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How offset mortgages work: The basics of offsetting explained Rightmortgageadvice.co.uk

An offset mortgage has a linked savings or current account and rather than receiving interest on money paid into that account you don’t pay interest on the same balance of your mortgage.

You can normally set an offset facility to work in two ways. It can act as an over payment reducing your mortgage term or you can opt to make it reduce your monthly payment instead.

The main benefit of using an offset account against over paying your mortgage is the fact that you can readily access the funds in the future without having to refinance although this would affect your payments or term.

You can also use it to borrow money in advance but only pay for it when you take the money out of the offset account although again you need to consider how borrowing extra money will effect interest rates, loan to value and arrangement fees too.

Offset isn’t really a type of product so you can still get all the normal types of rates with an offset facility such as fixed, discount and tracker deals for example.

The main thing with any mortgage is to make sure any additional cost you have to pay in order to get this option will be justified by the benefits you receive and that is something we can consider for you in the advice process. You can get more information or to get expert advice on offset here

Broker Q&A: Mortgages with older and elderly or retired applicants over the age of 70

Can someone over the age of 75 go on a mortgage?

We are often asked if we can arrange mortgages for elderly or retired people of 70, 75, 80 or even 90 years of age.

This will depend on the circumstances – whether the mortgage is for a Buy to Let or Residential property, if it is a joint application and if the income of the older applicant is being used in the affordability assessment.

For BTL mortgages, most lenders do have a maximum age up to 80 but there are a few who have no maximum age.

For Residential mortgages, where the income of the elderly applicant is being used in the affordability assessment, most lenders will not go beyond the age of 75-80.

If it is a joint application with a younger applicant who can afford the mortgage without the elderly applicant’s income being used in the affordability calculation, then there are lenders who will ignore the age of the elder applicant entirely.

There are of course other mortgage products available to more senior applicants, such as Lifetime mortgages and Home Reversion Plans which work in very different ways to a normal mortgage and require specialist advice.

It is important to remember that all applicants of a joint mortgage would be responsible for the payments regardless as to whether their income was used in assessing the case. Therefore, as part of the advice process we would consider arranging protection in case of death, illness or injury to either party.

To get expert advice just call or fill in our short enquiry form here

Mortgage Advisor Q&A: Securing a mortgage whilst on maternity leave

Is it possible to get a mortgage whilst on maternity leave?

As many couples think about moving to larger homes when their family starts to grow, it is not surprising that we are often asked if it is possible to get a mortgage when on maternity leave.

The simple answer is yes for almost all circumstances. However, there are lots of considerations and lenders do vary in the way they calculate affordability during this time.

Some lenders will use only the income during maternity leave in their affordability calculation which will often leave the maximum loan available too low.

However, other lenders will use the ‘usual’ salary or the ‘return to work’ salary in the calculation if return to work is within the next few months. If return to work is not anticipated for a longer period of time there are still one or two lenders who will consider the application under these terms.

In order to evidence this, lenders are likely to request a letter from the client confirming the ‘usual’ salary and the current income. They will also request a letter from employers to confirm the return to work date, the terms of the contract – hours and ‘return to work’ salary.

It will be important that mortgage payments can still be afforded during the maternity leave so evidence of savings to substitute the difference in income and mortgage payments will often be required for the remainder of the maternity leave.

Consideration as to future child care costs when calculating affordability should be made as well to ensure that the mortgage will be affordable long term.

To request a call back or further advice just fill in our brief enquiry form here

How the potential collapse of the Euro could affect your mortgage costs

Whilst it remains to be seen how close we really are to a collapse of the Euro one thing is for certain, predicting how the fallout would affect financial markets is not an easy task even for seasoned financial experts.

In pure mortgage terms one set of products appear to be particularly risky in the current climate – any product which tracks a variable rate as opposed to the Bank of England base rate. These include discounted rates, variable rates and Libor linked or Libor rate deals.

All of these products could be subject to large rises in this potential scenario even if the monetary policy committee of the Bank of England decides to keep interest rates low. As we saw when the BOE base rate was reduced heavily in 2008 many lenders did not pass these cuts into their variable rates for some time as doing so would have seriously jeopardised their ability to remain afloat.

Similarly in the scenario of the collapse of the Euro and or the default of a nation such as Greece, Spain or Italy this would undoubtedly cause a similar crisis in the banks leading to a drying up of money markets and an upward pressure on banks variable rates.

