Guide to home buying
We are sure you will appreciate that your mortgage is one of the most important financial commitments you will make. At Heswall Mortgage Services we are committed to being as helpful as we can to make the process as clear and trouble free as possible for you. This is a simple guide through the home buying process and you are encouraged to read it carefully. Do not hesitate to contact us at any stage if you need assistance - we are here to help and support you.
How much can you afford to borrow?
If you are 18 years and over with a regular income, you should be eligible to apply for a mortgage.
Normally, you can borrow up to 3.5 times the main gross income, plus the whole of the second gross income if the application is in joint names. Alternatively, for a mortgage in joint names, the individual gross incomes can be added together and then multiplied by 2.75 to find the amount you can borrow. Some Lenders also consider 100% of any guaranteed overtime, bonus or commission and 50% of any regular overtime, bonus or commission in the calculation.
Recognising the difficulty which First Time Buyers are experiencing, some Lenders are willing to consider mortgages which may not fit the basic criteria and if you wish to discuss your requirements, please do not hesitate to contact us.
Before Lenders make an offer of a mortgage to you, they will assess your financial standing for your mortgage application.
This assessment may include:-
§ Taking into account your income and commitments
§ How you have handled your financial affairs in the past
§ With your written consent they will obtain information from a credit reference agency, employer/s, other lender/s and landlord/s.
§ If you are self employed they may need a reference from your accountant
§ Information supplied by you, including verification of your identity and the purpose of the borrowing
§ Your age
§ The security provided, including the condition and value of the property
Where you are taking out a mortgage in joint names, you must bear in mind that you are jointly and severally responsible for the whole of the mortgage debt to include maintaining the monthly mortgage payments and this may have implications under certain situations eg divorce, separation or acrimonious dispute.
A guide to the costs when buying a home/obtaining a mortgage
When you take out a mortgage there are, if they are applicable to you, a number of initial costs involved.
These may include (depending on your circumstances):
§ Early repayment charges on the mortgage to be redeemed
§ Estate agents fees
§ Administration fees
§ Higher lending charge
§ Arrangement fees
§ Valuation/survey fees
§ Insurance premiums
§ Solicitor's costs (your solicitor will provide you with an estimate of the legal costs)
§ Stamp duty
§ Removal expenses
Level of service
The Financial Services Authority (FSA) is an independent watchdog that regulates the activities of mortgage intermediaries who arrange and advise on mortgages which are secured on borrowers' homes. With this in mind we have to follow certain rules and regulations as laid down by the FSA.
Under these rules and regulations there are two levels of service available:
We will be pleased to help establish your needs, priorities and objectives and then provide you with advice and make a recommendation as to which mortgage product is most suitable for you
Or
We will ask you some questions to narrow down the selection of mortgage products which you may feel will be of interest to you. We will not provide you with any advice or a recommendation and, therefore, you will need to choose which mortgage product you require.
We will issue you with an Initial Disclosure Document (IDD) to confirm whether you have received the advised or non-advised level of service.
The IDD will also confirm:
* That the FSA is an independent watchdog that regulates financial services
* We arrange mortgages from the whole market place
* We are happy not to charge you any Fees for the service offered. If you choose to pay us a fee, it will be 0.75% (i.e. £750 on a £100,000 mortgage) and any commission we receive from the Lender will be passed to you on receipt.
* That the Society is authorised and regulated by the Financial Services Authority and our registration number is 302830
* That if you have a complaint, you should contact us at our Registered Office
* That Heswall Mortgage Services is covered by the Financial Services Compensation Scheme
Before you submit a mortgage application for a regulated mortgage contract, you will be given a Key Facts Illustration (KFI) which is in a prescribed format as laid down by the FSA under the FSA rules.
Mortgage types
The different types of products and features available include:
Standard Variable rate Lenders set their own base rate which is its standard variable rate. With a standard variable rate, the rate moves upwards and downwards, without limit, normally depending upon market conditions and commercial factors.
Fixed rate - The interest rate and mortgage payment are fixed at a certain level for a specific period of time and regardless of any changes to any other rates.
Capped rate - Typically there is an upper fixed limit, the cap, for a specific period of time, so that in the event of interest rate increases the rate applied to the mortgage will not exceed the cap.
Discounted rate - This is a variable rate which offers a genuine discount for a set period of time. The discount is a specified percentage off the Lenders standard variable rate.
Tracker rate - This is a variable rate. The tracker interest rate is linked to an independent rate, usually the Bank of England Base Rate, and fluctuates with any upward or downward changes applied to the independent rate.
