Johnston Financial

 

You'll find plenty of interesting information about mortgages here.  For a personal service to match your requirements please contact us.  

Most of the information on this page is for individuals buying or re-mortgaging a house for their own use or for investment purposes. We also advise on Corporate borrowing and have expert staff available to help you put your proposition together and to introduce you to the best lenders for your needs.

 

Your mortgage is probably the largest financial transaction and commitment you are likely to undertake. Surely then you should seek mortgage advice which is totally independent and individually tailored to your needs and requirements?

 

We are not tied to any particular lender and use the latest computer based sourcing program, which means that we have the ability to act on your behalf, representing your best interests, in order to establish the most appropriate mortgage solution for you. We also regularly have access to exclusive products not available on the High Street.

 

The mortgage market changes with the economic climate from mortgage famines to brisk competition amongst lenders to attract your business. The credit crisis which started in 2007 has made finding a mortgage increasingly difficult for the time being. You benefit from our ability to search the whole market for funds and find the best deal.

 

There are so many types of mortgage available that it can be hard to compare them all, possibly opting for the product offering the lowest headline rate of interest. But when booking and arrangement fees, conditional insurances, mortgage indemnity guarantee premiums, lock-ins and early redemption penalties are taken into account, the products may not be as attractive as you might have first thought.

 

Based on the information you provide in your Mortgage Information Form (it is essential that you provide truthful and up to date information), we will search the UK mortgage market of over 300 lenders, some of which offer exclusive products to brokers such as ourselves, to determine which lender will offer you the most attractive mortgage options, suited to your particular requirements.

 

One of our mortgage experts will then contact you to discuss your enquiry, source the products on your behalf, answer any queries you may have and provide you with any further information you may require.

 

 

One of the first things you have to decide is what type of interest rate you want. We think it is important that any early redemption penalties do not apply after the period of any reduced interest rate. This gives you complete flexibility to re-mortgage for a better deal before you go back to the lender’s standard variable rate.

 

Interest on variable rate mortgages moves up and down in line with the standard variable rate set by the lender. A variable interest rate allows you to benefit from periods of low interest, but does not offer protection from periods of high interest. If you start off on a reduced interest, you will normally revert to a standard variable rate after the agreed period of time.

 

A fixed interest rate allows you to budget for the exact monthly cost of your mortgage over a pre defined term. Fixed rate terms may be available from one year through to twenty-five years. Normally the lower the term chosen to fix the rate, the lower the actual rate of interest charged. You will normally revert to a standard variable rate after the agreed fixed rate period.

 

A discounted rate works in exactly the same way as a variable rate, however during the initial period, or in some instances throughout the lifetime of the mortgage, the lender will offer you a discount off the standard variable rate.

 

Normally the lower the term chosen to enjoy the discount, the higher the discount granted. You will normally revert to a standard variable rate after the agreed discount period.

 

A base rate tracker works in exactly the same way as a variable rate, however rather than paying the rate set by the lender, you pay a rate linked to the base rate set by the Bank of England. The rate may be less, more or the same as the base rate. 

 

Lenders offer to link your payments to the Bank of England base rate for a set period of time. You will normally revert to a standard variable rate after the agreed period of time.

 

A typical example might be:

 

Similar to fixed rates, a capped interest rate provides an upper limit through which the lender cannot increase the interest rate.

 

However a capped rate allows you to benefit from low periods of interest, because unlike fixed rates, a capped rate can fall if lending institutions lower their variable interest rates below the level of the cap set.

 

Again, normally the lower the term chosen to cap the interest rate, the lower the actual upper limit or cap the lender will offer.

 

A deferred interest rate mortgage allows you to make lower repayments than the actual rate of interest charged for an agreed period of time.

 

The difference between what you would have paid normally and the amount you actually paid, is then added to the capital sum of your mortgage.

 

This can be a very expensive way of arranging your loan as interest is charged on the deferred amount of interest in addition to the original capital borrowed.

 

Also known as daily interest mortgages, a flexible mortgage allows you to make regular or ad-hoc overpayments in addition to your normal monthly repayment.

 

This provides you with the benefit of repaying your mortgage over a shorter period of time as the actual level of interest charged is re calculated immediately each time an overpayment is made.

 

In addition flexible mortgages allow you to borrow back any over payments made at any time in the future. This can be taken back as a lump sum or gradually by reducing your normal monthly repayment.

 

Very similar to flexible mortgages but with the added benefit that if you have money saved or in a bank account with the lender they will offset the amount in the bank accounts from the amount of your mortgage and only charge interest on the balance.

