Mortgages

Quite simply, a mortgage is a loan. But unlike personal loans, it’s specifically tied to a piece of property so that it acts as security against the loan. If you default on your payments, then your mortgage provider has the right to take back (repossess) the property.

Typically, mortgages are for a set period, usually 25 years although shorter or longer terms are also possible. Once you’ve borrowed the money, a repayment plan is set in place. Although there are different types of mortgage, the most common is that you have a monthly capital repayment plan. As well as paying back the original money you borrowed (the capital), you’ll also be charged interest on the amount you’ve borrowed.

The professional conduct of mortgage providers is regulated by the FCA. There are strict rules regarding the use of unfair and misleading adverts and promotions as well as checks that the terms of any contract for financial services are fair for the consumer. Regulations were originally set out in the rules for Mortgage Conduct of Business (MCOB) but these regulations were overhauled as a result of the FCA Mortgage Market Review (MMR) in 2014.

As regards their financial conduct, deposit-taking firms in the UK come under the jurisdiction of FCA’s sister organisation, the Prudential Regulation Authority. They ensure that firms have a high enough level of capital to offset their lending risks.

If you have a complain about your mortgage provider, your first step is to take the matter up with them. If you feel it hasn’t been dealt with to your satisfaction, there’s a complaints procedure,through the FCA, which can be referred to the Financial Ombudsman Service.

The other factor to take into account is the size of the property you’d like to purchase; you could start with something smaller with the intention of trading in and moving up as you begin to pay off the original capital and as your salary increases. Alternatively, you could start with something larger with the hope that as house prices rise, your property represents an investment as well as a home.

Another factor affecting the amount you wish to borrow is whether you’d like to buy a house with someone else. If you’re involved in a serious relationship, you might see buying a house together as the next logical step. However, you don’t have to buy with your partner, many people often choose to buy their first property with a close friend. Obviously, buying with someone else has the major advantage that the price you can afford is based on two salaries rather than on just one.

Gone are the days of the housing boom when mortgage providers would offer a 100% mortgage (and in some cases 125% mortgages). You’ll be expected to contribute a sum of money towards the purchase price in the form of a deposit. It’s possible to get a 95% mortgage but ideally, you should be saving at least 10% (with the most competitive interest rates offered for deposits of 40%).

The reason why mortgage providers wish you to have a deposit is that the larger your share of the property (or your equity), the less risk it is for them as they’re lending less money and more certain of recovering the money they lent if anything goes wrong.

A glance at property rates in your area and dividing it by ten will give you a rough idea of how much you need to save for your deposit. You should think carefully about your outgoings and ways you can cut down so that you’ll be able to save faster and more easily. It may be a struggle at first but if you’re serious about buying property, you have to keep your long-term goal in mind and remember that all the sacrifices will be worth it when you hold that front-door key in your hand.

In an initial informal meeting with a mortgage provider, they’ll need to know about your finances so you have an idea of what you can afford. In return, they’ll inform you about the types of mortgages they offer as well as details about their services and any fees.

Once you’ve chosen a mortgage provider, the interview is longer since they’ll need to know more details about your financial situation. Also, you’ll have to provide proof in the form of payslips, bills and bank statements so they can carry out a full affordability check.

If your application is accepted, you’ll receive a DIP (Decision in Principal) or AIP (Agreement in Principal) which will prove your creditworthiness and seriousness as a bidder to anyone selling property.

Now, it’s the tiring – though exciting – part as you start looking for the property you’d like to buy. Before you do, what are the other expenses associated with buying property?

When you’re saving money for a deposit on your first home, it’s important that you’re aware of the extra fees and expenses you’ll need to pay. Buying property can work out to be much more expensive than you thought.

If you’ve used a mortgage broker, then you might be responsible for paying for their expertise. Apart from the fee that you’ll have to give your mortgage provider for arranging the mortgage, they’ll also levy a non-refundable booking fee. Once you’ve found a property, a survey needs to be carried out to make sure it has no major structural problems, for which you’re also liable.

To transfer the title deed into your name, you’ll be required to pay for conveyancing and legal fees since SDLT (Stamp Duty Land Tax) must also be paid when you purchase property.