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Mortgage Agreement in Principle

If you are currently going through a mortgage process, you will have come across lots of different phrases and terminology. One of those phrases you will hear from lenders or mortgage advisors is a mortgage agreement in principle. A mortgage in principle gives you an indication of how much you can afford to borrow on a mortgage. It’s a useful tool to have when you are looking for a new home. Not only does it give you a budget for your new property, but it shows the estate agent that any offer you make is more likely to go through to completion.

Here Friends Capital explain further about a mortgage in principle and how you can use one when buying a new house.

A mortgage agreement in principle – what is it?

A mortgage in principle is sometimes called an agreement in principle (AIP) or decision in principle (DIP). If you go to a lender, they may offer you a mortgage in principle. It is a written estimate from a mortgage provider stating how much they may lend you. It’s not a guarantee that the lender will give you a mortgage, but it can be useful information. An agreement in principle gives you a good indication of what a financial institution is willing to lend you for a mortgage.

Should I apply for a mortgage in principle?

The house buying process can feel confusing, and you may be wondering if you should apply for a mortgage in principle. The method of applying for a mortgage in principle is quicker and easier than a full mortgage application. You can usually get an answer quickly, from within an hour or a couple of days. Mortgage applications can take much longer to process. Getting a mortgage in principle amount allows you to narrow down the search for a new house and gives you a realistic budget.

You don’t have to get a mortgage in principle, but various reasons make it a good idea:

  1. You get a good idea of what you can afford to borrow. It helps to narrow down your house-hunting search ruling out properties above your budget or opening up homes you may have believed to be out of your price bracket.
  2. Estate agents and sellers will take your offer seriously. Sometimes you may not be offered a viewing unless you have a mortgage in principle.
  3. With a realistic idea of what a lender will give you on a mortgage, there is less risk of applying for a bigger mortgage that gets rejected. A mortgage rejection impacts your credit file negatively and can make it more challenging to get the mortgage you want.

When will I need to apply for a mortgage in principle?

If you have made the decision to move and you are serious about looking for a new home, apply for a mortgage in principle. Knowing what you can afford makes the task of finding and buying a new home much more straightforward. 

It can also be a big confidence boost to know which houses are in your budget. A mortgage in principle can also save you time in the buying completion process. It can help with getting your offer accepted and may even make the mortgage application process quicker.

Does a mortgage in principle affect my credit rating?

A mortgage in principle does require a credit check. The application process will involve either a soft or a hard search on your credit file. The type of search done during the application process will depend on the lender.

soft search checks your credit report without leaving a ‘footprint.’ It isn’t visible to other lenders, so it shouldn’t affect your credit file.

hard search does show on your file as a credit application. A hard search shouldn’t affect your overall credit rating. Still, if a lot of hard searches go through in a short space of time, lenders may reject any future credit applications. It is worth checking which type of search will be done by your chosen lender before completing the process.

Good news – FriendsCapital has partnered up with checkmyfile – the UK’s only multi-agency credit report – check your credit report

How long is an offer valid?

A mortgage in principle may last between 60 and 90 days, depending on the lender. If you don’t find a property during that period, you may have to apply for another. Renewal should be straightforward unless circumstances have significantly changed.

You should note that if any of the details you give on your application change, such as a new job, you should check that your mortgage in principle is still valid. You may have to renew the application in certain circumstances.

How to apply for a mortgage in principle

To get a mortgage in principle, you can choose to go:

  • directly from a mortgage lender (bank or building society)
  • through a mortgage broker

As a rule, it’s usually better to use a mortgage broker. Brokers have access to a variety of mortgage options, many that you won’t be able to get through a high street bank. A mortgage broker also saves you time as they can identify which lenders are better for you based on your circumstances. You will be able to call the broker when an offer is accepted and complete the full application.

Guide to Shared Ownership

It can be frustrating if you cannot afford to buy a home outright, but there is a solution. You can buy a portion of your home and get your foot on the property ladder, through the Government’s Help to Buy: Shared Ownership Scheme. 

So, who can take advantage of shared ownership schemes and how do they work?

Who can apply for shared ownership?

You do not need to be a first-time buyer to be eligible for shared ownership. However, you must not still own property, meaning you would have to sell your existing home before you can apply. Also, your household must earn less than a combined £80,000 per year, or £90,000 per year in London.

What is shared ownership?

If you cannot get a mortgage for the full value/asking price of a property, then some homes are available as shared ownership. You buy part of the house, and you rent the remainder from the government. You can buy between 25% and 75%, and you will pay rent to the co-housing association for the rest,

A secondary benefit to shared ownership, which is particularly attractive to first-time buyers, is that you will only need to save a small deposit, typically around 5%.

