Mortgage Questions and Answers

• The deposit you pay on the house: a lender would usually expect you to put down at least 10% of the purchase price of the house.
• Your salary: generally, you can have a mortgage equivalent to 3.5 times your salary. If you have a joint mortgage, you could apply for 2.5 times your combined salaries, or 3.5 times the main salary, plus 1 times second salary.
• The amount of any existing commitments you have: the amount of personal loans, hire purchase agreements may be deducted from the amount available for you to borrow.

The lender will expect to see proof of your salary and will write to your employer for confirmation. If you include commission or bonuses in your salary amount, the lender would expect confirmation from your employer that these are regular payments.

What is Higher Lending Charge?

If you take out a mortgage for 75% of the value of your home the lender will normally ask you to provide additional security to cover their potential loss should you default on the loan. The most common method of providing this additional security is for the lender to effect an insurance policy (the premiums for which will be pay for by you). The lender uses the money received from the insurance policy to cover the costs they suffer involved in the repossession and resale of the roperty.

Please note that after any claim the insurer will normally look to recover, from you, any payments they make to the lender. The amount they will try to recover would include any legal fees they have suffered during the process.

What about protecting my mortgage payments?

There are now very limited state resources for meeting mortgage payments. It is sensible to look at insurance policies that pay out if you lose your job or are unable to work because of illness. Mortgage Payment Protection Insurance policies generally pay out up to 12 months' mortgage payments. They are frequently combined with other insurances such as critical illness or permanent health insurance.

What other costs are involved when buying a house?

In addition to your mortgage, you should bear in mind the following one-off costs at the time of purchase (or re-mortgage if you are changing mortgage lenders):

• Legal fees: unless you intend to carry out your own conveyancing, you will need to pay a solicitor or other suitably qualified person to complete the legal work.
• Land Registry fee: the Land Registry registers your ownership of the property.
• Searches: your solicitor (or you) will need to check to see if there are any plans for the neighbourhood which could affect the value of your property, such as the building of a new road.
• Survey and valuation: the lender will insist that a survey and valuation is done on the property. You should think about a more comprehensive survey to check for structural or other defects.
• Stamp duty: all transfers of property of £125,000 or over attract stamp duty.
• For property transfers between £125,001 and £250,000 stamp duty is charged at 1% of the property price, except for first time buyers who will pay no stamp duty upto a purchase price of £250,000.This however is only the case for the next 2 years.
•  For properties between £250,001 and £500,000 then the rate is 3.0%. The rate of Stamp duty for transfers of property over £500,001 is 4%. The rate of Stamp Duty for transfers over £1 million is 5%.

What is a CAT standard mortgage?

A CAT standard mortgage meets the requirements set up by the government for fair Charges, easy Access and decent Terms.

To achieve the government's mortgage CAT standard:

• All fees must be explained from the beginning
• Interest must be calculated on a daily basis
• The interest rate must be no higher than 2% above the Bank of England rate
• No early repayment charges for variable rate mortgages
• Repayment charges on fixed or capped mortgages can only be charged a) during the lower rate period b) at no more than 1% of the loan for the remaining years
• Maximum £150 arrangement fee if the mortgage is capped or fixed rate
• No separate charge for mortgage indemnity insurance
• The mortgage can move with you to another property
• You can choose the day of the month you want to make payments
• You can repay earlier if you wish
• No products can be tied in to the mortgage (such as buildings insurance)
• The terms must be fair, clear and not mislead

What if I can't meet my mortgage payments?

Contact your lender as soon as you realise you have a problem. Although your mortgage is secured on your home, lenders see repossession as the last resort: they stand to make more money from your mortgage than the sale of your home. Lenders may work out a plan with you to reduce your payments for a time or stop them temporarily, and work out a new term for your mortgage.

Your home may be repossessed if you do not keep up repayments on your mortgage