How to Calculate whether you can get a Mortgage for a Second Home

It’s not just first time buyers who are struggling to get accepted onto good mortgage deals these days. Second home owners are having a tough time too, with stricter lending criteria than we’ve seen in the past, and increases in stamp duty, making it harder to afford a second home.

Despite being asked to jump through hoops, the number of second home owners is on the rise. Record low interest rates and rapidly increasing house prices is motivating many homeowners to look into investing in a second property, either as a holiday home for themselves or as a buy-to-let* property.

But getting a second mortgage takes some planning, and could put your main home at risk if you’ve secured your borrowing on it. Here’s what you need to know.

The usual suspects

When you’re applying for a second mortgage, all the usual checks and confounding factors are sure to come into play, only this time they’ve got more clout. Needed a 10 per cent deposit for your main house? You could be asked for 25 per cent for your second. Needed a good credit score for your first house? You’ll need to be outstanding for this one.

If you’ve been through the mortgage process before, you should already know what you’re facing. As far as borrowing goes, you’re instantly a bigger risk to the lenders because you already have one mortgage, so expect them to be twice as tough on everything this time round. If you’ve paid off your mortgage, happy days; getting a second should be much easier.

Affordability Factors

Your mortgage provider will look at three main issues when deciding if you can afford a second mortgage or not. These are:

• Your income: Your lender should ask to see copies of your bank statements, as well as proof of any savings on investments you are benefitting from. State benefits, pensions and any other sources of income should be disclosed and proven here too.

• Outgoings: This is all about affordability, so even if you are desperately keen to secure a second home, you should aim to disclose absolutely all your outgoings at this stage. Think about regular outgoings like utilities and council tax, and those less regular ones such as Christmas and birthdays too.

• Coping with changes: Right now, homeowners on variable mortgages are enjoying record low interest rates, but it’s not going to stay that way forever. You and your mortgage lender will want to ‘stress test’ your mortgage deal to see how you would cope if, for instance, interest rates rise again or if you, or your partner, loses your job.

Honesty is the very best policy at this stage, so try to bring to light everything you know about your own financial situation. If you try to make it look like you’ve got more disposable cash than you really have, you’re only risking falling into financial trouble later on.

Other expenses

Aside of the usual checks, raising a huge deposit and making sure you definitely can afford this second home, you need to be aware of some of the other expenses which are tied in with a second home, and which are generally more substantial than they would have been with your first.

• Stamp duty: Stamp duty on second homes is much higher than that on your main residence. Currently properties costing £125,000 or less are free of stamp duty, but on a second home they will cost 3 per cent. In general, you will pay around 3 per cent more stamp duty for each bracket of house values than someone who is buying a main home.

• Council tax: Council tax is a bit of a grey area, with councils free to offer discounts or indeed to charge a premium as they wish. It’s worth checking out the situation where you’re planning to buy, as some councils can charge double for second homes in their area.

• Fees and charges: Solicitors fees, survey fees, estate agent charges… chances are you had to pay all these things back when you bought your main home, but bear in mind that the costs for a lot of these services has increased substantially since you were last in the housing market. Get quotes and make sure you’re fully aware of all the costs involved.

Being able to afford a second home is a great position to be in, and not a bad way to invest your extra cash. With interest rates at an all-time low and house prices rising steadily, your money will work harder for you in property than it will in a savings account.

If you would like to discuss your plans for buying a second home, and investigate potential mortgage deals, please get in touch. Call 01252 759233 or email info@thesurreymortgagebroker.co.uk.

* If you’re thinking about investing in property to then rent out, you’ll need a specific buy-to-let mortgage product. More about these here.

5 Questions to ask when Remortgaging

Remortgaging can fulfil a variety of needs. From releasing equity to pay for the things we love, to reducing the time it takes to pay our debt in full, many of us will consider a remortgage at some point in our home owning lives.

Ultra-low interest rates have driven a surge in remortgage applications, with 120 per cent more applications last winter than there were in 2014. The reports of massive savings and reduced mortgage terms is enough to send us all running to the lenders for quotes, but it’s important to think things through when it comes to a mortgage.

A mortgage is unlike any other form of lending; it’s the one biggest purchase most of us make in our lifetime, and is something we’ve got to live with for many years of our lives. Added to this is the ongoing concern that if we get it wrong, we could end up homeless. With all this in mind, it’s clear that a remortgage should be undertaken with the utmost care and consideration.