There are advantages to buying a 40% share or more. When you do this, you have the right to staircase. Staircasing lets you buy more shares in your home at increments of 10% or buy the whole property at a later time.

Shared ownership schemes vary between England, Scotland, Wales, and Northern Ireland, so be sure to check the fine print. In England, shared ownership properties are leasehold. You only own your portion of the home for a fixed time, and you do not own the land.

Right to Shared Ownership

The government announced a new scheme in October 2019. Under this scheme, tenants of housing associations can buy 10% of the home they live in and pay a subsidised rent on the remainder. They can purchase further shares in increments of 1% or more, up to 100%.

Stamp Duty on shared ownership schemes

Stamp Duty Land Tax (SDLT) is a tax on homes costing more than £500,000. With an approved shared ownership scheme, you can pay this tax in instalments or as a one-off.

If you pay a one-off fee, this is based on a percentage of the property value at the time you buy. You will not pay more stamp duty, even if you staircase and buy all or a more significant share of the property.

If you pay in instalments, HMRC calculates your stamp duty as a premium on the amount you paid for the grant of the lease. You will spend less today, but you may have to make more payments if you staircase.

Selling a shared ownership property.

You can sell your shared ownership property at any time, although you must notify the housing association first. The housing association has a right to find a buyer before you go to the open market. Their exclusive period is for eight-weeks, and afterwards, you are free to sell your share of the property, if they have not secured a buyer.

The amount you receive is balanced on the share you own and the market value of the property.

Pros and cons to shared ownership

As with all things, there are cons to balance against the pros we have mentioned above. It would be best if you considered these before joining a shared ownership scheme.

MaintenanceIn addition to paying charges for ground rent, care-taking charges may be added for the maintenance of communal areas. The housing association pays for structural maintenance, but you may have to pay a share of major repair expenses. Before you enter shared ownership, check to see if any major works are planned.

SublettingSubletting is usually not allowed.

MortgagesNot all mortgage lenders will provide a loan for shared ownership properties.

AvailabilityYou will have a limited choice of properties.

It is essential to know that you may have to pay individual additional costs every time that you staircase. These can mount up, so if you are considering staircasing, you might want to consider only doing so when you can afford to purchase a significant share.

Staircasing fees might include:

  • Stamp duty
  • Valuation fee
  • Legal expenses
  • Mortgage arrangement fee
  • Any arrears

If you want to get on the property ladder, you should now be better prepared to decide whether shared ownership is right for you. For more information contact the Friends Capital team.

Ultimate Guide – First-Time Buyer Mortgages

The thought of buying your first home will probably have you feeling excited. However, you may feel overwhelmed or daunted by the prospect of the complexity of buying a house or flat.

Buying a home is likely the most expensive purchase you will make in your entire life. You will need to save a deposit, arrange a mortgage, and prepare for expenses that are often out-of-mind.

With our guide to first-time buyers, you can prepare for your search for a home and mortgage. You might even realise that it’s not as complicated or daunting as you first thought.

Saving a deposit

It can take years to save a deposit for a house, so it is best to plan well ahead and start saving as soon as possible. The best approach is to put money away each month. The larger the deposit you can save, the lower your monthly payments will be, and better interest rates may be available to you.

In general, a few mortgage lenders will accept a 5% deposit, but 10% is the standard. If you can put down a deposit of 25%, you will get access to the best deals and interest rates.

For more helpful advice, please read our guide to saving a deposit.

Arranging a mortgage

A mortgage is a loan from a bank, building society, or specialist lender, and you will pay back the loan and interest. In addition to paying back the mortgage, you may have to pay a valuation fee and arrangement fee.

You can speak to a mortgage broker to find the most competitive deals. There are whole of market mortgage brokers, as well as brokers that will only recommend mortgages from select lenders. An estate agent’s mortgage broker will give you restricted advice and a bank or building society mortgage advisor, will only recommend their products.

 

The amount you can borrow used to be based on a multiplication of your annual salary. However, since 2008, stringent affordability tests have been introduced to ensure you can afford the mortgage and the effects of changing interest rates.

To apply for a mortgage, you will need:

  • Proof of income (payslip)
  • Bank statements
  • Outgoings (household utility bills)

Although it isn’t a mortgage guarantee, an agreement in principle may be given by the lender, so that you have proof to estate agents and home sellers that you are serious.

You have a better chance of approval when you make a mortgage application if you:

  • Save a more significant deposit
  • Have a steady job
  • Register on the electoral roll
  • Build a good credit history
  • Close unused credit card accounts

If you are self-employed, you should prepare three years of accounts and have copies of your tax returns.

