Mortgages

Think carefully before securing other debts against your home.  Your home may be repossessed if you do not keep up repayments on your mortgage.

Remortgaging

In very simple terms, remortgaging is moving from one mortgage deal to another in order to improve an individual’s financial situation.

keith_roseburgh_mortgage_adviceThe actual process of remortgaging is very similar to taking out a mortgage for a house purchase. This means that home owners will need to pay the same sorts of fees as they probably did first time around (e.g. mortgage-arrangement fees, solicitor’s fees, surveyor’s fees).

In the case of remortgaging, however, homeowners may also need to look at fees to exit their current mortgage.

Homeowners should also be aware that the Mortgage Market Review obliges lenders to look very thoroughly at mortgage applications to ensure that potential borrowers can feasibly meet their mortgage repayments over the longer term.

Homeowners who took out mortgages under the previous system may need to be prepared for their financial state to be very thoroughly scrutinized and to have to provide a more significant level of documentation.

There is also the possibility that existing home owners may find that they are unable to be accepted immediately for a new mortgage, although it should be noted that there is some degree of flexibility for borrowers to move to new mortgage products with an existing lender.

On the plus side, those seeking to remortgage, by definition, will have an existing mortgage which they will have been paying down. This means that they could look to remortgage for a smaller amount, which is viewed very favourably by lenders, particularly if the borrower has benefited from rising house prices as well, meaning that the loan will be a smaller percentage of the value of the home (known as a lower loan to value).

As with everything in finance, remortgaging is a numbers game. Homeowners should look at the costs of remortgaging and compare them with the potential savings to see whether it is worthwhile. Homeowners who determine that remortgaging is a viable option have various possibilities open to them.

Alter the term of the mortgage

If you want to pay off your mortgage as soon as possible or extend the term to reduce monthly payments and free up cash for other matters, remortgaging gives you the opportunity to do so.Keith_Roseburgh_mortgages

Access home equity

Assuming you meet the affordability criteria, you can choose to remortgage for more than the amount outstanding on your existing mortgage.

This can give you access to a low-interest loan which can be used for many other purposes. You could increase the value of your house still further by undertaking improvements to it; put a deposit on another property, such as a buy-to-let investment or to help your children buy a property of their own.

Alternatively the excess equity could be used as a means to consolidate other debt. This option has to be examined carefully, but mortgages are low-interest products and therefore shifting higher-interest debt onto a mortgage could lead to substantial savings.

A note on buy to let

While owning a home has many advantages for many people, there are some groups of people for whom renting is an appropriate choice.

In particular young people who are still building up their careers and may move from place to place in relatively short periods often depend on rental accommodation to make this possible.

Buy-to-let property can therefore be a very effective form of investment, however its nature means that prospective landlords would be well advised to take the time to ensure that they thoroughly understand what is involved before they decide whether or not it is right for them.

The first point to understand is that both mortgage lenders and insurers view buy-to-let property very differently from owner-occupied property.

Assuming that you will need a mortgage to finance the property, a good first step would be to check your likelihood of being accepted for any BTL mortgage and, if so, what sort of deals would be available to you.

Some key points to note is that BTL mortgages tend to require substantial deposits. Borrowers should realistically expect to put down at least 25% of the value of the property and those seeking to unlock the very best deals should be thinking more in terms of 40%+.

Borrowers should also be aware that lenders do apply affordability criteria to BTL mortgages, albeit in a different way. Essentially lenders look to see that expected rental income will more than cover the cost of servicing the mortgage.

They expect there to be a buffer of at least 25% to cover vacancies or issues with non-payment/late payment.

As BTL is often used as a means to generate an income, often in retirement, rather than because the purchaser necessarily wants to own the property at the end of the term, it is more common for interest-only mortgages to be used for the purchase of BTL property.

This generally makes monthly repayments more affordable but borrowers need to understand that if they do wish to keep the property at the end of the mortgage term, they will need to make arrangements to pay off the capital, in the same way as for owner-occupied property.

In addition to all of the above, prospective BTL landlords need to be aware of the fact that their homes will be tenanted by real people who will expect a certain level of service. This means that BTL landlords either need to use agencies (and pay their fees) or be prepared to be very hands-on.

Some buy to let mortgages are not regulated by the Financial Conduct Authority.

 

Equity Release

Equity release is a very specific form of remortgaging. It is generally only available to older people (typically 55 and over) and to those who have already paid off their previous mortgage in full.

In simple terms the equity release provider will provide a cash sum or an income for life in exchange for a share in the value of the property. There are two ways in which this can be achieved.

Equity Release is a lifetime mortgage or home reversion scheme. To understand the features and risks, ask for a personalised illustration.

Lifetime Mortgages

A lifetime mortgage provides the borrower with a lump sum and/or and income. The borrower does not make any repayments during their lifetime, but upon their death their property is sold and the proceeds are used to pay back the loan.

Borrowers can look for a no-negative-equity guarantee meaning that if their home is sold for less than the outstanding value of the loan, the equity-release provider will accept the loss rather than try to recoup it from another part of the deceased’s estate.

If the home sells for more than the value of the loan, then this forms part of the deceased’s estate to be left to whomsoever they wish. The no-negative-equity guarantee forms part of a set of standards set up by the Equity Release Council. These are a set of guidelines set up to protect borrowers and members of the ERC agree to abide by them. The majority of equity-release providers are members of the ERC, however it is always worth double-checking.

Home Reversion

With home reversion an equity-release company effectively buys a stake in the borrower’s home. The company pays for their stake with a lump sum and/or an income but the occupant gives up their ownership rights (at least in part).

Notwithstanding this, however, the occupant is still responsible for keeping the property in good order, e.g. for carrying out maintenance and repairs (at their own expense).

Equity release is a serious choice

While a home may belong to a specific individual or couple, there may be many more people with an interest in it or an emotional attachment to it. Therefore equity release can be a controversial move with a family unless all relevant parties are happy that it is the right decision.

On that note, it is also important to understand that equity release, by definition, affects a person’s home.

It essentially surrenders all or part of the value of an asset which may have been purchased over the course of decades and yet it still leaves the occupant with the responsibility of maintaining the property.

In short, it is absolutely vital to ensure that equity release is the appropriate course of action for you in your individual situation.

It is therefore highly recommended to get professional advice from a qualified financial adviser before finalizing any decision. In particular it can be extremely helpful to see a personalized outline of how the intended equity-release plan would affect your finances and your estate after your death.

For an independent consultation please contact us here also why not try our Mortgage Calculator to see exactly what you can afford?

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE