[av_layerslider id=’20’] [av_one_full first] [av_heading heading=’A to Z of Mortgages’ tag=’h3′ color=” style=’blockquote modern-quote’ padding=’10’] [av_toggle_container initial=’0′ mode=’accordion’ sort=”] [av_toggle title=’Buy to Let’ tags=”] A buy to let mortgage is a facility which from the outset will permit an individual or company to purchase or remortgage a property and let it out for investment purposes. The assessment of such mortgage applications is geared more towards the achievable rental income from the property, and lesser so the personal income of the applicant.

Buy to Let mortgages (where the resident is not related to the borrower) are not regulated by the Financial Services Authority.
[/av_toggle] [av_toggle title=’Capital and Interest Mortgage’ tags=”] Also known as a repayment mortgage. This structure is very much for the cautious minded individual who wishes to enjoy certainty / no risk in their mortgage repayment planning. The lender calculates what monthly instalments are required to ensure that by the end of the selected mortgage term, the outstanding balance is guaranteed to reach zero. As any interest rate movements take effect, the lender will automatically recalculate and adjust the monthly instalments accordingly to ensure this guarantee remains.

In the early years, each instalment will contain a high proportion of interest and a small element of capital. As the years go by and the capital balance reduces so does the interest, thus each instalment contains a greater and greater proportion of capital.
[/av_toggle] [av_toggle title=’Capital Raising’ tags=”] Clients may consider raising capital against the value of their property, either by way of a further advance, a secured second charge loan or as part of their main mortgage during the course of a remortgage exercise. This may be for such reasons as holiday or investment property purchase, divorce settlement, home improvements, car purchase, holidays, business purposes, etc.
[/av_toggle] [av_toggle title=’Commercial Lending’ tags=”] A commercial facility differs in a number of ways from a mortgage. For one, the underwriting is not just based upon your particular circumstances but is geared towards the business proposition overall, i.e. what are the likely results from approving it. Commercial loans are available for a variety of reasons such as to facilitate buying a business; for business development reasons, e.g. expanding workforce, investing in research and development or increasing manufacturing capability; and property or premises purchase.

Rates that apply are based upon the strength of accounting information, the value of available security and the availability of personal guarantees.
[/av_toggle] [av_toggle title=’Commission’ tags=”] Amount paid by a financial institution or lender to an intermediary for business placed.
[/av_toggle] [av_toggle title=’Critical Illness Benefit’ tags=”] Designed to primarily pay a lump sum in the event of an individual contracting any one of a whole range of critical illnesses such as cancer, heart attack, stroke, paralysis, blindness, and brain tumour. A good, ‘standard’ policy will cover typically 35 to 40 serious illnesses. However, recent innovations have seen the launch of an entirely new product and given rise to a totally new ‘severity’ based approach to critical illness, with coverage of over 160 critical conditions.
[/av_toggle] [av_toggle title=’Debt Consolidation’ tags=”] A common reason for capital raising against your property is to facilitate debt consolidation. Undoubtedly, the interest rate applying on an ongoing basis is likely to be lower than an alternative option such as a secured or personal loan. However, it must be borne in mind that whilst ongoing repayments and interest may be lower than loans, credit cards or higher purchase, because this is often repaid over a much longer term, the overall interest payable is likely to be higher.
[/av_toggle] [av_toggle title=’Discounted Mortgage’ tags=”] Linked to the lender’s Standard Variable Rate (SVR), a discount will apply for a specific period from inception. Similar to the SVR mortgage, this is variable in cost and can increase or decrease, thus due care must be taken to ensure affordability remains if interest rates were to rise.
[/av_toggle] [av_toggle title=’Endowment’ tags=”] An endowment is a part investment / part life cover policy which for a regular contribution over a specified term will pay a capital sum either when the policy matures or if you die prior to that date. Although the amount payable at maturity may or may not be guaranteed, depending upon the nature of the endowment plan, the amount payable on death is usually guaranteed to be not less than a stated minimum sum. It can be used both as a way of saving and providing life insurance. Apart from any guarantees that may be given any estimates of possible sums payable at maturity, or on earlier death, are not guaranteed.

A variation of endowment plan known as a Minimum Cost Endowment or Low Cost Endowment is most often found as part of an interest only mortgage repayment strategy. Most older policies are often With Profit based although some are investment linked.

Equity Release or Home Equity Release Mortgages
A type of remortgage designed to allow homeowners to release cash from the value of their property.
[/av_toggle] [av_toggle title=’Fixed Rate Mortgage’ tags=”] This type of mortgage offers the benefit of a fixed interest rate for a specific period. This offers two key benefits. The first is a pre-determined monthly outgoing, which is ideal for those working to a budget. The second is that it provides a hedge against interest rates rising in the future, which if applied to your mortgage, would result in the monthly instalments becoming uncomfortable or altogether unaffordable.
[/av_toggle] [av_toggle title=’Flexible Mortgage’ tags=”] A true flexible mortgage is regarded as a facility that permits either lump sum or regular overpayments to any level without penalty. In addition, there will be the option of underpaying or taking payment holidays, usually subject to previous overpayments. Also you may withdraw funds from the mortgage, either against previous overpayments or from a pre-agreed reserve facility. It must be said that a large degree of mortgages include some flexibility to overpay. This can vary lender to lender but can be for example 10% of the outstanding balance in any one year.
[/av_toggle] [av_toggle title=’Higher Lending Charge (HLC)’ tags=”] This generally applies to cases above 75% Loan To Value (LTV). However, in most cases, up to 90% LTV, the lender shall pay this premium. Above 90% the lender shall pass on this charge to the applicant, which will apply on all lending above 75%. This can be a significant fee and thus where possible we advise clients to put down a 10% deposit in order to avoid this and give them access to better terms. If a client cannot put down a 10% deposit, we can give consideration to the small number of lenders who do not charge this, albeit that they tend to charge a higher interest rate to compensate.
[/av_toggle] [av_toggle title=’Income Protection’ tags=”] Also known as Permanent Health Insurance (PHI). In the event that an individual is unable to work due to an accident or serious illness, this will provide a monthly income after a predetermined ‘deferred period’. The benefit will continue to be paid until the end of the agreed term of the policy or until the claimant returns to work if earlier. The maximum benefit is typically 50% to 60% of earned income and from a personally owned policy is payable tax-free.

As with other similar plans such as Accident & Sickness or Mortgage Payment Protection plans, these are often considered when applying for a mortgage to ensure that serious ill health does not impact on an individual’s ability to repay a mortgage.
[/av_toggle] [av_toggle title=’Interest Only Mortgage’ tags=”] As this suggests, each instalment paid represents the calculated interest only. This leaves the initial balance of the mortgage outstanding for the duration.

True or pure interest only mortgages are allowed by lenders in regards to buy to let investments, where the mortgage is expected to be repaid from the proceeds of the property’s eventual sale.

However, in regards to residential mortgages, lenders expect the applicant to simultaneously invest into a regular savings vehicle. This should be targeted to accumulate a sufficient fund at the end of the term to facilitate the redemption of the mortgage. Investments such as Individual Savings Accounts (ISAs), pensions and endowments are generally regarded as acceptable investment mediums.

The previously relaxed view of lenders towards interest only repayment vehicles has somewhat disappeared and lenders are once again taking a more proactive approach towards monitoring and reviewing the associated investment to ensure it remains on track to repay the debt.

Should insufficient funds be accumulated, then other investments will need to be realised, another mortgage raised or the property ultimately be sold.

This approach to repaying a mortgage should only be adopted if an individual believes that other asset classes may outperform the interest rate being charged. They must also be happy with the associated investment risk and the lack of an outright guarantee to the repayment of the mortgage.
[/av_toggle] [av_toggle title=’Individual Savings Accounts (ISAs)’ tags=”] Individual Savings Accounts or ISAs provide a tax efficient way of saving money. There are presently two types: Cash ISAs and Stocks & Shares ISAs

There is currently a £11,880 (2014/2015) annual contribution limit available of which up to £5,940 may go into qualifying deposit accounts and National Saving via a Cash ISA with the balance held in equities or collective funds such as unit trusts or investment trusts via a Stocks & Shares ISA. Investors who hold Cash ISAs presently are now able to transfer these into Stocks & Shares ISAs without the annual maximum contribution limit being affected.

With effect from 1st July 2014, there will no longer be Cash ISAs and Stocks & Shares ISAs. These will all become New ISAs (NISAs). NISAs will have a subscription limit of £15,000 which can be applied in any proportion between cash and stocks & shares. Holding cash where stocks & shares are held will no longer result in a 20% flat rate charge on the interest earned on cash.