What are the different mortgage types

Below we discuss the various types of mortgages offered to first-time buyers:

Fixed-rate mortgage: Interest is fixed for a period of time, after which you will pay interest based on the lender’s standard variable rate (SVR). These mortgages are popular because you have the same monthly payment, which makes financial planning easier. Interest rate chargers by the Bank of England or your lender will not affect you, and your payments will stay the same.

Discount mortgage: These track the lender’s SVR but at a lower rate. The bigger the discount, the shorter the discount period will last.

Tracker mortgage: These track the Bank of England’s benchmark interest rate. Once the deal ends, you will typically move onto the lender’s SVR.

Offset mortgage: These link your savings and current accounts to your mortgage, so you only pay interest based on the net balance.

Standard variable rate mortgage: Payments can go up and down with these, and there are no particular benefits. Rates follow the Bank of England Bank Rate, but the lender can make changes to their SVR independently. As soon as you can, it would help if you looked to move to a better deal.

Guarantor mortgage: Help from parents or relatives, who take on the lending risks, can help you get a mortgage. However, they will have to cover payments if you can’t make them.

Questions to ask your lender include:

  • Can I overpay?
  • Can I borrow back if I overpay?
  • Are payment holidays available?
  • Can I move to a different lender once the mortgage deal ends?
  • What happens if I want to move house?

First-time buyer schemes

Government home ownership schemes are on offer in England, Wales, Scotland, and Northern Ireland, although they may vary across each.

Help to Buy: These help people buy a home when they only have a deposit of 5%. These apply to newly-built homes in England of up to £600,000. The equity loan from the government will be 20% or 40% if you are inside London.

Right to Buy: Council tenants in England, Wales, and Northern Ireland can buy their home at a discounted rate, as long as they have lived in the property for three years.

Shared ownership schemes: You can own part of the home, and usually, the housing association owns the other part. You will buy between 25% and 75% and pay rent on the part you don’t own. You can buy the remainder later if you can afford to. To be eligible, you must earn less than £80,000 per year or £90,000 in London. Please read our guide to shared ownership

Stamp duty

Stamp Duty Land Tax (SDLT) is a tax you must pay in England, Wales, and Northern Ireland when you buy a home or land over a specific value. First-time buyers pay no fee on the first £300,000, on homes worth up to £500,000.

You will pay a 5% tax on the portion of the home between £300,001 to £500,000.

Please read our guide to Stamp Duty for more advice.

Other mortgage expenses

Other expenses to remember include:

  • · Mortgage arrangement fee
  • · Valuation fee (an assessment of the property value)
  • · Survey fee (an evaluation of if the property is structurally sound)
  • · Property solicitor fees (conveyancer)

The property solicitor handles parts of the sale, such as the Land Registry fees, Stamp Duty charges, and contract creation. 

Making an offer 

Before making an offer, you should ask these questions to assess if the home is right for you:

  • Why are you selling?
  • How long has the house been on the market?
  • What does the sale include?
  • Have other offers been made?
  • Have you found a new property?

It would help if you made your offer through the estate agent. First-time buyers may be asked to show their mortgage agreement in principle.

Exchanging contracts and completion

To begin the buying process, you will instruct your solicitor to start the legal work. They will agree on the terms of the sale, the purchase price, and the date of completion. The mortgage lender will likely ask you to insure the property as part of the process.

 Your solicitor will transfer the money to the seller. On completion day, you can pick up your keys, once the money arrives in the seller’s bank account.

Top tips for first-time buyers

  • Start saving your deposit as soon as possible
  • Work out your budget, including income and outgoings
  • Get your paperwork ready, including identification, banks statements, and bills
  • Don’t take out cash on a credit card
  • Don’t make lots of credit applications in a short period
  • Speak to a mortgage broker
  • Research the area you want to live

 

Guide to self-employed mortgages

It can be more challenging to get a mortgage if you are self-employed, a freelancer, sole-trader, contractor, company director, or entrepreneur. If you are self-employed, your income might be considered less secure and less predictable. The security of your income can put lenders on the back foot because they want to know that you can make the long-term repayments of the mortgage they offer.

Good news – you can get a mortgage and Friends Capital can help you!

Before making a mortgage application, you should consider some careful planning, which will improve your chances of being approved. You will want to prove to a mortgage lender that you generate a regular income. Plan and speak to a financial adviser, a mortgage decline can damage your credit score.

What mortgages are available for the self-employed?

You may have heard about or previously had a self-certification mortgage, sometimes abbreviated to self-cert. For these mortgages, there was no need to provide evidence of how much you earn each year. However, these were banned in 2014 over fears that people were offered mortgages that could not afford.

Today, there are no mortgages designed for self-employed people. Instead, you have access to the same mortgages as everyone else. The lender will want to make more in-depth affordability checks, and they may offer you fewer mortgage options.

