Finance Q&A's
Main Residence Mortgage
Whether you’ve reached the end of your current mortgage term, are looking to take the first step on the property ladder, or are simply in search of a better deal, it’s good to know what the mortgage market has to offer. To help find the best option for your circumstances, Lakeside Financial Consultant, Matthew Tebb, talks through the key product types, application considerations and how a financial adviser can ease the process.
What are the main types of residential mortgages?
M: Often, the most popular type of mortgage is a fixed-rate whereby you are locked into a certain interest rate for a specified amount of time, usually two to ten years. Fixed-rates generally appeal to those looking for stability.
There are also tracker mortgages where the interest rate moves up and down in line with the Bank of England base rate. Those interested in the market and looking to take advantage of flexibility tend to be attracted to these types of mortgages. There is no fixed-term that you’re locked in for or limits on repayments, but the risk that comes with these mortgage types is that interest rates can increase as well as drop.
There are offset mortgages that allow you to use a savings balance to offset the interest payments.
Additionally, there are interest-only mortgages, whereby the payment you make only covers the loan’s interest charges. While this can be a much cheaper option, you will still owe the original amount borrowed from the lender at the end of the term. As such, lenders have strict criteria, like a large deposit and approved repayment plan. A lot only offer this type of mortgage on buy-to-let properties.
What are some of the key factors to consider when applying for a mortgage?
M: Affordability is key when applying for a mortgage and lenders have strict affordability criteria. Each lender also has different ways of how they calculate affordability. So it’s essential to research the market properly.
Ideally you should be aware of your credit rating, which you can check online on sites such as checkmyfile.co.uk, to see how desirable you will look to lenders. Some people think having debt is a bad thing, but mortgage lenders like to know that you have a good track record of paying back the money that you’ve borrowed. Also, those who are self-employed will need to show a certain amount of books to demonstrate their earnings. There is a misconception that they need at least three years’ worth to apply for a mortgage, but some lenders will take two, or even just one year’s worth, so it’s worth taking time to research.
Clients, especially first-time buyers need to think about their deposit amount. They should also see whether any government schemes are available that could help them onto the property ladder. Generally speaking, the lower the deposit, the higher the interest rate, so it’s best to save as much for a deposit as possible before applying for a mortgage.
How has the pandemic affected mortgage lender criteria/options?
M: Many lenders removed 95% and 90% mortgage products in 2020, so you couldn’t get a mortgage with less than a 15% deposit, which hit the first time buyers market particularly hard. The self-employed, such as barbers, makeup artists and personal trainers, who have been without work for long periods during the pandemic were finding it harder to purchase a property through lack of income due to the restrictions.
We are seeing positive movements in the market in 2021, with some lenders bringing back 95% and 90% mortgages. However, interest rates are still higher than they would have been pre-pandemic. The government has also announced a new mortgage guarantee scheme to increase the availability of 95% loan-to-value mortgage products, therefore helping the first time buyer market and boosting confidence.
How can a financial adviser help find the right mortgage deal for an individual?
M: At Lakeside, we pride ourselves on getting to know our clients and what they want to achieve so that we can find the best solution for them. As a team of advisers, we have a vast amount of knowledge and specialise in different areas, so we can look to find the best options for more niche requirements and access exclusive lender deals. Once we know a client’s circumstances, we can do all the research to match them with the right lender and avoid them making endless applications that we know wouldn’t get approved. We can take care of the application and put the right protection in place, such as income, life and home insurance.
Please feel free to contact us for further information: admin@lakesidefs.co.uk
