THE BASICS

WHAT IS A fv1ORTGAGE

A mortgage is a loan made bya regulated lender (Bank, Building Society or Friendly
Society) to a borrower (you) for the purpose ofbuying a property.

The mortgage has a chargeable rate of interest that the borrower pays back, normally
on a monthly basis. If the borrower pays back the mortgage debt on time over the cho
sen period oflending (the mortgage term) then the borrower will eventually own the
property outright.

Mortgages can be on a Repayment basis or an Interest Only basis but for the
latter there normally has to be a repayment vehicle in place such as an
Investment policy or pension fund which is calculated to grow over the chosen
term to have sufficient funds to repay the debt at the end of the term.
 TYPES OF MORTGAGE

Capital Repayment.
This tends to be the main system used for mortgages nowadays and this involves
paying a portion of the capital back each month along with the amount of interest
that is due for that month. At the end ofthe chosen term (often 25 years) the mort
gage would definitely be paid off as long as ali required payments have been made.

With a capital repayment mortgage and the cost of a property nowadays, increasing
the term to 30or 35 years reduces the monthly costs and allows you to enjoy your
lifestyle a bit more than just working to pay the mortgage whilst you are young(ish)
and healthy to do so.

Interest Only.
This is where you only pay the amount of interest due, but the original capital
amount borrowed would still be owed. A means of raising this would have to have
been put in place to meet this debt at the end of the mortgage term or the lender
would enforce the sale of the property to get their debt repaid.

The form of investment could be a stock and shares investment possibly using your
annual allowance via a tax free ISA or a Personal Pension.
Both types ofinvestment come with the additional risk ofthe funds not
performing as well as required to increase suffi.ciently to repay the debt at the
end of the chosen term.

The powers that be (FCA previously FSA previously LAUTRO) have deemed that
Interest Only mortgages should be discouraged by the lenders as they need to show a
viable means of the debt being paid off.
Th is is because most lenders have a very restrictive lending criteria for this type of
mortgage.

If you have a good investment or pension in place then consider using it to keep
your monthly mortgage costs lower. This can be used as a part and part
mortgage where some of the lending is on a Capital repayment and some on
Interest Only.

If you are able to use an Interest Only mortgage then consider buying as big a prop
erty as you can comfortably afford as this would allow you the ability to downsize
in later life thereby providing excess capital (hopefully) when you sell to pay off or
re duce your outstanding mortgage debt.
 THE PROCESS

When you start looking, you have the advantage ofbeing able to see various
lenders' potential mortgages for a property, therefore you should get some
indication of how much you can borrow.
To do this youcan godirectly to a lender, either online to their website or into a
branch (ifthey still have one near you). However, they will only be able to give
you advice on their own mortgages and lending criteria. Or you can use the
services of a mortgage broker.

Using a broker has the advantage ofbeing able to see various lenders mortgages
all at the sarne time and therefore be able to make a more informed choice of
which lender to use and get the best interest rate possible.

They should also be able to advise you why you might want togo with onelender
in stead of another, possibly because that onewill lend more on your income.

Mortgage brokers normally charge a fee but to pay more than f500 would be
wasteful as the broker will normally receive a commission from the lender as
well, and the more they charge does not mean they are anybetter than others
charging less, so pay ing a fee of f 1000 is of no real benefit to you.
You should be able togo online to find brokers local to yourself and get pricequotes.

ln today's computer orientated life dealing with abroker online enables you to
deal with the various paperwork by email which is a lot quicker and saves
paying
recorded delivery with Royal Mail to ensure the papers have reached the
recipient. It also provides you with a 'paper t rail' to confirm what wasdiscussed
and the answers provided.
 FINDING A PROPERTY

lf you have been to a broker or lender then it isbeneficial for you to get an
Agreement ln Principle (AIP) from them, as the Estate Agent will most probably
want to seethis before putting anyoffer to the vendar.
ln many cases they would like to know that youareable to purchase the
property they aregoing to show you rather than wasting their time (and yours)
with the viewing, only later finding out you cannot borrow that much funding.

Properties can be either Freehold or Leasehold.

Freehold means that youownthe land the property is built on and therefore youdo
not get tied in to various restrictions regarding how you use or keep the land apart
from local laws.

Leasehold, whilst generally used for flats, has recently beenused for houses a lot
more and is an practise that, whilst being condemned bythe government, little
seems to be being done to restrict this modem day robbery.

A lease is the document drawn up by solicitors for the vendar that allows you the
right to use the property for a number of years (was often 99 year but has
increased to 125 and some have 999 years) but at the end of the term youhave to
renegotiate the lease and normally end up paying quite a tidy sum for this
privilege.

The lease can also have restrictions in it such as no pets (more common for flats)
and the requirement to get the lessors permission for building work.

Lenders also have an aversion to lending to properties that have less than a certain
number of years togo onthe lease with great difficulty in finding a lender for terms
of less than 35years.

lf you are going to look ata leasehold property then ensure you find out (and if
possi ble see the lease or a copy of it) any restrictions that would apply and what
the terms arefor renewing so as to ensure you donot buyone with
excessiverenewal terms.
 MAKING AN OFFER

Once you have found out how much you can borrow and therefore the maximum
purchase price you can afford, go and look at several properties until youfind the
one you like and then decide how much you would like to offer to buy the
property.
Try not to offer the asking price straight away as it's easier togo upbut not soeasy
to comedown.
This way you might get the property for less than is being asked leaving you with
a bit more funds for decorating or carpets etc..

Anyoffer that youmake via the estate agent has to be put to the vendor by law. The
vendor/seller will quite likely respond bydeclining your initial offer but this does not
mean yougoto thefull asking price, but offer a bit more.

