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Home Page > Property > Mortgages

Mortgages

Getting a Mortgage

Before you decide to go house-hunting, you should find out how much you can borrow. Many estate agents will have mortgage advisers attached to them, but it’s always a good idea to consult a ‘whole of market’ mortgage broker. These are financial brokers who source from the whole of the market and therefore have no allegiance to any one lender. Ring around to find a ‘whole of market’ broker who offers a free initial consultation and ask them about any fees they may charge for their advice.

To calculate the maximum mortgage they’d be prepared to offer a potential client, lenders used to use a simple multiple of income. These days, an increasing number of lenders base their maximum lending on ‘affordability’, which takes into account any outgoings as well as income when calculating how much a potential borrower can afford. For those of you who want to go it alone, affordability calculators can be found on many lenders websites, although sometimes access is restricted to brokers, but it’s worth checking. Before you see a broker, gather together as much information as you can about your incomings and outgoings, this will save time trying to remember what they are when you’re with an adviser.

Having a deposit is handy, but not necessarily vital these days in order to buy a property. There are lenders who are prepared to lend 100%, or more, of the value of the property. Be aware though, that borrowing more than the value of the property, puts you in a ‘negative equity’ position immediately. Some lenders will also impose a ‘higher lending charge’ on customers who want to borrow a high mortgage amount compared to the value of the property. The additional benefit of having a deposit is that it will lower the Loan to Value ratio and many lenders offer cheaper interest rates for lower Loan to Value ratios.

Mortgage Payment Protection Insurance

Is an insurance that is taken out to pay your monthly mortgage payments in the event of the policyholder not being able to work due to an accident, sickness or unemployment. (This type of insurance used to be called Accident, Sickness and Unemployment (ASU)). You decide the amount of benefit you want to insure, which can include the cost of your mortgage payment and any associated insurances, eg buildings and contents insurance, life insurance, etc. Most providers set an upper limit so watch out for that!

The benefit is usually payable for a maximum of 12 months, but check with the provider. Many mortgage lenders offer this benefit, sometimes with a free period, but you may find it cheaper to go through a broker.

Do you need it? The real question you should ask yourself is: how would I pay my mortgage each month if I couldn’t work?

Here’s a few more questions to help you decide whether you need it or not: -

How much sick pay would you get from your employer if you were off sick? If the answer’s a decent amount, then maybe you only need the unemployment cover.

If the worst came to the worst, what would your redundancy package be? If you get a decent package, then maybe you would only need the accident and sickness cover.

Do you have Permanent Health Insurance (PHI), more commonly known as income protection? If the answer’s ‘yes’, then this, combined with claimable state benefits, should be enough to replace your lost income and therefore cover your mortgage repayments.


 
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