FAQ’s

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How much can I borrow?

It used to be a simple formula of “X times salary” but in recent years, there has been a shift away from simple multiples of income and towards an affordability assessment. In fact, you might even be able to borrow up to 5.5 times your earnings, depending on your level of earnings, type of employment, deposit and commitments.

If you have variable earnings – such as an annual bonus or monthly commissions/overtime – it depends on the track record but up to 100% could be taken into consideration. There are many different interpretations depending on which lender is approached.

There’s no one size fits all answer to this question. It depends on your circumstances and which lender you approach. It highlights the importance of speaking with a mortgage broker to understand all the available options.

What is ‘loan to value’ or LTV?

Loan to value (LTV) is the ratio of mortgage to property value expressed as a percentage. For example, if you purchase a property at £500k with a £50k deposit (10%), you will need a 90% LTV mortgage.

Typically the lower the LTV the better the rate of interest a lender will offer because a high LTV mortgage represents more of a risk to the lender. In terms of LTV, most mortgage rates fall within the 60% to 95% range.

Can I overpay my mortgage?

This depends on the lender, and the mortgage.

The majority of lenders allow you to make regular or lump sum overpayments of up to 10% per annum of the amount owed, without having to pay an early repayment charge. If the amount you overpay during the year exceeds 10% you will only be charged an early repayment charge on the proportion you overpay above 10%.

Some lenders offer greater allowances, e.g. charge-free up to 20% or no early repayment charges at all. There are very few fixed-rate products without an exit penalty clause. The more flexible overpayment arrangements tend to be associated with variable interest rate loans.

Can a mortgage be transferred to another property (porting)?

Yes, if the product is ‘portable’. What actually happens is that you repay your existing mortgage when you sell and then resume it at the same rate of interest to purchase the new property. You have to re-apply and meet current affordability rules, and any changes to your circumstances could affect the decision to lend.

If you move to a more expensive property and need to borrow more, the extra amount will be in the form of a new mortgage; and that could mean another arrangement fee and differing product end dates.

Before committing to selling your property and buying a new one, you should look into whether you qualify to port your mortgage and whether that’s a better option for you than applying for a brand new mortgage (with all the fees that involves). Remember, just because you can doesn’t always mean you should.

Why use a mortgage broker?

A mortgage broker will have access to a wide range of lenders and will help you choose the most suitable mortgage for your situation.

It is our job to make the process as hassle-free as possible. We liaise with the lender and your solicitor, complete the paperwork, and are available to guide you through the specifics and answer any questions that arise.

How is ‘new build’ classified?

Different lenders have varying criteria as to which properties are defined as ‘new build’. A common definition is a property that has been built, converted or refurbished within the last two years;  often including properties that have not been occupied since being built.

It can often be more restrictive to secure a mortgage on a new build property. However, most lenders are prepared to lend at a higher loan to value rate (LTV) on a new build house than on a new build flat.

What is the maximum age I can take out a mortgage?

There is no blanket maximum age for applying for a mortgage – most lenders have their own age limits.

Usually, the maximum age at the end of the mortgage term is 75 or your intended retirement age, whichever is sooner. It’s not impossible to get a loan that goes beyond this age limit, but most options require you to provide proof that you can repay the mortgage when it extends into your retirement.

Some lenders will lend to clients up to age 80, using salaried earnings. And some will lend beyond that upon proof of a pension that can cover payments at 80+.

What type of Survey do I need?

This depends on the type, age and condition of the property you’re buying.

A survey is an assessment of the property’s condition. There are different levels of survey, each with their own benefits and level of detail.

Mortgage valuation (minimum requirement)

This should not really be classed as a survey, it’s an assessment by a valuer sent by the mortgage lender that the price is broadly correct. This assessment can vary from a ‘drive-by/desktop’ to a more detailed internal appraisal.

Homebuyer report

This type of report is suitable for more modern, conventional properties in reasonable condition. It comes in a standard format and provides an overview, rating each element of the property with a ‘traffic light’ system. The report should highlight any issues that could affect the property’s value

Full building survey

If you’re buying an older property that’s had significant building work, or that will need significant building work after you buy it, then a building survey maybe more appropriate. It’s more in depth and will highlight structural issues as well as the cost of potential remedial works. A building survey will also assess potential issues such as damp, dry rot, woodworm and any potential hazards such as tree roots close to the structure.