Here are the questions you should be asking yourself, and your lender, before entering into any kind or remortgage deal:

1. Is this the right time to remortgage?

Depending on your situation, it could be a great time to remortgage, or a really bad one. If you’re in a good value mortgage deal already or have big penalties to pay if you leave, chances are it’s not the right time to switch. However, if you’re at the end of your current deal, are on a fixed rate which is no longer good value, or want to release some of the equity from the house, it could be a good time to consider a remortgage.

1. How much is this going to cost?

Unfortunately, nothing in life comes cheap, and the same goes for your remortgage deal. Aside from any exit fees you might have with your current lender (be sure to check these out thoroughly before going any further), there are several other costs associated with remortgaging. For example, you’ll need to pay an arrangement fee to join a new lender, will need survey and legal fees and there may be other administrative costs to cover depending on how your lender is set up.

1. Will I be able to get a good / better deal?

New mortgage rules came in during 2014 that could mean you’ll struggle to obtain a good value mortgage in the current economic climate. Lenders must closely analyse your income and expenditure, and will undertake much more rigorous tests to ensure you can afford the new mortgage. If your circumstances have changed since you last got a mortgage, don’t presume you’ll get the same or similar deal as you did last time.

1. What am I trying to achieve?

There are numerous reasons people consider a remortgage, so be certain of your financial goals so you can effectively ensure they are being met. For example:

• You want to pay off other debts: If you want to remortgage to release equity and pay off credit deals elsewhere, make sure your mortgage is the right vehicle for doing this. Once you’ve taken into account the fees and charges, a personal loan might be better.

• Your deal is ending or poor value: This is a great reason to remortgage, but you need to be confident you’re getting a better deal from your lender. Do your sums, and don’t sign until you’re confident it’s worth it.

• Your home has appreciated: If your home has gone up in value significantly, you could be in a new loan-to-value band, meaning you could be eligible for much lower rates of interest.

Other reasons include changing from an interest-only to a repayment mortgage, or to reduce the overall term on the agreement now you’re able to pay more. Whatever reason you’re remortgaging for, have your overarching financial goal in mind and assess any offer to ensure it’s ticking your box.

1. Is my credit file healthy?

It almost goes without saying that a good credit record is fairly essential to switching to a new mortgage. The more black marks or outstanding debts on your file, the fewer deals will be open to your application. Get a copy of your report before you start applying, and check everything on there is fair and accurate to avoid nasty surprises later on.

More on credit reports and how to improve your score here.

As a homeowner, it is your right and privilege to seek out a better deal for your mortgage. Many borrowers report saving thousands of pounds over the lifetime of their mortgage as a result of switching away from their original deal, so it could pay dividends to compare the market from time to time.

However, as with any loan, do make sure you can afford the repayments and that the overall deal makes good financial sense before you sign on the dotted line.

For more advice on remortgaging and help finding a great deal, contact me on 01252 759233 or email info@thesurreymortgagebroker.co.uk

What's the Property Market like in South West Surrey?

Thinking of buying or selling in South West Surrey this year? If so you’ll want to know whether now is a good time to get a mortgage deal, put your house on the market, and start your property search. Read on to find out…

The New Year is traditionally a time when the property market in South West Surrey – Farnham, Godalming, Haslemere etc. – starts to recover from the end of year lull. In fact the days between Christmas and New Year see a surge in visits to websites such as Rightmove as homeowners and new buyers use the holiday to start their property search.

This year appears to be no different with local estate agents commenting on the number of calls received by homeowners requesting valuations or expressing interest in properties in the first week of January. The market in South West Surrey is starting to pick up.

Should You Sell / Buy Now Or Wait?

However, property and economic experts expect the housing market to remain flat and growth to slow further this year – Royal Institution of Chartered Surveyors (Rics) predict growth in 2017 of 3%, compared to 6% in 2016.

Brexit and the changes to stamp duty rates continue to have an impact on the market, especially for buy-to-let and luxury homes, with buyers and sellers being more cautious.

Currently South West Surrey is experiencing a bit of a seller’s market. Estate agents in my hometown of Farnham have a shortage of properties at the moment, and many homes are being snapped up within days of coming on the market. Waverley remains a popular and desirable place to live, and homes do not hang around for long.

That said, if you also need to buy in the area you may find your options more limited but, as confirmed earlier, local agents are reporting an increase in requests for valuations as more homeowners prepare to sell.

Mortgage Interest Rates: When Will They Rise?

A good reason to act sooner rather than later is the expected interest rate rise. Currently at an all time low of 0.25% this has resulted in cheap mortgage rates for many, and a great opportunity to get a fixed rate mortgage before any increases.

