I’m regularly asked questions about mortgages by buyers and sellers, and often hear buyers discussing mortgage limitations when I’m pretty sure there’s a solution out there for them.
So I sat down with Jon Stockdale, our lovely mortgage advisor from Jigsaw Mortgages, to answer these frequently asked questions and perhaps reveal some additional options that could benefit you.
1. I’ve found the perfect house but mine hasn’t sold yet. How can I secure the property before mine has sold?
Bridging loans can be a great idea to secure the property you want, but there are risks involved. For example it may take longer than you think to sell your existing property, and you may not get the price you expect for it. Speak to an estate agent who can give you an honest valuation and projected timeline to sell, so your expectations are realistic.
A better option may be Let-to-Buy, where you remortgage your existing property (e.g. take out a 75% mortgage on it), and use the capital you’ve released to secure a mortgage on your next property. You can then rent out your previous property until it’s sold, or keep it as an investment. Keep in mind if you’re buying an additional property you’re liable for an extra 3% stamp duty, refundable if you sell your existing property within 2 years.
Another option is a Refurbishment Buy-to-Let, where you secure a bridging loan to buy a property in need of renovation/refurbishment. This gives you 6 months to get the work done, without having to make mortgage repayments, at the end of the 6 months you let the property out and pay off the loan.
A good broker can talk you through the options, specific to your goals and financial position, to help you choose the best option.
2. My mortgage conditions are pretty strict because I’m not a ‘regular’ customer
There is no regular customer, everyone is different and every mortgage has a gift for the right borrower, waiting to be discovered.
Often, buyers will stick to their existing mortgage provider and/or high street bank, but no bank will create a special deal just for you, and it’s inevitable that market conditions and perhaps your circumstances have changed since you last mortgaged/remortgaged.
Each lender, including banks, has maybe 50 or 60 mortgage products, whereas I have access to the whole market of around 3000 mortgage products.
I can get 40 year mortgages to make it more affordable for you on a monthly basis, 5 times salary, and I can also get mortgages that run up to the age of 75, depending on occupation. It doesn’t cost anything to talk to a broker, so let us see what we can do for you.
3. Can I consolidate my mortgage and credit card debt by remortgaging?
Yes, but be mindful it turns short term debt into long term debt. So although moving a credit card debt charging 30% interest is cheaper if you add it to a mortgage at 2% interest, it’s more expensive in the long term. This is because it can take decades to pay off if you don’t address it, which can be done by, for example, overpaying your mortgage. This can knock years off the term of the mortgage and save you a significant amount of interest.
4. Is my mortgage provider’s survey adequate or should I get my own?
Mortgage surveys have changed in the last few years. A basic (Homebuyer) survey used to be fairly standard where a mortgage is involved. But in recent years, many lenders have switched to ‘online’ or ‘drive-by’ surveys to check the price being paid for a property looks about right, this especially applies where the loan to value ratio is 75% or less.
Broadly speaking there are two types of survey:
i. Home-buyer survey*
This used to be a basic mortgage requirement, and covers:
- Standard type and construction of houses, bungalows and flats that are apparently in reasonable condition
- Identifies serious or urgent defects
- Surveyor’s opinion of market value and cost to rebuild (for insurance purposes)
ii. Building survey*
This is customisable according to the property you’re buying and is recommended if you are buying a property of unusual build, poor condition and/or are considering significant alterations.
Check with your broker if your mortgage provider will be conducting a physical survey. If not it is highly recommended you commission your own survey to identify any issues that may affect value and/or require additional investment.
A survey can take 2 to 3 weeks to complete so it’s worth looking at whether you want your own survey well in advance of your target exchange date.
* For more information visit RICS
5. There’s been a lot of negative press about leasehold properties. What should I be aware of?
There are a few pitfalls to be aware of:
Leaseholds increasingly apply to houses as well as flats
- Leaseholds are becoming more common with new-build houses, which sometimes have extortionate increases in ground rent and maintenance built in to the contract. This has made some houses incredibly difficult to re-sell. Before you buy a house, always check if it is leasehold, and if so what the conditions are, and consider having a conveyancer (solicitor) look at it for you.
Length of lease
- If you’re selling or considering buying a leasehold property, check the length of the lease. If it’s below 80 years, the mortgage options are reduced, even more so below 70 years.
Extending a lease
- You can extend the length of the lease, though this can cost tens of thousands of pounds and take months to arrange, including negotiating the cost of the lease extension with the freeholder and their lawyers.
- If you’re selling a leasehold property, the freeholder will be in no rush – if you’re desperate to sell, the longer the delay the more you’ll panic, which can push up the price. So if you plan to extend the lease before you sell – thereby increasing the pool of potential buyers and the ultimate sale price you’ll achieve – start this process well in advance of going on the market.
Ground rent implications on your mortgage offer
- When buying a leasehold property, along with checking the length of the lease, check the cost of ground rent and maintenance as this will be taken off the amount you can borrow. For example, if the ground rent and service charge is £150 a month, this is £1800 a year. You may need to earn £2700 before tax to pay for this, so £2700 will be taken off your income when calculating the affordability of a mortgage for you, thereby reducing the amount you can borrow.
- Some lenders set a limit where the ground rent can be no more than 0.1% of the purchase price. Find out the confirmed costs from the estate agent and discuss them with your mortgage broker.
6. How do I choose a mortgage broker?
A good place to start is to ask your friends for recommendations based on their own experiences.
Use an experienced broker – over time we get to know how and when certain lenders are better than others. This especially helps when dealing with ‘unusual’ mortgages such as Buy-to-Let, and mortgages for contractors.
An experienced broker will know the trick to getting the right product, based on the borrower’s individual needs. And we know where the devil in the detail is!
Jon Stockdale
Jon has over 40 years experience in financial services. He specialises in securing residential, Buy-to-Let and commercial mortgages and financing across all demographics. Jon is renowned for securing a mortgage deal where others may have struggled, while the care and attention he pays to his clients helps ease the stresses of the process.
If you’d like Jon’s advice he can be reached via Kai Carter Estates or at jonstockdale@jigsawmortgagesltd.com
Jargon buster
Loan to value: This refers to the amount of money you need to borrow to buy a house. For example, if you are buying a house for £500,000 with a £100,000 deposit and the other £400,000 covered by a mortgage, you are paying a 20% deposit and will need a mortgage for the other 80%. So your loan to value ratio is 80%.
Buy-to-let: This refers to when you buy a house specifically to rent it out rather than live in it. If you are buying a property to rent out, you will need a specific buy-to-let mortgage.
Let-to-buy: Let-to-buy actually involves having two mortgages – a buy-to-let mortgage on your previous home so you can rent it out, freeing up capital to get a residential mortgage on the property you want to buy. You let out your previous home so that you can buy your next one.