Stepped rate - A stepped rate is where different interest rates are applied to the mortgage over different periods of time.
Offset feature - An Offset mortgage allows you to 'offset' your savings against the interest which is charged to your mortgage account. You will not earn interest on these savings, but will reduce the interest which is charged to your mortgage account. Interest is calculated daily, therefore, every £ on deposit reduces the cost of borrowing. A current account and/or savings accounts are set up on an instant access basis and monies can be added or withdrawn as required. The daily amount in these accounts is used to reduce the interest calculation balance on your mortgage account i.e. offset against the interest payable on the mortgage.
Cashback feature - A cash sum is paid to you on completion of the mortgage and usually represents a percentage of the advance amount.
Flexible feature - This may be linked to any of the above products and may allow you flexibility to increase your monthly payments at any time, reduce your mortgage with irregular lump sums without charges, reduce your monthly payments provided you have made enough overpayments and take payment holidays.
If you decide to take advantage of a fixed, capped, discounted or stepped mortgage product, we advise you to consider the impact of any increase or change in your monthly payments at the end of the fixed, capped, discounted or stepped period.
As part of our service to you, we will contact you a few weeks before your deal ends to recommend you look at the options available to you at that point, to avoid having to pay a Lenders standard variable rate.
Repayment methods
A mortgage consists of 2 parts:
1. The capital which is the amount of money you borrow
2. The interest which is charged on the capital amount you owe
The following are the most common ways of repaying your mortgage.
* Repayment (also know as Capital & Interest)
This is a method whereby you pay off the mortgage by making regular monthly payments comprising of interest on the amount you have borrowed and part of the actual capital thus reducing the amount of the mortgage over a set period of time.
Repayment mortgages do not automatically include life assurance protection for your family in the event of death before the end of the mortgage term. We have a duty of care to all our clients to discuss the various ways of protecting your mortgage and we will explain the benefits of having this protection when arranging your mortgage.
* Interest Only
With an interest only mortgage all you pay to the Lender each month is the interest on the capital. The actual amount you borrowed is repaid from the proceeds/maturity of an appropriate investment repayment vehicle usually a lump sum at the end of the mortgage term.
If you have an interest only mortgage it is your responsibility to ensure that an appropriate repayment vehicle is in place and to check regularly that it is on target to repay the amount of your mortgage.
If you have an endowment policy, your insurer will tell you whether the policy is on target. If it indicates a potential shortfall, you have a number of choices to consider depending on your individual circumstances. The FSA leaflet 'Your mortgage endowment: have you acted yet?' (from the FSA Leaflet line on 0845 456 1555) gives more information about why you need to act now and your options.
If you have another type of repayment vehicle, you will not automatically receive information about whether it is on target to repay the mortgage. You may be able to get further information by approaching your product provider. If you remain in doubt about the position of your repayment vehicle, you should seek advice.
We cannot provide you with the information to assess whether you have a potential shortfall but we may be able to help you with information about the options explained in the FSA leaflet, such as switching to part repayment.
If you do not regularly review the savings plans which you maintain for the purpose of repaying your mortgage, it is possible that the value of these will not be sufficient to repay the amount that you expected when you took out the plan.
The role of your valuer/surveyor
You need to know that you are getting good value for your money and Lenders need to be certain that the property you have chosen is suitable security for a mortgage. Before lending any money to you they need to be sure that the value of your property is greater than the amount of your loan.
For remortgage products, where a free valuation is included as a feature of your mortgage, the Lender may not need to access your property and will not issue a valuation report.
For property purchases (and remortgages where a valuation fee is payable) it is usual for a basic valuation to be carried out. Please note a basic mortgage valuation purely assesses the suitability of the property as security for a mortgage. It is not a survey and provides limited information. You will be expected to pay the valuation fee (if appropriate) when you apply for your mortgage.
There are, however, 2 alternatives to a basic valuation report which are more in depth and consequently more expensive.
1. RICS Homebuyer Survey and Valuation (or equivalent). This is a more detailed inspection of the property than a basic valuation and will tell you if you need additional specialist reports.
2. Building Survey. This is a comprehensive examination of the property which will describe the condition in detail.
Full details of fees relating to basic valuations, Homebuyer Surveys and Building Surveys vary from Lender to Lender and we will indicate the costs to you prior to you having to decide which to opt for.