Without the benefit of a crystal ball it is impossible to say whether interest rates will decline further, but indications are that they are more likely to increase this year. Fixed-rate mortgages are already cheaper than variable so it would seem prudent to get a deal now rather than later.

There are plenty of mortgage deals on the market with an interest rate of under 2%, with the right deposit. Even with just a 5% deposit you could get a rate of under 3%. We have also seen five year fixed rates creep below 2% recently too, again with the right deposit.

Start Your South West Surrey Property Search Today!

If you think 2017 is going to be the year you either buy your first property or move up, down, or sideways on the property ladder, here are your next steps:

Buyers

Mortgages: Get your financial affairs in order to ensure you get the best mortgage deals for your specific circumstances. A conversation with a financial advisor or mortgage broker is a good idea to discuss your situation and see whether there are opportunities to get a better offer.

Set up property alerts: Register with websites such as Rightmove, OnTheMarket and Zoopla and set up alerts for the area, price range, and type of property you are interested in.

Speak to local estate agents: Visit all the local estate agents, preferably in person, and register with them directly. Be clear about your position, they may contact you before properties appear on websites if they think you’re a good fit. Update them regularly about any changes – for example if you receive an offer on your house, or are able to increase your deposit.

Sellers

Finances: If you have a mortgage check to see whether you will incur any early repayment fees if you sell your house. Find out if your mortgage is portable if you want to move with it, or increase your borrowing. Now is a good time to look around at different mortgage products and see whether you qualify. Make sure you’re fully aware of the costs of buying and selling: conveyancing, moving costs, etc. If you are also buying there will be stamp duty to pay on your new property.

Valuations: Invite several estate agents to value your property so you can get fair market appraisal. Check out websites such as Zoopla to find out what properties have sold for in your area. Be realistic.

Prepare your property for viewings: Declutter and tidy, do those DIY jobs that you haven’t got around to doing, give your property a spring clean.

For mortgage advice and assistance – mortgages for first-time buyers, remortgaging etc. – please get in touch. My office is in Farnham but I look after clients across Surrey and West London. Call 01252 759 233 or email info@thesurreymortgagebroker.co.uk

BTW: if you’re a local estate agent in the south west corner of Surrey please let readers know your predictions for Q1 of 2017! Add a comment below…

What Information will I need to provide a Mortgage Lender?

Every year, thousands of Britons go cap-in-hand to banks and other lenders to request the money to buy a home. From first time buyers to re-mortgages, buy-to-let investors to re-locators, getting that all important ‘yes’ from lenders can be a tough call.

This year’s mortgage acceptance rate was up, at around two thirds of applications being accepted, compared to just one in ten in 2010. Although the acceptance rate is improving as we move further away from the crash of 2008, borrowers still have a tough task on their hands if they’re going to secure a great mortgage at a great rate.

Being prepared for your meeting with your lender is the first step to getting an offer. Understanding what you need to bring along, what sort of questions they’ll be asking and what kind of evidence you’ll need to provide will stand you in good stead for a positive outcome to the meeting.

Paperwork

There are several pieces of paperwork you’ll need to have to hand at some point during the application process. Here’s what you’re going to be asked for:

• Proof of identity and address: You’ll need to prove that you are who you say you are, and that you live where you’ve said you do. This means you’ll need a proof of identity, such as a passport, photo driving licence or shotgun license. You’ll also need a proof of address, such as a mortgage statement, council tax bill, bank statement or utility bill.

• Proof of income: Each lender has their own set of requirements for proving your income, and it can be more difficult if you’re self-employed. In general, if you can lay your hands on three months of payslips and the last two years’ P60’s you’ll be well prepared. For those self-employed, bring along your accounts and SA302 tax calculations for three years and the corresponding tax year overviews. All available from HMRC website, speak to your accountant or mortgage broker for help.

• Proof of affordability: Your lender will be checking to see if you are able to afford the repayments you are agreeing to. For this reason, you should bring along any evidence of benefits, savings and investments coming in, as well as any credit commitments you have going out.

• Bank statements: Bring along the last three months of bank statements (at least) to show responsible income and outgoings for the month.

• Insurance policies: If you have existing life insurance, critical illness or income protection insurance, you should bring along evidence of this. It could work in your favour if your acceptance is touch-and-go with the lender.

It might seem like you’re being asked to pull together a PhD thesis just to apply for a mortgage, but take it one step at a time and it’s not that bad. The more you can gather before you even start applying for mortgages, the faster things will move and the easier it will become. Grab a folder and organise your life admin to ensure an easier ride.

