Mortgage & Financial Services

The world of mortgages can be a very convoluted and intricate place; especially when jargon terms such as tracker rate and AIP are being thrown about left, right and centre. Doesnt exactly inspire confidence when speaking in the context of what is most likely to be the biggest financial commitment you will ever make.

Our guide is to assist you in developing a general understanding on what mortgages are and how they operate. Equipped with this knowledge, we hope that through one of our mortgage advisor who we have partnered with, you are able to make a self-assured and informed decision on which mortgage product suits you best.

What is a mortgage?

A mortgage is essentially a loan that you take out from a bank or building soceity in order to buy a property or land. This loan will be secured against the value of your home, hence why it is of utmost importance to keep up your scheduled repayments in order to avoid your property being repossessed.

A typical repayment period will run for 25 years but it is not uncommon - especially in this day and age - to be offered a 30 year term.

Types of mortgages

When deciding to take out a mortgage on a residential property, there are three types of product that that will usually crop up in your quest.

Residential mortgage

The most common mortgage product which is in many ways synonymous when talking about mortgages in general: if someone talks of a mortgage, you can bet your bottom dollar they are referring to this one. As the name suggests, it is the mortgage you take out on the property you intend to live in.

Buy-to-let mortgage

Does what it says on the tin; a mortgage intended for a property that is to be bought and subsequently rented out by owner with the expectation of generating a profit.

Subprime mortgages

Many lenders are wary of lending to those with adverse credit history although some lenders do offer such a facility for those affected (from defaults through to CCJs). It is worth noting that such a product is almost invariably accompanied with a significantly higher interest rate compared to a standard mortgage.

Interest Rates

Another important factor to appraise are the different interest rate deals a lender offers and whether it is best suited for you when considering your finances and repayment capabilities.

Standard variable rate (SVR)

This refers to the banks in-house standard rate and generally differs between lenders. This is not linked to the Bank of Englands base rate.

SVRs with cash back are also an option whereby the bank supplements your loan with a lump sum.

Tracker rate

This rate is linked to the Bank of Englands base rate which means the rate of interest you pay back is contingent on base rate is at any given time. Favoured in times of prolonged low base rates.

Fixed rate

The most popular option and understandably so, as it affords the borrower security in the sense that they know exactly what their repayments will be over a set period of time (typically over 2, 3 or 5 years). The rate will usually move in line with the banks SVR once the fixed period comes to a conclusion. Penalties are commonplace should you pull out early.

Discounted rate

A lower rate of interest is to be paid for an agreed term before reverting the the banks SVR.

Capped/Cap & Collar Rate

Seen as a double-edged sword by many in the industry; a variable interest rate is paid but there is a ceiling in place in times of rising interest rates whereby the rate will be capped at a certain amount and the borrower will not pay more irrespective if interest rates continue to rise.

On the other hand, the collar variation of this deal favours the lender. When interest rates are nosediving, the collar clause is activated when the variable rate falls below a pre-agreed limit in which case the borrower cannot benefit from an even lower rate should it dip even further.

Buildings & Contents Insurance

It is likely that one of mortgage conditions will stipulate taking out building insurance to protect your home. Arranging contents insurance is strongly recommended so that your belongings are covered in the event or a fire, flood or theft. If you live in a flat and pay service charge as a leaseholder, building (but not contents) insurance is usually the responsibility of the landlord/management company to whom you are paying the service charge to.

Income Protection

Such is the nature of life that undesirable events such as accidents, serious illness and unemployment are sometimes unavoidable, leaving you in a precarious position when it comes to keeping up your mortgage repayments. Income protection is aimed to remedy this such a situation. One of our partners will be able to walk you through the whole process, tailoring a policy that is best-served to suit your requirements.

Life Insurance

Such a policy will ensure that your mortgage repayments are still made should you unexpectedly die. This can be supplemented by family protection to cover loss of earnings should you also have dependents.

Critical Illness

As the name suggests, a product can be taken out whereby your inability to keep up your mortgage repayments and/or maintain a certain lifestyle is compromised by serious illness. This usually comes in the form of a lump sum which can be put forward to cover said mortgage and income.

Secured Loans

This loan will be secured against your property therefore being a homeowner will be a prerequisite to being considered. Such loans can be used for many different reasons including paying for home improvements and consolidating other loans.

A decision to take out such a loan should not be taken lightly, as failure to keep up repayments may lead to having your home repossessed.

To arrange a free consultation with one of our panel of trusted and reputable mortgage advisors, call 020 7372 3685 today!


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