The surveyor will send you a report which will include a list of all defects uncovered, their probable cause, level of significance (if they require immediate action or can be ignored for the time being), and recommendations on solutions to these defects, along with costs.

It will also include technical details of the property’s construction, materials used, etc.

What type of mortgage should I choose (fixed vs. variable)?

It depends on what type of mortgage suits your circumstances and plans best.

Fixed

As it says on ‘the tin’, your rate of interest is fixed or guaranteed not to change for a defined period (typically 2, 3, 5 or 10 years) regardless of changes to the Bank of England base rate. This type of mortgage gives you certainty, allowing you to budget effectively. They usually carry an early repayment penalty so it’s important to consider how long you wish to fix for (see the info on ‘porting’). The longer the fixed period, the higher the interest rate is likely to be; effectively paying for protection against any market rate changes.

Variable

The interest rate on a variable mortgage moves up and down, usually in response to the UK economy. An advantage of this type of mortgage product is that it’s often more flexible, with lower or no exit fees.

Variable mortgages fall into three categories: tracker, standard variable, and discounts.

Tracker – The rate tracks an economic indicator, most commonly the Bank of England base rate or LIBOR. It will be pegged above the indicator it is tied to by a fixed margin for the product term, typically two years or for the lifetime of the loan.

Standard variable rate – This is the rate you will typically move onto after finishing an initial structured rate. Each lender manages their own SVR, often following the Bank of England base rate but not necessarily. They can range from 2% to 5+%. There are no exit penalties for an SVR mortgage.

Discount – These products offer a discount against a lender’s standard variable rate for a defined period, typically two or three years. However, there is no guarantee that a lender will move their SVR down if the BBR rate goes down. Discount rates often don’t carry exit penalties.

What documents will I need to provide?

Though the documents you need to show will depend on your individual circumstances, generally speaking, you need the following depending on whether you are employed or self-employed:

All

  • Passport
  • Proof of address, dated within the last three months (e.g. a posted bank/credit card statement, utility bill, annual council tax statement, driving licence, etc.)
  • Proof of deposit or gifted deposit letter (purchase application).

Employed

  • Most recent three months’ payslips + two years’ bonus/commission payslips (if applicable).
  • Most recent three months’ personal bank statements, showing salary, mortgage or rent, utilities, and direct debits.

Self-employed

  • Most recent two years’ HMRC tax calculations & tax year overviews; and/or
  • Most recent two years’ signed trading accounts (limited company).
  • Most recent three months’ personal & business bank statements, showing salary, mortgage or rent, utilities, and direct debits.
What happens if I want to move house in the middle of my mortgage deal?

If the mortgage product is ‘fixed’ there will likely be penalties if the mortgage is redeemed early.

If the mortgage contract has no exit penalties, the mortgage can be redeemed and a new application can be made on the new property.

If the current mortgage is ‘portable’ you can redeem the existing mortgage when the property is sold and resume the mortgage on the same terms on the purchase property. Any further borrowing required (e.g. the new property may be more expensive than the old) would be taken out with the same lender and the rate would be calculated on the overall loan to value.

How does the buying process work?

The basic steps are as follows (see our First-Time Buyers Guide for more detail):

  • Establish your budget and understand the costs involved when buying your property
  • Apply for an agreement in principle
  • Once you have a budget, decide on your property criteria and start house-hunting!
  • Make an offer on your property of choice
  • Your offer is accepted (if it isn’t, return to house-hunting)
  • Choose the best mortgage options for you
  • Instruct your solicitor
  • Submit a full mortgage application, with underwriting and valuation started
  • Your solicitor carries out the necessary searches
  • Receive your mortgage offer (assuming your application is accepted; if not, depending on the reasons given, rethink your financial circumstances or property criteria)
  • Agree to a completion date
  • Pay the deposit via your solicitor
  • Sign the mortgage deed and exchange contracts
  • On the day of completion, your solicitor draws down the funds from your lender and sends them to the vendor. Your solicitor will usually also pay the stamp duty at this point
  • Your solicitor will register you as the new owner of the property
What is the minimum deposit for a residential mortgage?