 

This tends to give a higher rate of interest on the savings but is also very tax efficient as savings and bank account interest is taxable whereas by paying a lower amount of interest on your offset mortgage, you avoid that tax.

 

If you keep your mortgage payments at the full amount, this will accelerate the benefit of repaying your mortgage over a shorter period of time.

If you have had your mortgage for a few years, you are probably paying your lender’s “standard variable interest rate”. You are now free to ask us to look around and see if a different mortgage would save you money on your monthly payments. Whilst many people take the opportunity to release some of the value in their house by increasing their mortgage at the same time, most people do not but simply re-mortgage to reduce their costs.

 

There are some costs linked to re-mortgaging, mainly solicitor, survey and arrangement fees . However, a number of lenders will pay the solicitor and survey fees to attract your business.

 

There is no reason why you should not re-mortgage every few years when your special introductory terms have run out. Provided there are no early redemption penalties (see below), regularly re-mortgaging can save you a lot of money.  At times of very low interest rates and poor mortgage availability, re-mortgaging may be difficult or may not save you money.

 

Lenders often give special introductory interest rates (see “interest rate choices” above) to attract your business. They charge a lower interest rate than they normally would and to allow them to cover their costs, they want to hold on to your mortgage for as long as they can. To discourage you from switching your mortgage in the first few years, they charge early repayment charges (sometimes called early redemption penalties). It is important to take these into account when deciding how attractive an offer is. Charges payable after the period of the special terms are generally to be avoided as they stop you re-mortgaging again when the introductory period is over.

 

Property purchase at the right time and at the right price can be a profitable long-term investment. Buying to let can supply you with a regular income in the form of rent and a large asset with the potential to increase in value. Buy to let mortgages allow you to buy properties for investment purposes.

 

With a buy to let mortgage you can use the income received from rent to help pay the mortgage repayments. Once you have paid the mortgage in full you are left with full ownership of a property. You can then continue to receive rental income or you could sell up and receive a large cash lump sum. There are taxation issues you need to consider and we can help with those. This can be an ideal supplement to a pension as it can be used as a retirement income by continuing to let out the property.

 

A buy to let mortgage is similar to a regular homeowners mortgage but there are some differences. Always remember lending money is based on risk assessment. A lender will consider all the risks involved in lending you money. The advantage of a buy to let mortgage is that the mortgage lender will consider your rental income when calculating your ability to repay the loan. So you may be able to borrow more money based on the fact that your income will increase after you have secured the mortgage. This means that your potential rental income will be a factor in the lenders risk assessment.

 

Buying to let is not an easy road to success, it can take careful planning. Taking professional mortgage advice will ensure you get the best mortgage deal for your circumstances.

 

Normally when a borrower applies for a mortgage he or she will be asked to provide pay slips or company accounts to prove their income. If it is difficult or extremely inconvenient for you to provide this documentation, you can choose to self-certify your income. This involves signing a declaration which states your income sources and amounts. Lenders will charge you higher rates than average and offer you a more limited range of mortgages if you choose to self-certify your income, so it's not a good idea to self-certify just to avoid some paperwork.

 

Availability of self-certificate mortgages can be very limited or non existent in periods when mortgages generally are less readily available.

 

Lenders are taking a risk when they lend you money that you will pay the interest they charge and that you will repay the loan. To limit their risk, they place a limit on the amount they lend relative to the value of the property. This has tended to be normally 95% of the lower of the purchase price or the value of the property. It has at times been possible to borrow up to 100% of the lower of value or purchase price but the interest rate tends to be higher and it is mostly available to first time buyers.

 

At times of poor mortgage availability, 100% loans may not be obtainable and the maximum LTV can fall below 95%.  In such times, lenders tend to charge higher arrangement fees for higher LTVs and the best rates of interest may only be available on loan to value ratios of 70% or even 60%.  For some types of mortgages such as self certificate, the loan to value is normally restricted to 85% or less.

 

Lenders will take account of your income and that of your spouse or partner when deciding the maximum amount they will lend to you. In the past, they used to base lending limits on multiples of your income but increasingly, they will carry out an individual affordability assessment. They now take into account how much of your income is committed to current outgoings and the cost of repaying the proposed mortgage. This helps them to arrive at a loan amount based on your individual circumstances.

 

Please contact us for advice on how much you can borrow.

 

When you apply for a mortgage, your lender will check your credit history. If there has been an adverse history, they may refuse to lend. However, that is not the end of the road as there are lenders who specialise in “adverse credit mortgages”.