How to get a mortgage if you are self-employed

A mortgage lender will consider you as self-employed if you own 20% to 25% of a business or more, and this generates your primary income.

Before applying for a mortgage, you should prepare two years of certified accounts, and the most recent of these needs to be no more than 18-months old. It is a good idea to hire a qualified chartered accountant to prepare these for you, to ensure they meet lender requirements.

A qualified accountant will also help you understand your finances so that you can answer questions from the mortgage provider. If you do not know what a mortgage lender might ask, then mention this to your accountant, who will likely have experience in this.

Preparing supporting documentation should include requesting an SA302 form from HMRC. An SA302 form shows the income you have reported to HMRC and takes approximately two weeks to arrive. You should also prepare evidence to show retained profits or dividend payments and proof of upcoming contracts.

SA302 application: You can apply for your SA302 form from the HMRC here.

If you have been self-employed for one year or less, then it may be more challenging to get approved for a mortgage, but not impossible. In this case, it can help to provide proof of future commissions.

Further documentation that will help you get a self-employed mortgage include:

  • Driving license
  • Passport
  • Six months of bank statements
  • Council tax bill
  • Utility bills for the last three months

It would be best if you were prepared to answer questions on:

  • Car finance arrangements
  • Loan repayments
  • Store card and credit card repayments
  • The cost of your commute
  • Business-related travel costs
  • Childcare
  • Holidays

Tips for getting a mortgage if you are self-employed

Here we take a look at tips that will help you get a mortgage if you are self-employed.

Make your spouse the first name on the mortgage – This tactic can be beneficial, even if your spouse’s salary is less than the income you generate. Lenders are looking for a predictable and regular income, and this can be preferred over the amount of income earned.

Boost your income – You can opt to pay yourself a higher salary instead of keeping profits in the business. You can use this to boost your savings, and you can return to your regular salary arrangements after your mortgage gets approval.

Pay a more substantial deposit – You can reduce the monthly repayment from a mortgage lender by paying a larger deposit. With a lower regular repayment, your lending risks are reduced. You can also benefit from cheaper rates when your deposit exceeds 10 percent, 25 percent, and 40 percent of the property’s purchase price.

Check your credit rating – You can get your credit report for free and correct any errors that may appear. Mistakes can exist in your credit file, so you should not overlook this tip, even if you think you have not made credit-damaging mistakes in the past.

Postpone changes to your business – Mortgage lenders are looking at how predictable your salary is. Hence, it makes sense not to change the type of business you have or to switch from being a partnership to a limited company or sole trader.

Use a broker that is a self-employed mortgage specialist. A broker that specialises in and has experience in mortgages for self-employed people can be highly advantageous. A self-employed mortgage specialist can anticipate problems that you might incur and counter these before they become an issue. A specialist broker will also know the lenders who are most likely to lend to self-employed people.

Mortgage brokers that specialise in self-employed mortgages will know the different criteria that lenders favour. Some mortgage lenders prefer to see evidence of operating profit and retained profit. In contrast, other mortgage lenders prefer to see proof of salary and dividends. With access to this knowledge, you will increase the chance of being approved the first time.

Apply for a mortgage from a provider that is not a mainstream bank. When high-street banks refuse to lend to self-employed people, it is possible to turn to a specialist lender. Specialist lenders may lend to self-employed persons; however, a favourable mortgage decision may come at the cost of incurring a higher interest rate.

For more help and advice on applying for a self-employed mortgage, contact Friends Capital today.

Guide to Stamp Duty

You are required to pay Stamp Duty Land Tax (SDLT) when you purchase a residential home in England or Northern Ireland. Stamp Duty is payable on properties that you are buying for more than £125,000. 

Here we take a look at what is Stamp Duty, Stamp Duty for first-time buyers, Stamp Duty for second homes, joint ownership Stamp Duty, and when and how to pay Stamp Duty.

What is Stamp Duty?

Stamp Duty is a tax on residential property or a parcel of land costing more than £125,000. For second homes, the fee is payable from £40,000 or more. Stamp Duty applies to leasehold and freehold properties, purchased with or without a mortgage.

The amount of Stamp Duty payable is based on the purchase price of the property. You will pay a percentage for every group that your property price covers:

  • £0 – £125,000 0%
  • £125,000 – £250,000 2% 
  • £250,001 – £925,000 5%
  • £925,001 – £1.5M 10%
  • Over £1.5 million 12%

This means that if the purchase price of the property is £300,000, then your Stamp Duty fee will be 0% of the first £125,000 (£0), plus 2% on the next £125,000 (£2,500), plus 5% on the next £50,000 (£2,500).

