Month: September 2018

ERC’s | Early Repayment Charges

Ashanta Charm1 Comment

The In’s and Outs of Early Repayment Charges

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Reading Time: 2 mins

Last week we spoke about fixed vs variable interest rates.

You can save money by changing your Mortgage provider regularly when your current rate/product expires.

Unfortunately you cannot switch Mortgage providers or rates whilst still locked in to a product. If you decide to sell your property/switch product regardless of your rate not yet expiring, you will be subject to something called an early repayment charge.

Early repayment charges are worked out in percentages and are outlined in your Mortgage Illustration/KFI

For example:

Property Value: £175,000

Mortgage: £144,075

Product: 1.74% 2 year fixed rate

Expiry date: 30/04/2020

Your document will say: You have the right to repay this loan early, either fully or partially.

BASIS OF CHARGE
2.00% of the amount repaid on or before 30/04/2019

1.00% of the amount repaid on or before 30/04/2020

The maximum early repayment charge you will pay is £2,876.44. Should you decide to repay this loan early, please contact us to ascertain the exact level of the early repayment charge at that moment.

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The above is self explanatory, if you do decide to remortgage and break/cut your product short, be prepared to pay the extra few thousands in ERC’s.

Remember the ERC of every Mortgage will not be £2,876.44 as above, the ERC is worked out based on your current Mortgage balance and the remaining term of your Mortgage. A slightly higher loan amount on a longer fixed rate product will have a higher ERC descending accordingly year by year like the above.

When you sell your property the same applies. When you sell a property, the funds you receive for your property cover the Mortgage balance and the excess is yours for the taking.

If you complete on the sale of your property whilst locked in to a fixed term product, you will be subject to early repayment charges.

This is why when people desire to sell their property within the next year or so and their remortgage is due, they tend to go for a product that is not fixed and does not contain ERC’s or they stay on the variable rate. This allows rooms for flexibility, however a down side to this is that their monthly repayments may be slightly higher than they would be if they were to be on a fixed term product containing ERC’s.

Interest Rates: Fixed vs. Variable

Ashanta Charm2 Comments

Save £5,000 a year by regularly switching Mortgage provider

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Reading Time: 3 mins

So you have a fixed rate mortgage, it’s due to expire, however you don’t have time nor do you see the need to tamper with it.

A fixed interest rate can last for 2,3,5 or 10 years.

What this means is that for however many years the rate you are currently on is fixed for, your monthly payments will remain the same. Once your fixed term has expired, your mortgage switches to something called the variable rate.

The variable rate tends to be 1.5-2.5% higher than the fixed rate and is provided to you on your KFI/Mortgage Illustration document.

For example:

Value of the property
£480,000

Mortgage Balance
£361,935

Current rate with “X” Bank:
A 5 year fixed rate of 1.89% until 31/09/2023

Variable Rate:
4.24% thereafter

Your current monthly mortgage payment is £378.45

Your monthly mortgage payment on the variable rate once your fixed rate has expired is £848.89

That’s £470.44 more per month. That’s double your usual Monthly mortgage payment and then some…

Across 12 months, that’s an extra £5,645.28. By switching Mortgage Provider or going on to a new product with your current mortgage provider, you’d save yourself £5,645.28.

Of course not everyone will save £5,645.28 due to variable payments and Mortgage balances varying per Mortgage Provider. After-all everyones circumstance is different, however one thing you’ll all have in common is the amount of money you could save by switching mortgage products and not staying on the variable rate.

Can I switch rates earlier (every 6 months) and save more money by going on to a lower interest rate elsewhere?

No. If you could, lenders wouldn’t benefit. You are locked in to the rate for 2,3,5 or 10 years. If you break the contract before the rate expires, you will be obliged to pay an ERC – Early Repayment Charge.

ERC’s – another post, another day Due 24th September

The Process: Standard Mortgage

Ashanta Charm1 Comment

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Reading Time: 5 mins

What’s more important to you? Getting on to the property ladder or telling people that you are on the property ladder?

If the latter fits, then a standard residential mortgage isn’t for you.

Social media can be deceiving and make one extremely anxious, cut corners and end up in debt or an uncomfortable situation for the sake of reputation, likes and pride – Property and debt is not a game, think about the long term…

All the other mortgage schemes will get you on the property ladder a lot quicker and give you bragging rights, but is it worth it?

Today we’ll be speaking about the standard residential mortgage.

If you read last weeks post, you should be full of knowledge and understanding regarding the Help to Buy: Shared Ownership scheme.

The difference between a standard residential mortgage and the various schemes is: You own the property, there’s no second charge or interest from the government. The property is 100% yours and with planning permission, you are free to extend and edit your property as you wish. Leasehold properties are slightly different to freehold properties as you pay a ground rent and service charge for the communal areas etc but there’s still an element of freedom you wouldn’t otherwise have with your remortgage and maintenance options via a scheme.

The process:

  1. A Conversation

Whether you pop in to a bank or speak to a broker, a conversation needs to take place so that both parties are aware of the needs and objectives.

     2. Documents and facts

This is where you prove the above. You’ve said your salary is £75,000 per annum, this is where you prove that. Provide your latest 3 months payslips, latest 3 months bank statements that evidence the salary credit/general expenditure and contract if you’ve been in the role less than a year.