Sometimes estate agents will say there are several people interested in the
property so as to try and push youinto going higher or more than the asking price
but try not get ting into a bidding war or letting your heart rule your head.

The more you pay for the property will result in either youborrowing more,
increas ing your monthly costs or youhaving to find extra deposit money.
 GETTING A MORTGAGE OFFER

When you get an AIP, you tend to onlygive basic information. It is better to give
as much information at the outset and betotally honest.

Inform your broker or potential lender of all debts and/or loans that youhave and
monthly commitments as this will undoubtedly be seen by the lender from the
vari ous credit agencies that they use(Equifax/ Experian).
Failure to disclose them notonly leads to a lower amount that youcanborrow but
can lead to the lender declining to lend to you at all.

You will have to provide various documents but the most important ones are
proof of your1D (passport and/or driving licence), proof of income (last 3 months
payslips and P60 or 3 years accounts if self employed) and proof of your current
address (council tax bill, water rates or gas and electricity bill).

It is beneficial to have up to date statements for anycredit cards or loans that you
have.

Backing up figurework with factual paperwork to ensure youget the correct

advice and amount ofyour potential borrowing.

Figurework is a word used in.finance and means the calculations

and.figures that someone uses to make a calculation.

Ie:Ifyou earnE25kandwant a mortgage of El00k then the proof of.figure

work would be proof of income. For mortgages it is always the need to
prove what you are claiming it to be.

If you have had a County Court Judgement (CCJ) in the past 6 years make sure
youde clare it as the lenders will see this on your credit rating and some lenders
are ok with lending to you if they can seethat it hasbeen satisfied in full and
youcan produce
the satisfaction certificate. Again if not declared then the lender may well decline any
lending purely because of this.
 FROfv1 OFFER TO PURCHASE

Once you have had an offer accepted for your property purchase, you will need to
use a solicitor for all the legal paperwork involved. Some lenders offer free legals
but not too often for 1st time buyers.

You can goto a local solicitor who you might already know and from whom you
would benefit by getting a quote prior to any meeting with them.
You will likely need to have a half-day off work for your appointment with them.

Alternatively you can get a quote (and possibly use) an on-line solicitor who will
deal with your case either byemail or post. Using email makes the process a bit
quicker and does give you a paper trail of what has been said and sent.

Most of the questions asked are straight forward to answer but if you are finding
them difficult, or the answer can be either of the options provided, contact your
bro ker who should be able to assist youquite easily. (The broker could also get
you a solic itors quote).

Verification of your identity and address can often bedone byyour broker but
some times the lenders throw in a curveball and insist it is done bya legal
representative (solicitor) for which there is normally an additional cost.
To avoid this charge you can take your 1D et c. to a local branch of the lender and
have them certifythe documents (or copies of). You would then have to post it to the
so licitors, recorded delivery is beneficial to give you proofthat they have received it
and when.
 OTHER REQU/REfv1ENTS

You are legaliy required to have Buildings Insurance in place on completion

ofyour purchase and your solicitor is required to ensure youhave sufficient cover
in place to meet the lenders requirements.
This is the only insurance policy you must have. Your broker should be able to
provide you with a competitive quote for this insurance or you can goonline to get
a quote and purchase a policy there.

You will then also be offered various othertypes ofinsurance policies.

Term Assurance to cover the debt for the amount borrowed over the term ofthe
mortgage should be seriously considered as it would pay off the outstanding debt
in the event ofthedemise of either ofthe borrowers (injoint borrowing
circumstances).

These insurances can be split into Level Term or Decreasing Term Assurances.
With Level Term the amount insured remains the sarne throughout the term ofthe
policy whereas Decreasing Term reduces on a predetermined scale by the insurer,
so that in the event ofthe demise ofthe person(s) insured it willpay offthe
outstanding debt at that time. Again this is subject to ali premiums having been
paid.

Both ofthe insurances can have Critica!Illness cover added to the life cover or
done as seperate policies. This policy would payout the sum assured in the event
ofthe in sured suffering a critica!illness as defined by that insurers definitions.
This is an area where you need to check their definitions of critica!illness against
other insurers as they do differ considerably. This insurance has led to disputes
dueto the policy wording or exemptions of the policy.

There are also several Income Protection policies that canbeconsidered to cover
you in the event of loss of income/ job. Like ali these policies they will put up
your monthly costs so need to be considered in accordance with your budget.
Remember you still want to be able to enjoy your life.
 ONCE YOU HAVE PURCHASED

You now are the owners ofyour property and will have to fit it out with furniture etc..
Some properties will come with kitchen (white goods) in place and are included in
the purchase price.

Any boiler and/or oven and hob which will probably be included in the sale/purchase
should be certified as in good working arder. If so, and they are found to be faulty,
then goback via your solicitar or the selling estate agent to get them put right or some
financial compensation to reimburse you for replacing or repairing them.

Fu rn itu re wise , you do not have togo out andfill the property immediately or by
buy ing brand new items on credit (again increasing your monthly outgoings).
There are plenty of second hand shops or charity furniture warehouses around and a
lot ofwhat is onoffer is in very good condition ata fraction ofthe price ofbrand new
items.

Family and friends often have excess items that they are willing to give away free
which is beneficial to both of you as it creates space in their home and saves you
money.

Learn to live within your means and enjoy your property as it is without overspend
ing and getting into financial difficulties which could result in your not being able to
meet the mortgage payments leading to having the property repossessed and you los
ing your home.

Th ank you for readíng.

I wish you best ofluck on the pu rchase of your n ew home and all future
endeav ours.