Most lenders ask for a minimum of 10% of the purchase price as a deposit, although using a scheme such as Help to Buy could reduce that to 5%.

The ‘minimum deposit’ tends to change depending on the current state of the housing market (i.e. the amount of risk that mortgage lenders associate with lending you money to buy your home).

What is the definition of a first-time buyer?

If you’ve never owned a home before – then you’re a first-time buyer. However, some mortgage lenders use slightly different definitions – such as, someone who has not taken out a mortgage in the last three years – which means any first-time buyer mortgage deals and offers may apply to you, even if you have already been a homeowner.

Can parents guarantee my mortgage?

Guarantor mortgages often have higher interest rates than other deals and, of course, your parents will be legally responsible for any defaults in payment.

There are also other potential ways that parents can help – it’s important to discuss these options with your mortgage broker.

What’s the difference between capital repayment and interest-only?

These are the two main ways to repay your mortgage. With capital repayment, each month you are paying off a portion of the loan, the amount you borrowed, so that by the end of the mortgage term, you’ve paid it all.

With interest-only repayment, you’re just paying back the loan interest each month. The monthly payments are lower but you will need to have an acceptable repayment strategy. This maybe investments, equity in a property, lump-sum payments or even selling the property and downsizing.

Can I borrow on an interest-only basis?

Yes.

However, certain conditions would have to be met (especially relating to how you plan to pay off the loan at the end of the mortgage term, the mortgage size, level of deposit, etc.) and these can differ from lender to lender.

These kinds of conditions can make a big difference to how much you can borrow and under what conditions – it’s important to discuss these options early with your mortgage broker.

How many years should I choose to pay my mortgage over?

Simply put, there is no standard term. A mortgage can be taken up to a maximum of 40 years and we fit the term of the mortgage to suit your budget.

How does the Help to Buy scheme work?

Help to Buy (HTB) is a government scheme which is available if you are purchasing a new build home which, depending on area, can be worth up to £600,000. The government can lend you up to 20% of the cost of the property, and up to 40% within London, as an equity loan. You will only need a minimum of a 5% deposit with a mortgage for the rest.

You won’t be charged interest on the equity loan for the first five years. From year six you will be charged 1.75% on the outstanding loan amount, and from year seven this will increase by the Consumer Price Index (CPI) plus 2% per annum.

Am I eligible for Help to Buy?

You must sign a legal declaration stating you are a first-time buyer, never having owned another property, either in the UK or abroad. If you are married or in a civil partnership, then you have to purchase in joint names and your partner would also need to be a first-time buyer.

How do I pay back the Help To Buy equity loan?

You won’t be charged interest on the government’s equity loan for the first five years. From year six you will be charged 1.75% on the outstanding loan amount, and from year seven this will increase by the Consumer Price Index (CPI) plus 2% per annum. You’ll also be charged an administration fee of £1 a month. 

As with a mortgage, you’ll need to pay the equity loan off when you sell the property.  As you are borrowing a percentage of the property value rather than a fixed amount, the amount that you will repay will depend on the market value of the property at the time, rather than the amount that you originally borrowed.

You can also pay the loan off while you still own the property – this is known as ‘staircasing’. You can repay the loan with payments of 10% or more. The property will need to be independently valued before doing this, and you might also have to pay admin and legal fees.

Why should I remortgage?

There are a number of reasons you might want to remortgage…

Your current deal is due to expire

If you have a fixed-rate mortgage or some other kind of ‘reduced-rate’ deal, when that deal expires, you’ll automatically move to the lender’s standard variable rate. It’s likely there are better deals available to you.

You want to borrow more

You may want to carry out some home improvements, buy another property, or even a new car. Depending on what you want the money for and whether your current finances allow, you may be able to switch deal and borrow more than your current mortgage.

You want a better deal

Your current deal may no longer be competitive – there are now better deals available. However, you might have an early repayment charge (ERC) on your current mortgage which means that although there are better deals or lower interest rates on the market, changing deals isn’t the best option as the savings are outweighed by the ERC. It’s important to get the right advice when looking at the costs in changing, as well as the savings you’ll make.

