically lying about what you earn, and although financial advisors and lenders always insist that they do believe you, they almost certainly don’t [or you would be getting a standard mortgage with more favourable interest rates or conditions]; lending institutions seem to be set up to 'turn a blind eye' - [albeit it for a hefty deposit that you could lose] - they want the business.
This type of lending is completely again FSA rules and best practise and is a bit like doing 80 mph on the motorway [for non-UK road users, this is a little above the speed limit, but as everyone does it , it gets ignored]. It should be pointed out that a self certification mortgage CAN be used in a completely legitimate way if you are for example self-employed and don’t have up-to-date accounts ready, or if you have an un-earned income stream from somewhere.
If you don’t fancy lying, or in fact are far too sensible to borrow beyond your means [don’t forget that circumstances can change and you can lose out, although apart from your deposit there really is very little for a renter to lose out on by buying for the first time, perhaps a small mark against your credit history which will not last long anyway and the loss of any deposit (How much rent would you have paid in that time anyway?)
Don’t forget homes can be lost if you can’t keep up the repayments!
A more common feature on the market recently is the Fasttrack mortgage – this is basically a self-cert mortgage where the lender reserves the right to look at your accounts, but usually does not – a more cynical applicant may decide to withdraw from the application process when evidence is asked for, and try another lender. The only thing to beware here is applying for too many mortgages, as a credit check each time can lower your credit rating and look suspicious to future potential lenders when they check your credit report.
If you don’t fancy the above you may consider getting a guarantor mortgage, where your own income isn’t the issue looked at, it can be a parent’s or friend’s, anyone who is prepared to take a risk on you being able to keep up the repayments and has a high enough income to secure the loan you need– in this instance the loan is really that of the guarantor, although the deeds to your house will be in your own name.
Other mortgage models
If none of these options suit maybe sharing - getting a place with a friend(s) and a joint mortgage can be the answer – incomes are added together so you can afford that house of your dreams after all, and it doesn’t have to be a long term prospect, a joint share in a property can be a useful stepping stone onto the property ladder. You must be sure of who you team up with though and it's probably best to get your agreements written up by a solicitor.
A further option, although you will lose some of the value of the increase in your house price, is to get a mortgage jointly with a housing association. The association will put up a share of the cost and you get a mortgage for the remaining cost of the property – so you can get a mortgage on a lower salary, although you will be paying rent to the housing association on top of your mortgage repayments, usually at a higher rate than the association are paying for the money they borrowed on your behalf – this is nevertheless a great way to get your own place, to have control over your destiny, and to get some benefit from the increased value of your home and onto the first rung of the housing ladder.
This is a brief outline to how to get a mortgage; there are other factors to consider so please follow the menu links to look at areas in detail.
This information is provided as opinion only and is in no way official advice on the mortgage market. You MUST get the advice of a properly qualified financial advisor. Any views expressed are opinion only and homeloansandmortgages.co.uk cannot be held liable for any advice [we don’t give advice, nor are we qualified to do so.]