Most discount rate mortgages are offered by smaller building societies who in general have a much lower risk exposure and would be better insulated against having to raise their variables rates significantly if this happened and this was mirrored by the rate reductions in 2008. However they are not immune to this risk, rates which are more concerning though are Libor linked deals as these are effectively priced against the going rate of lending between UK banks and as such could rise a lot if we saw more market turmoil.

Even so tracker deals could still be a risk, who knows how the different repercussions of this kind of event could ultimately play out? So when looking at current products comparing the difference between fixed and variable rates in general is well worth doing and I would take a pragmatic approach where the difference is minimal as it seems likely that the last string of bailouts may yet prove to be the tip of the iceberg.

Get your fix quick. The downgrading of UK banks likely to increase fixed mortgage rates

If you have been thinking about fixing your mortgage by remortgaging to a new deal then now really might be the prime time to do it.

Fixed rate mortgages have been dropping steadily for several months with the expectation that interest rates in the UK are now likely to remain low in the long term. However the downgrading of several major banking groups in the UK by the rating agency Moody’s last week is likely to put pressure on the big UK mortgage lenders to increase the cost of these deals.

It could be a flash in the pan though, rates were beginning to rise early this year when the economic outlook was less gloomy but the effects of the Tsunami in Japan and the subsequent concerns over the Eurozone were enough to revert the trend.

What is certain though is that there are fixed rate mortgages available which are several percent lower than the average mortgage interest rate paid by borrowers over the last 25 years so if you are concerned by the possibility of higher rates and don’t have too much to lose by switching to a fixed rate deal there have definitely been far worse times to take a fixed rate.

New Mortgage Calculators Launched by Rightmortgageadvice.co.uk

We have recently launched the first of several new mortgage calculators which aim to bring much more sophisticated systems for borrowers to assess their lending ability online.

The most important of these new calculators is the maximum loan calculator which actually models some of the more complex systems for affordability lenders are using to assess customers borrowing potential.

Lenders are increasingly stepping away from using pure income multiples and the large high street banks and building societies now take into account many factors including credit scoring, number of financial dependents and overall debt to income ratio to decide on an appropriate borrowing figure.

The calculator is as far as we are aware the only one currently available which actually illustrates how different types of lenders calculations vary and takes into account dependents, existing credit commitments and credit scoring.

There are several more new tools in development which will soon be added so keep an eye out for more to come.

85% loan to value Buy to Let mortgage products released by Kensington

It’s been a long time since I have had anything significant to write about in terms of new products, but this morning Kensington Mortgages have announced what must be one of the most significant signs to date that mortgage lending is returning to some sense of normality.

Their new buy to let product range is available up to 85% loan to value even for first time landlords, and although arrangement fee’s on the 85% product are 2.5% it is still a major step forward for buy to let landlords particularly as it is available on up to 3 properties with an interest rate of 5.99% fixed for two years and with a portfolio maximum of £1 Million or 3 properties on the product.

Rental coverage requirements are also lower than the competition with a rental yield requirement of 120% coverage at the pay rate required and this should help to ensure that the products are viable . The range also now allows first time landlords into the market at 80% and at this loan to value there is a flat fee product option as well as a 2.5% fee which will work well for those borrowers with higher property values.

The products are also available for both purchase and remortgage however they are only available for properties in England and Wales, have a minimum income requirement of £25,000 or £30,000 above 75% loan to value.

For more information on any of these products please call one of our mortgage advisors on 0845 4594490.

Does a fixed rate mortgage make sense in the current market?

This is probably the biggest mortgage related question on everyone’s lips at the moment and it is certainly very difficult to tell what is going to happen with interest rates. I can remember a conversation with a client almost 18 months ago where media coverage suggested interest rates were going to shoot up and they were worried the tracker product I had recommended might end up being very expensive.

In my opinion the question of whether to fix your interest rate comes in two parts. Firstly your attitude to risk should be taken into account and the severity of the risk assessed too. If you have ample income to afford higher interest rates then it comes down to your preference as to whether to gamble on variable type products, but if you simply couldn’t afford for your mortgage payments to go above current figures then not only should you be considering a fixed rate but also trying to reduce your borrowing levels asap.