In Wales, the equivalent to Stamp Duty is called Land Transaction Tax (LTT), and in Scotland, it is called Land and Buildings Transaction Tax (LBTT).

For Scotland, the Land and Buildings Transaction Tax is charged on properties over £125,000. The groups and percentages are as follows:

  • £0 – £145,000 0%
  • £145,001 – £250,000 2% 
  • £250,001 – £325,000 5%
  • £325,001 – £750,000 10%
  • Over £750,000 12%

For Wales, the Land Transaction Tax is charged on properties over £180,000. The groups and percentages are as follows:

  • £0 – £180,000 0%
  • £180,001 – £250,000 3.5% 
  • £250,001 – £400,000 5%
  • £400,001 – £750,000 7.5%
  • £750,001 – £1.5M 10%
  • Over £1.5 million 12%

Stamp Duty for first-time buyers

In England and Northern Ireland, if you are a first-time buyer, in the UK or abroad, then there is no Stamp Duty on properties worth up to £300,000. If you purchase your first home for up to £500,000, you will pay no stamp duty on the first £300,000, but you will pay Stamp Duty on the next £200,000.

There is no first-time buyer’s relief for homes over £500,000, and you will pay the standard Stamp Duty rates. However, homes bought under the Shared Ownership schemes of up to £500,000 receive first-time buyer tax rates.

Stamp Duty for second homes

A second home is an additional property to your primary residence. Second homes include buy-to-let properties and holiday lets. Stamp Duty is payable on property values of £40,000 or more. You will pay an additional 3% on top of the regular Stamp Duty rates.

Stamp Duty applies if you have purchased a new home, but you have not sold your old home, although you can ask for a refund if your old home is sold within three years of buying your new home. You must apply for a refund within three months of selling your old home or within twelve months of filing your SDLT tax return.

There are some exceptions to Stamp Duty on second homes, and these include houseboats, mobile homes, and caravans.

For Scotland, the Land and Building Transaction Tax on second homes incur an additional 4% fee on top of the standard rates. For Wales, the Land Transaction Tax on second homes incurs an additional 3% fee on top of the standard rates. 

Joint ownership Stamp Duty

For married couples, both parties need to be first-time buyers to enjoy the first-time buyer Stamp Duty tax reduction. Unmarried couples can claim for a reduction in Stamp Duty if one party is a first-time buyer, and only their name is on the mortgage deed.

However, how much a bank or building society will offer as a mortgage will be based solely on the income of the first-time buyer. This means that you may not be able to borrow enough money to get the home you desire. 

Secondly, if you split up, the non-first-time buyer may have no claim against the property and be left with nothing. This means that there are severe implications that married couples need to consider.

When and how to pay Stamp Duty

Within 14 days from the purchase completion date, you are required to create a Stamp Duty Land Tax return and to pay the tax. Penalties and interest from HMRC can be incurred if you do not submit your tax return and pay your Stamp Duty.

You can pay Stamp Duty yourself, but typically your solicitor or conveyancer will take care of this for you. It is your responsibility to make sure it is paid within the time constraints. If you decide to complete this step, then HMRC accepts Stamp Duty payments over the telephone, online, at the post office, a bank, or building society.

You should be aware that for homes under £125,000, you still need to submit an SDLT return. Also, if you exchange properties with someone, then both parties must pay Stamp Duty.

 There are a few exemptions to Stamp Duty, and these include:

  • When a transfer of deeds is a gift or as part of your will, you will not pay stamp duty on the market value of the property. However, you may have to pay other taxes such as inheritance tax.
  • When a transfer of ownership is made as part of a divorce or separation.

For England and Northern Ireland, you can find further information on the Stamp Duty Land Tax website. For Scotland, you can find more information on the Land and Buildings Transaction Tax website. For Wales, more information can be found on the Land Transaction Tax website. 

Ultimate guide to conveyancing

One of the most important people you will require when selling or buying a property or when remortgaging is a conveyancer. The role of a conveyancer is to oversee the legal requirements and to make sure that the mortgage reaches completion. 

Here we take a look at what conveyancing is, their role, and conveyancing costs.

What is conveyancing

A conveyancer or a general solicitor conducts conveyancing. In the case of a solicitor carrying out these duties, they will have specialised in conveyancing legal work and property law.

The role of the conveyancer is to transfer ownership of land or property from one owner to another. Split into two parts; conveyancers arrange the exchange of contracts, which lays out the agreement and its details. The second part of the process is called completion, and this is when the legal titles get passed from one owner to the other.

Property surveys

It is possible to arrange a mortgage before making an offer, and your bank or mortgage provider will inform you of how much they are willing to lend. This offer is called an Offer in Principal.

Formal property surveys determine if the property is valued in line with the offer you make. A survey may also check the structural state of the property.