 

Adverse credit mortgages are for people who have an adverse credit history. An adverse credit history could include:

 

·         County Court Judgements (CCJ's)

·         Mortgage or rent arrears

·         Self employed - Although you can apply for a self certificate mortgage

·         Decrees (Scotland)

·         Bankruptcy

·         I.V.A

·         Trust deeds

 

Mortgage lenders may also turn you down if you have changed address many times or if you are an entrepreneur without 3 years worth of audited accounts. Self-employed borrowers may have to apply for a mortgage via sub prime lenders but may also apply for self-certificate mortgages, meaning they declare their earnings without having a set guaranteed salary.

 

It is estimated that one in four British people would not qualify for a standard mortgage from a high street lender. This means they require sub prime lenders in order to acquire a mortgage loan. There are now far fewer sub prime lenders across the UK and some research may be needed to source such a mortgage.

 

Interest rates for adverse credit mortgages tend to be higher than normal which means you may have to pay higher interest rates on your mortgage. On the positive side you get a home to live in that belongs to you, and if you repay your mortgage back as required by the lender, after three years your credit history will have benefited considerably. You would then almost certainly be able to re-mortgage for a normal loan at lower interest rates.

There are various ways to repay your mortgage. Here is a brief outline of the more popular repayment methods, and their advantages and disadvantages.

 

 

You borrow a lump sum over a fixed period of time (usually 25 years, but it can be less). You pay the interest and repay some of the capital on a monthly basis to the lender. The combined monthly payment is calculated so that at the outset, it is mostly interest with a small amount of repayment. Each year, as the loan reduces, the amount of interest in the combined monthly payment falls and the amount of loan repayment rises.

 

If you have dependents, you will normally effect a life assurance policy with critical illness insurance included to repay the loan in the event of your death or on the diagnosis of a critical illness.

 

Advantages: The only way you can be 100% certain the loan will be repaid (provided you keep up with the repayments.)

 

Disadvantages: Only a small amount of capital is paid off in the early years.

 

 

Your monthly payments represent only the interest due to the lender, and does not include repayment of capital. Your total loan must be repaid at the end of the mortgage term. You may therefore need to arrange additional investments which will generate sufficient capital to repay the loan.

 

Advantages: You can choose from a variety of investments, some of which have tax advantages. Should you move or arrange a re-mortgage, your investment can usually be reallocated to the new mortgage.

 

Disadvantages: Unlike a repayment mortgage, the amount of debt outstanding does not reduce over time, and there is no guarantee that the investments chosen will grow sufficiently to repay your loan. Also, investment-linked interest-only mortgages can be slightly more expensive than repayment mortgages.

 

Three well known types of investment for use with interest-only mortgages are:

 

 

You make two payments per month. One to the lender to repay the interest on the amount borrowed, the other to an insurance company for an endowment contract. There are mainly two types of endowment: unit linked or with profits. Both invest in a broad range of assets including stocks and shares. The capital in the endowment builds up over the term of the mortgage to repay the outstanding capital. The policy will include life assurance and may also include critical illness cover. However, endowments are not risk-free as there is some investment in the stock market and they are not guaranteed to repay the loan at the end of the term.

 

 

You make two payments per month. One to the lender to repay the interest on your borrowings and another into a personal pension plan. The aim is to build up your pension fund sufficiently to repay the loan and to provide you with a retirement income.

 

This has tax advantages, as the contributions you make to the pension plan attract tax relief at the highest rate of tax you pay. However, you must ensure your pension is well funded to ensure you have sufficient to repay your loan and provide for your retirement. The tax free lump sum which is paid on retirement is used to repay the mortgage loan, but there is no guarantee that there will be sufficient funds to do so.

 

 

You make a monthly payment to the lender to repay the interest on the amount borrowed, and start to invest into an ISA plan. The capital in the plan builds up over the term of the mortgage to repay the outstanding capital. ISAs allow you to invest in cash, life assurance, stocks and shares, and work in much the same way as the endowment method.

 

Your money could grow faster within an ISA fund than an endowment because of tax advantages and because ISAs invest most of your money into stocks and shares. This means they can grow very quickly if the stock market performs well. On the other hand, if there's a stock market slump, there's a risk that you may not be able to pay off your loan at the end of its term. ISA’s do not have any restrictions on the ability to cash them in or stop contributions and if they are cashed in early or contributions are stopped, there is unlikely to be enough in them to repay your loan.

 

For all interest only mortgages, regular reviews should be carried out to ensure you have sufficient funds to repay your mortgage loan at maturity.