Deposit

Most lenders these days are asking for a minimum 10 per cent deposit, and many are looking for 20 per cent and up. Whatever amount you’ve managed to save, you’ll need to prove to your lender that the money is yours before they’ll consider you for a mortgage. If it’s in an investment account or a bank account, you’ll need to bring along a statement. If it’s a gift from a relative or friend, get them to sign a letter saying they are holding the deposit for you.

Credit score

Your lender will run a credit check to make sure you are suitable for their loan criteria. There’s not much you can do about this if you do have black marks from the past, but do think about improving your credit score prior to applying for a mortgage to make it more likely that you’ll be accepted. Pay off what you can, check you’re on the electoral role and grab a copy of your credit report to make sure everything on there is correct.

Find out what lenders will be looking for in your credit report here.

Even after all that, you’re still not guaranteed acceptance on a mortgage. However, if you’ve taken the time to gather the paperwork and evidence needed, you’ll be ready to apply with another lender.

To save time and increase your chances of getting a mortgage offer, consider using the services of a mortgage broker. This way you’ll only need to provide your information once, they will also be able to advise you on what documentation can improve your chances, and have access to mortgage products that you may not have seen online or at your local bank or building society.

To discuss any of the above in more detail please do not hesitate to get in touch. Call 01252 759 233, email info@thesurreymortgagebroker.co.uk or comment below.

The Difference between Life Insurance and Mortgage Life Insurance

For anyone who is buying or has bought their own home, this question has probably crossed their minds at least once or twice. Mortgage life insurance and straightforward life insurance are two very similar products, but are designed to do two different jobs. Here’s what you need to know.

What Is Life Insurance?

Life insurance is a policy which you take out, usually voluntarily, in order to provide for your family if you unexpectedly pass away. There are many kinds of life insurance, some which last for a fixed period of your life, others which stay with you for the whole of your life. The settlement figure can be anything from a few thousand pounds, designed to cover the cost of your funeral, up to many hundreds of thousands; enough to pay off all your debts and leave a good nest egg for your family too.

What Is Mortgage Life Insurance?

Essentially mortgage life insurance does the same job; it pays out some money if you die unexpectedly. However, this type of policy is designed to only cover the outstanding mortgage debt, and will not pay for any other debts, any funeral costs or leave any cash for your dependants. This is also referred to as ‘decreasing term life insurance’ because the amount it pays out decreases over the years, in line with the reduction in your outstanding mortgage.

Things To Think About

Sometimes your mortgage lender will require that you take out mortgage life insurance when you agree to borrow the money. Other times, you may be looking to take out some form of protection so that your family are taken care of if you are not around.

Whatever your reason for investigating life insurance, there are a few things you’ll need to think about before you decide:

• Decreasing term or fixed term? Mortgage life insurance is typically a decreasing term policy, which reduces in line with your mortgage. This is the cheapest type of life insurance policy, but for a slightly larger investment, you could be covered under a fixed term policy. This policy would run for the same term as your mortgage, say 20 or 25 years, but would pay out the same amount all through the term. This means that as you pay off more of the mortgage yourself, you could be leaving a nice little nest egg for your loved ones.

• Lenders policy or a third party? Your lender may try to sell you their own mortgage life insurance, but are they offering you a good deal? You are not obliged to take their deal, and it’s a good idea to shop around to see what other companies can offer.

• Single or joint? A common problem with mortgage life insurance is that they can end up being joint. Usually, a joint life insurance policy is not worth having, and most good brokers will recommend you take out separate policies instead. Even if you have a joint mortgage, you aren’t required to have a joint insurance policy, so look to take out two separate agreements instead.

• Changing interest rates: When you set up your mortgage, your lender will help you arrange a decreasing term policy which will reduce in line with your mortgage balance. However, changes in the Bank of England base rate could dramatically change the outstanding balance on your mortgage over the term of the agreement. For this reason, it’s important to reassess your mortgage life insurance from time to time to make sure it’s still enough to cover what you owe on your house.

Mortgage life insurance is a great solution for those on a tight budget who don’t have any dependants to think about. It’s cheap, it covers what you need it to, and it will make your lender happy.

However, if you have children or other dependants, or if you want to pay off other debts in the event of your unexpected death, you should consider other types of life insurance too.

If your mortgage life or life insurance policies are up for renewal soon, and you would like some help investigating a better deal for you and your family, please do not hesitate to contact me. Call 01252 759233 or email  info@thesurreymortgagebroker.co.uk