There are three types of property survey:

  • Valuation survey
  • Homebuyer’s report
  • Full structural survey

Valuation survey: This is a basic survey but useful for remortgages or new build purchases. This survey does not include a structural check.

Homebuyer’s report: This will check the condition of windows, roof, and general state of repair, including a check for subsidence.

Full structural survey: This is essential for renovation projects, and although it is more costly, it makes sense for renovations. 

Draft contracts, exchange of contracts, and completion

When an offer is made, a draft contract is drawn up by the seller. The draft contract states the purchase price, planning restrictions, and boundaries, as well as other details. The draft also stipulates the transaction completion date and includes the Energy Performance Certificate. You should take a close look at the contract, and if required, negotiate new terms with the guidance of the solicitor or conveyancer.

Once the draft contract has been agreed upon, the seller and buyer sign the contract. This exchange of contracts is legally binding, so it is vital to be sure of the purchase and its details. A deposit is typically paid at this point; the buyer becomes responsible for the new property and home insurance.

The completion day is the final step in the conveyancing process. While completion can occur within a few hours, most buyers wait between one and four weeks to allow the last checks to be completed.

The remaining payment is now made. The mortgage lender or bank will transfer the funds, and you must wait until this is completed before taking ownership of the property or land. Once paid, you can collect the keys and enter the property. The conveyancer’s final duties include registering the ownership of the property with the Land Registry and paying your stamp duty.

Conveyancing costs

The costs that the conveyancer issues are split into two distinct categories:

  • Disbursements – This covers work completed by third parties, who for example, conduct surveys and searches 
  • Legal fees – This includes the basic work of the conveyancer

Conveyancing costs and fees vary, and they are affected by the following:

  • Property value
  • Property tenure
  • Legal fees
  • Disbursements

Property value: Conveyancers often take property value into account with fees set as a percentage of the properties value.

Property Tenure: Freehold and leasehold properties have different legalities and associated paperwork, which effects the conveyancing fee.

Legal fees: These vary from case to case and depend upon whether you are selling, buying, or both.

Disbursements: Searches and surveys differ in each case.

Why you should use a conveyancer’s

You can do the duties of a conveyancer yourself, but this role takes a lot of time and is complicated. You can end up in serious trouble if something goes wrong. It would be best if you chose a licenced conveyancer because they are experts.

In England and Wales, conveyancers are regulated through the Council for Licensed Conveyancers or CLC. In Scotland, the selling and buying process differs, so it is advisable to use a local conveyancer.

How to choose a conveyancer

It makes a lot of sense to choose a conveyancer that is recommended to you and works in the local area of the property or land. You should check legal fees and what they include before instructing a conveyancer. You should also review if legal fees still apply if the sale falls through because these can run into hundreds of pounds.

What mortgage type is right for me?

Unless you’re lucky enough to have the cash in the bank when you buy a property, you’ll need a mortgage. The type of mortgage you’ll need will depend on what you’re doing with the property.

Different types of mortgage include;

  • Repayment mortgages
  • Interest-only mortgages
  • Combined mortgages
  • Buy-to-let mortgages
  • Commercial mortgages

The majority of mortgages taken out in the UK are used to buy homes. Still, other mortgage types allow you to buy a property and rent it out or buy a business premise such as a shop or office.

I want to buy a home

Then you’ll need one of three types of mortgages

  1. Repayment mortgage
  2. Interest-only
  3. Combined rates

Read our guide to buying a property.

What is a repayment mortgage?

A repayment mortgage is a loan where the monthly payments will eventually pay the whole amount owed back. First-time buyer mortgages typically range from 25-35 years. 

What is an interest-only mortgage?

Usually a lower monthly payment than a repayment mortgage, an interest-only mortgage only pays the interest on the loan. At the end of the mortgage, you’ll still owe the same amount. 

What is a combined rates mortgage?

A blend of repayment and interest-only, so at the end of the mortgage term some of the loan will be paid off. 

I’m buying a property to rent it out

You need a buy-to-let mortgage if you plan to buy a property and rent it out to tenants. Most of the criteria for a buy-to-let is the same as a standard mortgage. 

I’m buying business premises

If you want to buy business premises, such as an office or a shop you’ll need a commercial mortgage. Commercial mortgages are available as both repayment or interest-only – your financial/mortgage advisor will be able to advise which is best for your business.

Why use a mortgage advisor?

The benefits of mortgages advisors, like Friends Capital, is that they are independent from individual lenders. Being independent means, they look at the whole marketplace to make sure you get the best deal based on your circumstances. 

The most significant benefit is that they put care and attention into every single mortgage application. The ensures it has the very best chance of being accepted by the lender. 