This will also remove any restrictions on transferring from cash only ISAs to stocks & shares ISAs, or vice versa.
[/av_toggle] [av_toggle title=’Life Cover’ tags=”] A benefit which becomes payable upon the death of an individual. It is often effected in conjunction with a mortgage, either in isolation or in combination with critical illness cover.
[/av_toggle] [av_toggle title=’Loan to Value (LTV)’ tags=”] This is the value of loan as a proportion of the property value and is usually expressed as a percentage. This is quite important for a number of reasons, including the lender’s criteria for assessment of a loan application. However, perhaps more importantly as far as a prospective borrower is concerned is that the lower the LTV the better the products that are available.
[/av_toggle] [av_toggle title=’Mortgage Lender Fee’ tags=”] This is the fee chargeable by the lender in respect of the product being proposed for. It is called an application fee, an arrangement fee, a completion fee or a booking fee and may be payable upfront, added to the loan or deducted from the advance.
[/av_toggle] [av_toggle title=’Mortgage Protection Insurance’ tags=”] Unlike a decreasing term insurance where the benefit reduces in equal instalments, this is a term insurance where the plan benefit reduces in keeping with the reductions of a capital & interest mortgage, with small reductions in the earlier years with ever greater reductions each year throughout the term. It can also be suitable means of protection alongside an appropriate investment vehicle in an interest only mortgage.
[/av_toggle] [av_toggle title=’Offset/Current Account Mortgage’ tags=”] Similar to flexible mortgages in that they offer a variety of flexible features, these mortgages go a step further in allowing current and/or savings account balances to reduce the interest being charged on the account, without being actually held in the mortgage account specifically. This assists clients in differentiating between what is savings and what is debt.
[/av_toggle] [av_toggle title=’Pension Mortgage’ tags=”] This is where a pension, and specifically the pension commencement lump sum or tax free cash, is chosen as the investment to repay an interest only mortgage.
[/av_toggle] [av_toggle title=’Redemption Penalties’ tags=”] If you pay off your mortgage early, you may have to pay a fee. This is usually expressed as a percentage of the loan repaid or a fixed number of months of interest. Lenders typically only charge a redemption penalty for the duration of their special deal, although on occasion some may tie you in for a number of years afterwards, often referred to as overhanging or extended penalties.
[/av_toggle] [av_toggle title=’Redundancy Cover’ tags=”] For those who believe their employment security to be a little precarious, unemployment or redundancy cover may be considered. It must be borne in mind that insurers will not cover any redundancy where prior knowledge of this at the time of application is evidenced and often a moratorium at the commencement of the policy is imposed to avoid this.
[/av_toggle] [av_toggle title=’Remortgage’ tags=”] This is when you transfer your mortgage from one lender to another. This would usually be to obtain a more favourable interest rate or a further advance.
[/av_toggle] [av_toggle title=’Repayment Mortgage’ tags=”] See Capital & Interest Mortgage.
[/av_toggle] [av_toggle title=’Self Build’ tags=”] A facility specifically tailored to individuals who wish to purchase land and build / renovate their own homes. These usually include a phased drawdown facility whereby the loan is advanced in stages subject to verification that the stage of the development / build has been completed.
[/av_toggle] [av_toggle title=’Shared Ownership’ tags=”] Shared ownership schemes are intended for people who cannot afford to buy a property outright and gives them a helping hand to get onto the property ladder. Although they will not own the property outright, they will still have all the normal rights and responsibilities of an owner-occupier.

Shared ownership is the most common way of purchasing affordable housing from a Housing Association or Registered Social Landlord (RSL). It facilitates the purchase of a share in a property, which can be anywhere between 25% and 75% with 50% being a typical starting point. As with a conventional property purchase, a mortgage is arranged to cover the cost of the percentage being purchased, with rent being paid in respect of the remaining share.

Once share in a property is purchased, the investment doesn’t have to stay at the same level. As finances permit, further shares may be acquired, ultimately until the property is purchased outright.
[/av_toggle] [av_toggle title=’Stamp Duty’ tags=”] This is the tax on properties at the time of a purchase.
[/av_toggle] [av_toggle title=’Standard Variable Rate (SVR)’ tags=”] This will be the lender’s underlying rate that will typically apply at the end of an initial interest rate period. Alternatively, it can apply from the outset, although this is only usually so for further advances rather than the main mortgage account as the rate is commonly quite high. As the name suggests, the rate is variable and whilst it may not be directly linked to the Bank of England base rate, it will fluctuate as the base rate is increased or decreased.
[/av_toggle] [av_toggle title=’Tracker Mortgage’ tags=”] This is a variable mortgage, which can fluctuate, however, unlike the Standard Variable Rate (SVR) and discounted mortgages, this type of rate is usually explicitly linked to the Bank of England base rate. A tracker can be linked to this for the duration or for a shorter period, reverting thereafter to the SVR.
[/av_toggle] [av_toggle title=’Valuation Fee’ tags=”] As part and parcel of a mortgage application, not only does the applicant require underwriting but also so does the security property. This will be carried out by way of a valuation, of which there are generally four kinds.

Free & Non disclosed – This is found in the course of a remortgage. Where the LTV is less than 75%, lenders will usually carry out a minimal assessment. This is by way of a drive by or external valuation rather than one that requires full access. Because of this simplified approach, and the lack of a fee, the lender will not qualify their findings to the client.

Basic Valuation – For a property purchase, a lender will only ever require a basic valuation. For the purchaser, this would be suitable for new build properties or those that are fairly new or in excellent condition.

Homebuyer Report – This is a more comprehensive survey, providing the purchaser with information as to the condition of the property. Whilst clearly more expensive, it is recommended if a property is older or an individual is committing to a substantial purchase price.

Full Structural Survey – This is the most thorough of surveys and is highly recommended for old properties, listed buildings and properties that are in a poor condition or state of repair. It provides a comprehensive breakdown of likely works from which anticipated costs can be calculated.

Please be aware that as a result of any of the above, the lender may well require specialised reports, such as electrical, damp & timber, structural, roofing, trees, etc.
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