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What is a mortgage?

A mortgage is a type of loan used to buy a property. This loan is usually taken out with a lender, such as a bank or building society.

Here at AGA Mortgages we guide you through the maze offering expert mortgage advice through the whole process.

How do I go about buying my first property?

Buying your first property and choosing the right mortgage can be rather daunting, so do contact us and we can advise you on the mortgage options available to you. In the meantime, we hope you find the following information useful.

The amount of mortgage you can get depends on your income. As a rough guide the usual multiples are around 4 to 4.5 times the gross income of borrowers. These multiples do vary from lender to lender and lenders are more generous in certain circumstances so it is worth talking to us to find out what is available.

Once we have factored in your own deposit towards the property purchase we can establish a maximum property purchase price.

Some lenders offer very good deals for first time buyers and a minimum deposit of 5% is required. It is also worth factoring in all associated costs with buying a property such as legal fees and lenders setup fees and a survey fee. The biggest cost when buying is likely to be stamp duty.

Stamp duty is a government tax and must be deposited with your solicitor at the time of exchanging contracts. Stamp duty bands are as follows:

  • Up to £125,000 – 0% stamp duty
  • Above £125,000 and up to £250,000 – 2% stamp duty
  • Above £250,000 and up to £925,000 – 5% stamp duty
  • Above £925,000 and up to £1,500,000 – 10% stamp duty
  • Above £1,500,000 – 12% stamp duty

This is best described via a worked example. A house purchase at £500,000 would be liable for £15,000 in stamp duty. This is derived from paying £0 on the first £125,000 then 2% on the element between £125,000 and £250,000 and finally 5% on the part of the property value that exceeds £250,000.

If you are a first time buyer however, then new rules took effect from late 2017 which are now as follows:

You can claim a discount (relief) so you don’t pay any tax up to £300,000 and 5% on the portion from £300,001 to £500,000.

You’re eligible if:

  • you, and anyone else you’re buying with, are first-time buyers
  • you complete your purchase on or after 22 November 2017

If the price is over £500,000, you follow the rules for people who’ve bought a home before.

Higher rates of stamp duty if buying additional properties also apply in many circumstances, please contact us for further details.

How much can I borrow?

How much you can borrow will depend on your income and whether or not you have any other financial commitments, i.e., loans, credit cards, maintenance payments. It will also depend on how much deposit you have to put down as an initial down-payment on your property. For further information please contact us, we shall aim to respond within 24 hours.

How much will my monthly payments be?

Your mortgage payments will depend on the following factors:

  • The actual amount of the mortgage
  • The interest rate applicable to the mortgage
  • The term of the mortgage (years over which the mortgage will be repaid)
  • Whether the mortgage is a repayment or interest only mortgage

A Key Facts Illustration or an European Standardised Information Sheet detailing what your monthly payments would be, can be provided once we have discussed your case.

Mortgage products & how they work

There are broadly four types of mortgage products available:

  • Fixed: This is a mortgage rate where the interest rate is agreed at the start of the mortgage and will not change during the term of the fixed rate. So you know exactly how much your monthly payments will be each month during the fixed rate period.
  • Discounted: A discounted rate mortgage offers you reduced repayments for a given term. This interest rate is discounted from the published bank standard variable rate, or 100% standard variable rate if applicable, for an agreed period from the start of the mortgage. What this means for you the borrower is that you are guaranteed to pay a set amount below the standard variable rate for the period of the discount. The standard rate can go up and down, but the discount amount remains fixed during the agreed period.
  • Tracker: This is a variable rate mortgage where the interest rate is linked directly to the Bank of England Base Rate. Therefore when the Base Rate changes, the rate on your tracker mortgage changes by the same amount. For example, if the Base Rate increases by 0.25% then your mortgage payments will increase by the same amount.
  • Capped: This is a type of loan where a maximum rate of interest is set at the start of the mortgage term. During the capped rate period the interest rate can fall below the capped rate but will never rise above it. What this means for you the borrower is that you know how high the mortgage payments could rise but are guaranteed the rate will not go any higher, therefore making home loan budgeting easier.

What is a mortgage in principle?

This is a conditional offer made by a mortgage lender that – provided the information you give them is correct – they will “in principle” give you the loan you have discussed with them. A lender would need to carry out a credit score in order to obtain this.

It’s very useful to have one before you even start looking for a house to give you the edge over any competition. Having one means you should be able get the actual mortgage quicker when the race to buy your chosen home begins. Once we have found a suitable lender and product for you we can arrange for a mortgage in principle if you wish.

How long does it take to get a mortgage?

The time scales can vary considerably when applying for a mortgage and are dependent upon many factors, such as whether you are purchasing a new property or remortgaging.

If you are remortgaging this can take around a month but this does depend on how quickly your solicitor acts, which can delay the process. We do however have an exclusive rapid remortgage service which could speed things up considerably for you, so do give us a call to find out more.

What documents do I need?

Typically lenders will require your latest 3 month’s personal bank statements, latest 3 month’s wage slips and P60 (if overtime and bonus are being used) or 3 years accounts if self employed. They will also require proof of identity and proof of current address. If buying a property, proof of your deposit would be also be necessary. Other documentation may be required although this varies amongst lenders.

What if I can’t prove my income?

If you are having trouble finding a mortgage because you’re self-employed or have an irregular income, then the chances are remote you will be able to acquire a mortgage. Since the credit crunch took grip of the mortgage market, lenders now require to see evidence of income in the form of wage slips or accounts for the self employed. If these are unavailable then getting a residential mortgage will be impossible. Please contact me direct for the latest situation with regards to this requirement.

Why is it important to get expert advice?

It is important to get expert advice so that you are given the option of being able to consider mortgages from a varied range of sources whilst also taking into consideration your own specific requirements.

We are not tied to any bank or building society and will work with you to get the right mortgage to suit your unique personal circumstances. It’s worth bearing in mind that if you approach a lender direct they are only going to give you advice on their particular products.