Friends Capital are unbiased mortgage advisors, contact them today for advice. 

 

Guide to Credit Reference Agencies

When it comes to your credit score, three agencies in the UK hold your information. If you apply for a loan or mortgage, the lender will use this information to decide on lending you the money. A lender may use the credit report from one or more of those agencies when processing your application.

The three credit reference agencies (CRA’s) in the UK are: 

  • TransUnion
  • Experian
  • Equifax. 

Each of these companies creates a file for you. Within the file, they gather certain information, and this is used to calculate your credit score.

What information do CRAs hold?

Each of the credit reference agencies gathers information about your financial history and other details that create your credit report. The information in your credit report includes:

  • Credit commitments you have had in the past
  • Payment history
  • Previous addresses
  • Current loans and mortgages and how you are managing them
  • Electoral roll information

By taking into account all of this information, the credit reference agencies give you a credit score. Any new lender you approach for credit will look at your credit score to make a decision.

Why are there three Credit Agencies?

Lenders may only report to certain agencies so your credit score can be different across all three companies. Your previous mortgage lender may report information to two of the agencies. At the same time, a loan company gives information to all three.

Because of this, the scores held by different agencies can vary. A new lender may use one or more of these CRA’s to help them decide on lending you money. Each of the agencies has a different method of calculating your credit score. With Experian, your credit score is out of a maximum of 999, while TransUnion is 710, and Equifax is 700.

Should I check my credit report?

The credit report is used for any credit you want, including mortgages and loans. It is vital to check your credit report. As a general rule of thumb, you should request your credit report from each of the three agencies once a year.

There are ways you can access your credit reports for free. Some companies can help you fully understand the information on the report, and there may be a fee for this.

Good news – FriendsCapital has partnered up with checkmyfile – the UK’s only multi-agency credit report – check your credit reportThrough checkmyfile, you have access to the information held at the three credit reference agencies in one dashboard. If you’d prefer to access each of them directly, the information is below.

Experian – you can sign up for a free 30-day trial with the Experian CreditExpert service. It allows you to access your report for free for one month, charged at £14.99 per month after that.

Equifax – ClearScore gives you access to your Equifax credit report free every month. Equifax also offers a free trial of their monitoring service so you can access your report. After the free trial, you pay £9.95 per month for access to all of your information.

TransUnion – you can access your TransUnion information for free through a service called Credit Karma (previously known as Noddle).

Fixing mistakes on your credit report

When you have your credit reports from across the three UK Credit Agencies, you will need to go through all of the information. If you see anything on the report that you don’t recognise and believe is a mistake, you will need to get it fixed.

A mistake on your credit report can be anything from errors in your bank details or incorrect address details. Any inconsistencies like this will deter banks and lending companies from giving you credit. If you spot a mistake, you can contact the credit agency and request that it is corrected. The agency has 28 days to respond to your request. 

Your credit report is a record of your financial history. Checking your credit report is an essential part of keeping your financial records healthy. Now you know your score you can work on improving your credit score and increase your chances of being accepted for credit in the future

Concerned you’ll be refused credit? Talk to Friends Capital.

Friends Capital help individuals with all types of credit score, if you need a bad credit mortgage or you’re looking into debt consolidation, we can help! 

Do I need a solicitor to remortgage?

Quick answer, not always. Whether you need a solicitor of not will largely depend on the complexity of the remortgage and whether you’re changing lenders or not. 

When don’t I need a solicitor for a remortgage?

You don’t need a solicitor to remortgage if you’re doing the following:

  • Getting an advance. If you’re borrowing more on your existing mortgage with your current lender, then no legal charges are involved in this type of arrangement. 
  • Product transfer. If you are staying with the same provider but moving to a new rate or a deal, it doesn’t require any additional legal work. 

When should I use a solicitor for a remortgage?

Here are a couple of situations when you’ll need a solicitor to be involved:

  • Add someone to a mortgage. If you’re adding a new person to your mortgage, e.g. a friend or partner you’ll need a solicitor to draw up paperwork to reflect a change in ownership. This process is referred to as a transfer of equity. 
  • You are removing someone from a mortgage – the reverse of the above. The ownership of the property is changing, and the documents need to reflect this. 

The majority of lenders will include free legal services when you remortgage (Friends Capital can advise on this). If your chosen lender doesn’t offer a free service then shop around.

Should I use the remortgage lenders’ solicitors?

If it’s free and part of the service then you won’t have much choice, however, if you’re paying for your own solicitor, you have the right to shop around. 

What does the remortgage solicitor do?

Remortgaging is undoubtedly less complicated than purchasing a home; the following is usually checked as part of the process. Some of this may not need to happen if you are staying with the same lender.  