The offer of advance
Unless the valuation report or other enquiries are unfavourable, the Lender will make an offer of advance based on the valuation of the property or the purchase price, whichever is the lower. The offer KFI which is in a prescribed format as laid down by the FSA, will state how much the Lender will offer you, over what period of time, what the initial rate of interest is and any special conditions relating to the mortgage. Once you have accepted the offer of advance, certain legal procedures have to be completed before the purchase/remortgage can take place.
The role of the solicitor
Your solicitor's main job will be conveyancing - the legal transfer of ownership of your new property. Your solicitor should also advise you of the terms and conditions of the offer of advance. Together with the seller's solicitor, your solicitor will prepare contracts. These are the written agreements between you and the seller, setting the price, terms and date for the property to change hands.
Once contracts have been completed and agreed and your solicitor has received a copy of your mortgage offer, the contracts are exchanged. At this time the price is fixed and the purchase is secured. If the transaction relates to a remortgage, your solicitor may also be involved in relation to the completion process.
If you have not yet appointed a Solicitor, we would be very happy to arrange this for you.
Other considerations
When it comes to the cost of your mortgage, there are some important items to consider.
* Additional security
Where a mortgage exceeds 80% of the valuation or purchase price, whichever is the lower, a higher lending charge may be imposed by the Lender. This charge will be used by to purchase additional security from an insurance company. It is arranged for the Lenders benefit and does not provide you with any benefit or free you from any of your mortgage obligations. The higher lending charge represents additional security for the Lender if they have to take possession of the property should you fail to keep your mortgage obligations. If the insurers make any payment to the Lender under the additional security taken out then the insurers and/or the Lender may reclaim that amount from you. In addition, the Lender may reclaim any loss or shortfall not covered by this additional security. The higher lending charge is a single payment and is normally paid upon completion of your mortgage. In some cases it can be added to your mortgage and with certain mortgage products the Lender will pay this fee for you. If the Lender pays the higher lending charge on your behalf this does not release you from your liability.
Heswall Mortgage Services will try to ensure that the mortgage we recommend does not have a Higher Lending Charge, but in any event will make it very clear to you if any such fee is included.
* Buildings insurance
It is a condition of your mortgage that your property is covered by buildings insurance. It is your responsibility to ensure that adequate buildings insurance is arranged.
It is also advisable for you to take out some form of contents insurance. We will be very pleased to provide a quote for either buildings or buildings and contents insurance to you.
* Mortgage Life protection
If you have a repayment mortgage you should seriously consider taking some form of mortgage protection insurance so that in the event of death your mortgage will be repaid and your family protected. This is a cost effective policy offering peace of mind protection and this will be included in any illustration we provide.
* Mortgage payment protection insurance
With very little support available to meet your mortgage repayments if you have an accident, sickness or are involuntary unemployed, Mortgage Payment Protection Insurance will cover your mortgage repayments for a period of up to 24 months.
We will be happy to provide a quote for this valuable cover.
Financial difficulty
Lenders are obliged to consider cases of financial difficulty sympathetically, fairly and positively. Their first step will be to try to contact you to discuss the matter.
If you find yourself in financial difficulties, you should let your Lender know as soon as possible. They will do all they can to help you overcome your difficulties. The sooner you discuss your problems, the easier it will be for both the Lender and yourself to find a solution. The more you tell them about your full financial circumstances, the more they may be able to help.
With your co-operation, the Lender will develop a plan with you for dealing with your financial difficulties consistent with both their interests and yours.
If you are in difficulties you can also get help and advice from debt counselling organisations, such as the Citizens Advice Bureaux, Money Advice Centres and the Consumer Credit Counselling Service.
Confidentiality
We will treat all your personal information as private and confidential (even when you are no longer a customer). Nothing about your accounts nor your name or address will be disclosed to anyone other than in four exceptional cases permitted by law. These are:
* If we have to give information by law
* If we are asked to provide data to the Financial Services Authority to assist in any investigations they might make.
* If you ask us to reveal the information, or if we have your permission.
Data Protection Act
Heswall Mortgage Services maintains information relating to customers on computer and in manual files. Under the Data Protection Act you have the right of access to your personal records. Any request should be in writing to the Society's Office.
Complaints
Whilst we strive to achieve the highest possible customer service standards, we appreciate that on occasion we may fall below expectation. For such instances you may wish to raise a complaint. We have internal procedures in this respect and we are also a member of the Financial Ombudsman Service Scheme.
Separate leaflets regarding making a complaint and the Financial Ombudsman Service Scheme are available on request.