Your property has increased in value

Your home improvements may have increased the value of your property or the property market might have moved in your favour, putting you in a different loan to value bracket and giving you access to more favourable deals.

You want a more flexible mortgage

You may want to be able to make overpayments when you have some spare cash or even link your savings to your mortgage account with an offset mortgage.

When should I look at remortgaging?

We would suggest you don’t leave it to the last minute. We can start discussing your plans and mortgage options six months before your current deal expires. Getting the wheels in motion early allows us to secure you the most suitable deal and also gives us enough time to properly review the market before your current deal expires.

How much will remortgaging cost?

It’s important to take into account the associated fees which may apply when remortgaging. The main fees are:

Early Repayment Charge (ERC)

If you’re still in the initial rate period of your current mortgage, then your existing lender may apply an early repayment charge when you pay off the mortgage early. It’s important to check as an ERC could mean that it’s not cost-effective to change deals just yet.

Arrangement fee

Whether you stay with your current lender or change lender for a better deal, then you may have to pay an arrangement fee in order to get the best deal. Lenders will usually offer you their lowest rate which will come with their highest fee, whereas a higher rate usually comes with a lower fee. We’ll calculate which works best for you based on the size of your mortgage.

Valuation fee

If you change lenders then the new lender will want to value the property. In most remortgage deals, the new lender will cover this cost.

Legal fees

When changing lenders there is legal work to be done in order to remove the legal charge of the existing lender and to register the new lender. Most lenders will cover the cost of this.

What is product transfer?

When your existing deal ends, then your current lender may offer you a new deal rather than their standard variable rate. We’ll take this into account when assessing your options.

Do I need to arrange a solicitor/conveyancer?

If you change lenders then there will be legal work that needs to be carried out in order to remove the legal charge of the existing lender and to register the new lender. Most lenders will either cover the cost of this if they appoint the solicitor or will offer you the option of selecting your own solicitor and they will give you cash back towards the cost.

Should I consolidate unsecured debt?

Most lenders allow you to consolidate unsecured debt such as credit cards, loans, etc. as part of your new mortgage, but it’s rarely the best thing to do. Firstly, you’re securing the debt against your property which could put your home at risk if things go wrong. Secondly, even if the interest rate on the mortgage is lower, you’re likely to end up paying more in the long run as you’ll be paying interest over a longer period of time.

What is a second charge mortgage?

If you take out a second loan secured on your home, that’s a second charge mortgage.

It’s important that you first speak to your existing lender. They may be willing to lend you the money on more favourable terms rather than taking out a second charge mortgage. If your current lender is not willing to lend you the extra and you have an early repayment charge on your existing mortgage which makes it prohibitive to remortgage to another lender, then a second charge mortgage may be the best option.

Second charge mortgages tend to be offered by specialist lenders, and the rates and fees are often more expensive than first charge mortgages.

How much can I borrow for a BTL property?

The maximum you can borrow typically depends on the amount of rent the property can generate. Mortgage lenders usually want the rent to cover between 125% and 145% of the mortgage. What’s more, when making this calculation, instead of using the interest rate on the mortgage, most lenders use a ‘managed rate’, which is usually between 3.5% and 5.5%.

Alternatively, some lenders have a minimum income requirement – typically £25k – but there are lenders that do not.

Also, some lenders may take your earned income and commitments into account, on top of the rental income, in order to lend more on a lower yielding property – this is known as ‘top-slicing.

What is top-slicing?

Top-slicing is a term to describe how a lender can take into account your earned income and commitments, as well as the rental income from the property, when calculating how much they are prepared to lend you. This may allow greater leverage on lower-yield rental properties.

What does it mean if a property is HMO?

“HMO” is a house in multiple occupation, meaning it is rented out to at least three people from different ‘households’ (i.e. they’re not a single family) but share facilities like the bathroom and kitchen.

This type of rental property requires a dedicated specialist mortgage and as the landlord, you may be required by the local authority to have a licence.

If there a minimum income for BTL?

Although some lenders have no minimum income, some require at least £25k. Requirements vary from lender to lender.

Should I buy through a limited (LTD) company or special purchase vehicle (SPV)?

