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Getting started with your home purchase

It’s commonly said that buying a home is one of the most stressful things you can do, but we believe it doesn’t have to be. Having a good idea of the process and an understanding of what mortgage lenders will be looking for on your application can help to speed things up and allow for a seamless process.

What type of mortgage rate should I be looking for? 

There are thousands of different mortgage products available on the market, and many different types of rates to consider. With such a variety to choose from, it’s difficult to know what type of rate is right for you. That’s why it’s essential to speak to one of our experienced residential brokers, who can go through your options and recommend the best rate for your individual needs. 

In terms of the different types of rates you can choose from, there are two categories to consider: fixed and variable products. 

Fixed Rates 

A fixed rate mortgage means your monthly repayments are set in stone for the length of the initial rate period. No matter what happens in the UK money markets or to interest rates as a whole, the amount you repay each month will not change during this initial fixed rate period. 

As such, these are the most popular option with homeowners. These products offer financial security to borrowers, as you know what your monthly repayments will be for a set period of time. To find our what your monthly repayments will be with your next mortgage rate, use our repayment calculator here. 

Typically, borrowers will choose to fix for 2 or 5 years. There may be the option to fix in for 10 years if you’re looking for financial security for a longer period, but these rates may be more expensive. Your broker will cost up the options available to you to ensure you secure the most competitive deal. 

There are a number of drawbacks to fixed rates to consider. Mortgage rate pricing, for example, can be more expensive on fixed rates than on variable products. Similarly, lenders will normally have hefty Early Repayment Charges (ERCs) if you want to repay, remortgage, or sell the property before the initial rate period ends. So, if you on a fixed product and rates reduce, you may have to pay the ERC to move to a cheaper deal. Once again, our brokers can help you decide if this is the right option for you.

Variable Rates

Variable rates, mean your mortgage repayments can vary from month to month. Your repayments may change depending on how your lender passes on any increases or decreases in the Bank of England Base Rate to their mortgage pricing, and UK money markets activity. There are a number of different variable rate options to choose from: 

Tracker Rates 

Tracker rates, as the name suggest, track a prescribed rate (BBR OR LIBOR) at a margin above the monthly rate. For example, your tracker rate may be priced at Base Rate + 1.50%. so if Base Rate was at 5.25%, this would mean your mortgage interest rate would be 6.75%. 

As these are variable rates, if BBR increases or falls, so will your monthly mortgage repayments. Tracker rates can be for a fixed period or set for the life of the loan. 

One of the main benefits to a tracker rate is, in a period of reducing rates, your mortgage product should reflect those reductions, and therefore your monthly repayments will come down. However, there is of course the downside that when rates increase, your payments will too. You’re also tied into a deal with a lender during an initial period and may be liable to pay ERCs if you look to switch to a fixed rate or remortgage onto a new product. Your broker will review whether this is the right option for you when discussing your mortgage needs.

Discounted Rates

A discounted rate means a lender is offering you a mortgage product at a discounted price against either their own Standard Variable Rate (SVR) or a financial indicator such as the Base Rate. These rates are typically set for a short initial period of time, such as 2 or 3 years. 

One of the primary benefits of a discounted rate is the pricing is generally more competitive than other fixed and variable rate deals. However, as with tracker rates, there is a level of financial uncertainty that comes with discounted rates. Additionally, if your product is discounted against your lender’s SVR, money market changes won’t necessarily see your monthly mortgage payments reduce. You will be reliant on the lender’s decision to reduce their SVR before you see the benefit of your mortgage payments falling. 

Speak to one of our expert residential brokers to discuss which rate is best for you. 

What fees will I pay with on my home purchase? 

There are a number of fees and charges to be aware of when you come to your home purchase. You may choose to add these fees to your loan, but remember you will then need to pay interest on this for the length of the mortgage. 

Arrangement Fees 

A lender’s arrangement fee is the amount charged by a lender to set up the mortgage for you. Depending on the rate, the lender will either set the arrangement fee as a percentage or as a fixed charge. 

For example, your lender may charge an arrangement fee of 2% of the loan. On a £200,000 mortgage, that’s a cost of £4,000 that will either be due on completion or added to your loan. Remember, adding this fee will increase your loan amount and you will pay interest on this for the length of the mortgage. 

As arrangement fees can be significant, especially as you will be juggling numerous other fees and costs, it’s important to view these as part of the cost of a mortgage. Many lenders will look at innovative ways of supporting clients to make the mortgage process as affordable as possible. For example, it may be that a lender offers a higher interest rate product with no arrangement fee, or alternatively, a lower interest rate with a higher arrangement fee. Your expert broker can cost up the different options available to you to compare and guide you in the right direction. 

Valuation Fees

A valuation fee covers the cost of a lender’s survey of your home. This survey reassures the lender that the property is worth the price you paid for it and that the lender has suitable security for the loan in the unfortunate event that they need to repossess it. 

In general, valuation fees will depend on the property’s value and your lender, but typically cost around £250. Many lenders will offer free valuations as an incentive on their mortgage products.

There are other more detailed, and more expensive, valuations (surveys) available to you as a purchaser, such as a Homebuyers report or a full structural report. Our brokers will discuss these with you, as depending on the age, condition, location or type of property you are purchasing, one of these extra surveys could prove invaluable. 

Legal Fees

The legal fees refer to the solicitor/conveyancing costs incurred as part of the mortgage process. Again, our expert brokers can provide a quotation for you from an extensive panel of conveyancers, all  of whom meet your lender’s criteria and have the capacity and service requirements to meet both our and your needs. 

Can I overpay my mortgage? 

Many homeowners will look for a mortgage product that gives them the ability to overpay, whether that’s on a monthly basis or a lump sum from time to time. The benefit of overpaying your mortgage is that you clear the debt much quicker and pay less interest overall. There are many helpful tools online to help you calculate the impact of overpaying on your mortgage. The moneysavingexpert overpayment calculator linked here provides a breakdown of your potential savings year on year. 

Most mortgages allow you to make some form of overpayment, but it’s typically capped at 10% of the outstanding loan amount per year, or a fixed amount per month. If you pay more than the lender’s limit, you may be charged penalties. If you want a mortgage with no overpayment limit, it’s unlikely you will be able to get a fixed rate.

Stamp Duty Land Tax (SDLT)   

You pay SDLT when purchasing a property over a certain price. Currently, the thresholds for when SDLT starts to apply are: 

• £250,000 for residential properties

• £425,000 for first-time buyers buying a property worth £625,000 or less

• £150,000 for non-residential land and properties 

If you buy a property for less than the threshold, then there’s no SDLT to pay. There are also different rates of SDLT when buying a property that you need to be aware of. For example, if: 

• You’re a first-time buyer

• You’re buying an additional property 

• You’re not a UK resident 

Please speak to a professional tax advisor before making any property investment decisions.