Do you have any debt? Loans, lease agreements, credit card balances, overdrafts, defaults, CCJ’s, maintenance payments? Now is the time to disclose these so that an accurate potential borrowing amount can be calculated.

If you hold back on any of the above debts, later on in the mortgage process, your application can be declined as the lender will do various credit checks on you. Any extra commitment or debt may be out of the banks lending appetite and your overall affordability

  3. Deposit – Where is this coming from? Savings? Gift? Oversees?

Majority of lenders do not accept funds that are not in GBP. If you suddenly received a £50,000 deposit in to your account a week ago, the bank will want to know where this money has come from and evidence of it’s trail. Funds that were given to you in the last 6 months – a year are still counted as a gift. You will need your friend/relative to provide a gifted deposit letter which evidences that these funds are a gift, which they do not expect you to repay and that they will have no interest in your property.

Savings, stocks, shares and the like are accepted. A statement that evidences your bonds maturity date or current market value of your shares is acceptable.

***Make sure you have enough funds outside of the deposit to pay for legal fees, stamp duty, general expense of moving and miscellaneous money for unforeseeable expenses.

  4. Product – LTV

In-order to submit a mortgage application, a product with a lender will have to be chosen.

Example of a Mortgage product:

2 year fixed 1.89% 90% LTV first time buyers only – This means that the 1.89% interest rate is fixed for 2 years, after the 2 years, you are free to remortgage and go to another lender/switch products or you go on the variable rate which sometimes has an interest rate as high as 3%. Your monthly mortgage payments will increase considerably by £200-£300. (Some products also come with a free valuation, free legal representation, cash back etc.)

LTV is an abbreviation of the term, “Loan to Value”. To make it quite simple, lets say you’re purchasing a £290,000 house and have a £29,000 deposit, this would be a product with a 90% loan to value. The higher the LTV, the more you borrow, the more interest you pay and the higher your monthly Mortgage payments.

 5. The Application

Whether you are a first time buyer, home mover or simply remortgaging, in order for your application to be as accurate as possible, you need to provide all requested information to the bank/broker. The more transparent a Mortgage Application, the quicker a Mortgage Offer is released.

A valuation is carried out to ensure that the lender is lending on a property that is worth that level of risk.

Once the supporting documents have been signed off/accepted and the valuation report is back, the application will either go straight to Offer or products, deposits and loan amounts may need to be revisited if the property is down valued.

  6. Mortgage Offer

Once your Mortgage Offer is released, the ball is now in your Solicitors court. This is where you need to run a tight ship and make regular contact with your solicitor.

  7. Completion

Be courteous, leave your bank/broker some feedback, after all, they did just help you secure your first home, second home or saved you some money by helping you with your Remortgage.

Do you have a question or want a particular part of the process to be explained in more detail?

Contact me via
Twitter @AshantaLC
Email AshantaLC@hotmail.co.uk
Instagram @ashanta_

Help to Buy: Shared Ownership

Ashanta Charm3 Comments

Help to Buy

Reading Time: 2 mins

How it works:
Shared Ownership is a scheme rolled out by the government to help people who would otherwise find difficulty getting on the property ladder via the traditional Mortgage route. Rather than having to magic up 10% deposit of a property, you can put down 10% deposit on 25% of a property. This means rather than £20,000 deposit for a £200,000 property, you will provide a £5,000 10% deposit (or with some lenders £2,500 5% deposit) of a £50,000 25% share and acquire a mortgage. You’d then pay monthly rent on the remaining 75% that you do not own.

 

Eligibility:

  • You will have to be buying your home through a shared ownership scheme and have a household income of less than £90,000 (£80,000 outside London)
  • You will have to be a first time buyer, or a previous home owner that cannot afford to buy a property now.

 

How is the rent calculated?

If you bought a 50% share of a property worth £300,000, you would pay rent on the other 50% – £150,000

You then divide the equity (£150,000) by 100 and times it by 3 to get the total rent payable per annum £4,500. That’s £375 a month.

Pros

  • Great for first time buyers who do not have a large deposit and generally cannot afford to get on the property ladder via the traditional standard Mortgage route
  • You buy a share of a property: as little as 25%
  • 10% deposit of 25% share
  • You can get on the property ladder with a smaller than average deposit

Cons

  • You can only buy a leasehold property under this scheme (Flat, Fairly New Build, New Build Flat)
  • You pay a Monthly mortgage on the share that you own and monthly rent on the share that you do not own. Like standard rent, over time, it increases.
  • You can only buy 25-75% of a property under shared ownership
  • When you decided to increase your ownership and buy more shares, like normal shares, with time, the price per share increases.
  • If your household income is more than £90,000 (£80,000 outside London) you are not eligible.
  • Around 0.4% of the housing market is available under the shared ownership scheme
  • The property is not yours until you own 100% of it. You can be evicted by the housing association due to rent arrears.

Securing more shares of your property at a later stage under shared ownership is also known as Stair-casing. With this comes more fees: valuation fees, legal fees, stamp duty (if you’re going on to own 80-100% of the property).

Be Careful: If you fall behind on your rental payments, you can be evicted. This means the not only do you lose your home, but you lose the money you’ve already paid to buy a percentage of it.