Some landlords find an advantage in buying via a limited company or what’s known as a ‘special purchase vehicle’ (basically, a limited company whose purpose is to buy and rent properties). It’s worth seeking specialist advice due to the following factors:

  • Interest rates on LTD company mortgages can be higher compared to a mortgage taken out by individuals.
  • The same level of stamp duty will normally apply, regardless.
  • The mortgage costs, including interest payments, are tax-deductible for an LTD company landlord.
  • For an LTD company, rental income attracts corporation tax instead of income tax. Depending on current tax rates, this can be beneficial.
What is a ‘portfolio landlord’?

A portfolio landlord has four or more buy to let mortgaged properties.

A ‘portfolio’ mortgage application is a more involved process. The lender will assess the whole portfolio to ensure that the applicant will be able to afford the repayments.

Can a first-time buyer buy to let?

It is possible but options are limited. Most lenders insist that an applicant already owns a property before they are prepared to lend to them on a buy to let basis.

What is the minimum deposit for BTL?

The minimum deposit is usually 20% – but more lenders come to the market at 25%.

What is a regulated BTL mortgage?

A regulated BTL mortgage is used when the property is to be rented to an immediate family member.

The majority of lenders will refuse a mortgage on a property to be rented to a family member because of the risks involved should it come to repossession. There are lenders willing to offer a regulated mortgage for this type of arrangement.

What type of tenancy agreement is acceptable for a BTL mortgage?

Most BTL mortgage lenders are expecting rental to be based on an assured shorthold tenancy (AST) which lasts for a minimum term of six months, and a maximum of two years. Other tenancy types should always be checked with the mortgage lender upfront to establish whether they are acceptable.

Why do I need an agreement in principle?

An agreement in principle (AIP) is an indicator of the amount the mortgage lender will lend you, based on your basic financial details. It’s not a guarantee of the mortgage you’ll be offered but it does give you an idea of the mortgage you’re likely to be eligible for and stops you from viewing properties out of your price range. It also tells the seller that you are serious about buying and are likely to be able to do so quickly.

Some buyers may be concerned that a credit search will affect their credit score. Not all lenders leave a ‘hard search’ on your file, so arranging an AIP doesn’t need to impact your credit file.

What's the difference between a holiday let mortgage and a buy to let mortgage?

A holiday let mortgage allows you to let the property on a short-term basis. A buy to let mortgage, on the other hand, is more appropriate when you’re expecting to let the property on a more long-term basis (typically 6-12 months).

This difference affects the lender’s calculations. In other words, if the property isn’t going to be let out all year round, the rental income will fall and rise seasonally. That said, some short-term lets offer a higher yield and, depending on the circumstances, it is possible to borrow more on a holiday let mortgage than it would be on a buy to let.

Lenders of a holiday let mortgage are also likely to allow personal use of the property, unlike a buy to let mortgage.

Hear what our customers think

Anthony & Victoria
28/04/2021
Amazing. Cannot recommend enough. Tom & Louise were fantastic advising and supporting every step of the way. Professional, informative extremely helpful.
customer
26/04/2021
Tom was very clear and helpful throughout. Explained options very well and kept us updated promptly.
Vincent Moffat
23/04/2021
This is the second property purchase I have had the benefit of Tom Knee of Caenstones invaluable expertise with a property purchase, not to mention remortgaging. I can't recommend Tom enough and I hope to avail of his services again in the future. Its really important especially in a fast moving market like London to have someone you can trust and depend on to help you with your next step on the ladder! Onward and Upward!
Meg Stephenson
18/04/2021
My broker at Caenstone is Tom, and I’ve had an all round great experience! I’m a first time solo buyer so needed a lot of support which I received tons of throughout the entire process. The communication from Tom was brilliant every step of the way and I felt very looked after. My case was a little complicated and finding the right lender wasn’t straight forward, but Tom pushed forward and found the best option for me. I’d highly recommend this firm, and Tom in particular.
Rebecca Parry
13/04/2021
Absolutely brilliant! Tom was there every step of the way and got back to any and all queries immediately. We changed purchase properties part way through the process and had an MIP within the hour. Went above and beyond to help us, changed to better deals without asking and have recommended to family and friends.

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