  • ID checks – to protect against money laundering
  • Check your existing mortgage – they’ll check how much you owe and if there are any exit or early repayment fees
  • Valuation – your new lender will value the property and provide a mortgage offer to you.
  • The fine print – your solicitor will check over the terms of the mortgage offer and raise any issues with you.
  • Land registry – they’ll check the land registry records to make sure nothing has changed since the process began
  • Completion – your solicitor, will oversee the completion – paying off your old mortgage and any fees and send the remaining money to you. 
  • Update the land registry – once this has all happened, they’ll update the land registry with the new details.

Do you further questions?

Contact Friends Capital – we’re here to help. Our team has vast experience in the remortgage process and can help you find the best lender for your circumstances. 

How lenders decide to give you credit

When you are looking for credit, the lender will need to make a decision. They will look at various factors to decide to offer you a loan or any other form of credit. By looking at these factors they are able to determine the risk of lending to you. Based on the level of risk, your loan may be declined or approved. 

If you have bad credit, you may still be able to get a loan or mortgage. The lender may give you the credit with a higher rate of interest to offset the risk. Here we take a look at what lenders use to decide to give you credit.

What lenders look at before offering you credit

Any application for credit will need a credit check, but that is not all lenders will look at. Your credit score will be the main factor, but other things are taken into account too. Lenders will use the following to decide whether to give you a loan:

  • Credit score
  • Employment history
  • Income
  • Length of time at current address

Credit score – Your credit score uses various information to show an indication of the risk of lending money to you. Different credit agencies hold information about you. A lender may apply to one or more of these to assess your suitability for a loan or mortgage. Please read our 7 tips for improving your credit score.

Each lender or financial institution will usually have a minimum credit score they will accept. If your score is below this, the loan application may be refused. You may still be able to get a loan, but the bank may decide to offer you a lower amount.

When you apply for a loan, the bank won’t tell you your credit score, but you can ask which agency they use. You can request a credit report from the credit agency. 

Employment history – Your credit score is essential, but lenders are also starting to look at employment history. A proven track record with the same company for several years is more appealing to banks. It shows that you have a stable job and a reliable income. You will be able to make your payments each month and be more likely to keep up with loan commitments.

If you have a history of jumping from job to job, a lender may be less likely to offer you credit. It can cause concern to a mortgage company if you tend to move position regularly. You may not be able to get the loan you want. The lender may still offer you a loan but may offer a higher interest rate.

Income – Your income is just as relevant to a loan company because it shows what you can afford. A steady income indicates that you will be able to manage your money. Inconsistent earnings, such as commissions, etc. may not be taken into consideration. If you have a low income, there may not be enough money coming in to meet the debt repayment. 

Personal income is a big thing to a lender and will affect the loans and interest rates you can get. Bear this in mind when considering any loan amount you may want.

Length of time at current address – As with job stability, the length of time at your current address is also important. If you have been at your existing home for many years, it’s a good sign to lenders. It shows you can manage mortgage or rent payments. The bank will see that you can handle financial commitments over a period of time.

Information on your credit file

As your credit score is an integral part of a loan application, it is crucial to make sure the information is correct. Credit reference agencies keep information on your borrowing and payment history. Any application for credit allows the lender to check your credit reference file.

Credit reference agencies collect information from:

  • Electoral roll – addresses where you were registered to vote and the dates
  • Account information – your current loan commitments and bank account activity
  • Public records – they will see any bankruptcies, court judgments or debt relief orders
  • Linked people – anyone you may be linked with financially, such as a joint account or mortgage
  • Searches – details are kept about any credit searches over the last 12 months

There are three main credit reference agencies. A lender may use one or more of these when deciding on your loan. If you are refused credit, you can ask which agency was used. You will be able to apply to that agency and see your information. 

It is crucial to go through everything they have on your file. If there are errors, write to them and let them know. The errors may be affecting your overall credit rating. Getting the problems fixed can help improve your credit score.

What to do if you have a low credit score

If you have a low credit score, you can still get some forms of credit. Many banks have loans for low or bad credit scores. These types of loans often have higher interest rates than others. Because it is considered a higher risk, the bank raises the interest rate to offset the loan risk.

Alternatively, the bank may ask for a guarantor for the loan. A second person signs an agreement to repay the loan if you don’t. It can allow you to get the credit or loan you need. The bank has another person that will be liable for the loan, so they take less risk.

A guarantor will be on the hook for your loan if you don’t pay it. Make sure the person is aware of this before signing anything. The bank will also check the credit score of the guarantor so you will need someone with good credit.

If you are looking for mortgage deals or loans for people with bad credit, we can help. We work with a variety of banks and lenders. Our experts can find the right solution for your credit needs.

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