The second part of the answer comes down to the difference between fixed rates and variable products, if the difference between a suitable variable product and a fixed is relatively low then even if you are a little risk averse it may be worth opting for a fixed rate. However when the difference is greater it becomes harder to say.

Let’s compare for example a 5 year deal currently on offer with one lender of 6.49% with a 25% deposit, compared to their 2 year fixed and 18month tracker product this is 3-4% higher and this means the chances of it being good value for money long term are much lower as it would require average interest rates over the next five years to be over 5% or so which is a big increase from current rates, hence I would only really recommend this scenario to someone who was really on the borderline of what they can afford and needed absolute long term security.

Many lenders are touting products with an option to switch to a fixed deal at a later date without early repayment charges, but for those who would be at serious risk of being unable to afford their mortgage if rates went up this is probably a poor option, as the reality is that fixed deals available at the time are likely to be higher than now as well.

It remains quite likely that while interest rates must increase at some point, that overall market competition will do too and to some extent increases in bank base rate are likely to be met with at least some reduction in lenders margins. Current two year fixed deals come with an average margin of about 3% over the bank base rate which would have been unthinkable three years ago, so at some point slowly but surely these differences must be eroded by competition as the market improves too.

Mortgages and concrete constructions properties

There are literally thousands of different concrete construction types which have been used in the UK and some of these are very difficult if not impossible to arrange a mortgage on.

In general it is properties from the post war era of a pre-fabricated construction type which can be difficult however even establishing which type of construction has been used can be a challenge. Most properties built after 1984 are likely to be ok as the introduction of Building Regulations established a suitable guideline for ensuring properties were not defective.

Some concrete construction types particularly those which contain structural iron or steel elements built between the early 1900’s and 1970’s have been found to suffer from concrete corrosion and either require significant work to prevent failure of the concrete or are indeed not suitable to mortgage at all, these are classed as defective types. In these construction types contaminants in the concrete react with the Iron in the steel rotting the concrete and steel beams from the inside out.

There are some very common concrete construction types such as Taylor Wimpey No Fines which should not be a problem though too so if you are looking at buying a property which is a concrete construction type you should inform your mortgage advisor at the outset and they should be able to check with local surveyors to see what construction method has been used and who if anyone might be able to lend on them.

Understanding mortgage lending to the Self Employed

There is a big difference in terms of how mortgage lenders assess the income of self employed applicants to those who are employed and receiving income on a PAYE basis, this short guide explains how income is assessed and some of the pitfalls.

You will be classed as Self Employed if you are a sole trader, in a partnership or if you own more than a set percentage of an Ltd company (typically 25%). PAYE employees who also own a significant share of a different company may be classed as having income from employment and self employment.

If you are classified as self employed the overwhelming majority of mortgage lenders will require a minimum of two years full accounts before you can be considered for a mortgage, there are certain exceptions for example where an applicant buys a share of an Ltd company with existing trading history. This means for many people that if you are considering entering into any of these types of employment then securing a new mortgage deal prior to making the switch to self employment could be a good idea.

When classed as self employed the lender will base their affordability assessment on your net pre tax profit, not your turnover. This is essentially your money taken in minus all allowable deductions and so will therefore usually be the profit figure from your tax returns.

If you are the owner or major shareholder of an Ltd Company you may well pay yourself PAYE income and dividends which is tax efficient and the two added together would be considered your profit. It is important to remember that leaving profit within the business as capital rather than drawing down these funds as dividend income will limit the maximum borrowing potential available to you. It may be worthwhile taking a “tax hit” in the accounting year prior to arranging a mortgage if the previous year’s drawings are low as many lenders will refuse to look deeper into accounts and base assessment on actual profits rather than just your personal PAYE and dividend takings.

Some lenders will base their lending figures on the last years accounts only however if your accounts figures are decreasing or have gone up and down most will take an average over two to three years.

Proof of income for the self employed will normally be either your SA302 or self assessment tax computation, or a copy of your accounts often for the last two to three years. Some lenders will request accounts certificates in these are not available. The sole traders or those submitting their own tax returns it usually pays to keep your SA302’s handy for coming mortgage applications although you can request reprints from HMRC.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. WE TYPICALLY CHARGE AN ADVICE FEE OF £299 PAID UPON FULL MORTGAGE OFFER. SOME BUY TO LET AND COMMERCIAL LOANS ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY
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