Here are some of the most frequently asked questions about mortgages and our services. If you have a question not covered here, please feel free to contact us.
Will the Government pay my mortgage if I can't work?
Important changes to the Support for Mortgage Interest Provision offered to UK mortgage holders are coming into effect on the 5th of April, 2018. These changes could potentially affect all mortgage holders at some point and are significant.
What is Support for Mortgage Interest? (SMI)
Support for Mortgage Interest is a benefit which has been around for many years and is paid to home owners who due to unemployment or other circumstances are receiving certain income-related state benefits. Whereas someone who is in rented accommodation may be able to claim Housing Benefit to assist with housing costs if they are unable to work, mortgage-holding home owners have been able to claim Support for Mortgage Interest.
Generally Support for Mortgage Interest begins payments 39 weeks after you claim one of the income-related benefits. These include Income Support, Income Based Job Seekers Allowance, Income-Related Employment and Support Allowance or Universal Credit. After the 39 week deferred period, Support for Mortgage Interest would pay the interest on your outstanding mortgage as well as for loans you have taken out for certain repairs and improvements to your home. Mortgage interest on amounts up to £200,000 may qualify for Support for Mortgage Interest. Currently it will be payable for up to 2 years. The purpose of Support for Mortgage Interest was to prevent home owners from falling so far into arrears with their mortgage that they would face repossession and the loss of their home. However, because the benefit is not payable for the first 39 weeks of the claim and because only the interest is paid rather than the capital amount as well, arrears are still likely to accrue on the mortgage and a 2 year limit to the benefit payment will mean that a more permanent solution will need to be found eventually.
What is changing in April 2018?
The big change to the Support for Mortgage Interest is that it is going to cease to be a “benefit” but is now becoming a “loan”. That is to say whatever Support for Mortgage Interest you might receive will have to be repaid. The Department for Work and Pensions will take a charge on the property, making it a secured loan and that loan will have to be repaid after you return to work, on the sale of the property or at death. This is a significant dilution of the advantage of Support for Mortgage Interest because it means that home owners who experience a period of unemployment due to redundancy or ill health, will have a debt to the government which has to be repaid in addition to any arrears which may accumulate on the mortgage, this may be quite difficult to clear once you return to work and the DWP having a second charge on your home may interfere with your ability to remortgage in the future.
Who needs to be concerned about these changes?
All home owners with a mortgage need to be aware of these changes. The ideal situation is to have a reserve in savings which can be used to pay the mortgage if you were to lose your earnings for a while. As Support for Mortgage Interest in its current form and future form are not applicable until 39 weeks, it is ideal to have a reserve to enable you to pay your mortgage for around 9 months from your savings. Those who have significant investments or savings and are not likely to qualify for income-related benefits may not be concerned by these changes. However, for many people, having a cash reserve of 9 months of mortgage payments could be a challenge. Such a period would cause them to fall into mortgage arrears. If this situation was further compounded by then accruing a debt to the government for any support that they received after the 39 weeks, this could be problematic and slow down the speed at which they would recover financially from the period of unemployment or ill health.
For some people a suitable insurance product may be beneficial. There are policies which provide insurance to cover the cost of the mortgage for a number of months in the event of unemployment on sickness and these plans would help you to maintain your mortgage. Of course, like all insurances there are terms and conditions and these plans are not suitable for everybody. For example, the self-employed or those who own their own business may not find them so useful and these plans will not provide cover if it is already evident that you are likely to be made redundant. However, these restrictions aside such insurance may well meet a need and ensure that if you were to lose your job or be unable to work for a period, that you did not fall into arrears on the mortgage. It could also alleviate the need to have a Support for Mortgage Loan from the government which would subsequently need to be repaid.
If you would like to discuss any of these issues with us then please feel free to contact us.
How much can I borrow?
The amount you are able to borrow can vary from lender to lender depending on a variety of factors, including how much deposit you have, what your annual income is and any outstanding debts you may have. When lenders are deciding whether they will lend to you they will do an affordability check specific to their individual lending criteria. They will also assess your ability to cope with increasing costs if interest rates rise. Therefore, lenders will sometimes assess us as being able to afford to borrow a lower amount than we personally think we can afford.
As criteria vary from lender to lender, we use our expertise to try to find a lender who will be able to meet your requirements. Please feel free to give us a call and we would be happy to discuss your options with you.
If you would like a general idea of what you may afford please use our affordability calculator, provided by the Money Advice Service.
How much deposit do I need?
There are many different products on the market which cater for a variety of circumstances. Generally, the higher deposit you are able to save the lower the interest rates you are likely to pay. The amount of deposit also influences what the lender feels you can afford after considering your personal circumstances. Usually a minimum deposit of 5% of the property purchase price is required. On top of this you will also need to have savings to pay for legal costs, stamp duty and other expenses associated with buying a home.
Please feel free to give us a call and we would be happy to discuss with you your options.
If you would like a general idea of what you may afford, or calculate stamp duty costs please click on the links below.
What is a shared ownership mortgage?
A shared ownership mortgage is where you part-buy and part-rent your home. You purchase a share of the property, usually between 25% and 75%, with a mortgage. You then pay rent to the landlord on the share of the property which they own. The landlords in these schemes are usually housing associations.
As you are only purchasing a share of the property the deposit you will require is likely to be lower than if you were purchasing the whole property. You will also have the opportunity to increase the share of the property which you own at a later point. However you would need to be aware that the purchase price would be based on the valuation of the property at the time the additional share was applied for, which may have increased.
Are you required to have Critical Illness cover for your mortgage?
Critical Illness Cover is not compulsory. However we strongly recommend that you consider it, as without it you may not be able to keep up with mortgage payments if you suffer from a serious illness. The probability of you claiming under critical illness is six times more likely than life insurance according to experts*.
Critical Illness Cover is designed to pay out a lump sum if you are diagnosed with one of a large range of illnesses specified in the plan. You can obtain a standalone Critical Illness policy or one alongside Life Insurance, in which case the policy will pay on death or on earlier diagnosis of a critical illness.
What do I need to get a mortgage?
To obtain a mortgage you will need to have earned income. This can be through employment or self-employment but you will need to provide evidence of this income. The self-employed will often need to have been trading for 2 or 3 years.
You will also require a deposit of at least 5% of the purchase price of the property. If you have a higher deposit available you are likely to be able to access more attractive interest rates.
When applying for a mortgage the lender will carry out a credit check so a good credit rating will assist you in obtaining the loan amount you require.
Can I get a mortgage while on State benefits?
If the whole of your income is received through benefits then it is unlikely you will be able to obtain a mortgage. However if you receive benefits in addition to an earned income some lenders will take some of these benefits into account when assessing your affordability.
What is a Help to Buy Mortgage?
This is a Government scheme called Help to Buy Equity Loan. It is a scheme for first time buyers and home movers, but is restricted to those purchasing a new build property. The property you are purchasing must also be your only residence up to a maximum value of £600,000.
You will only need a 5% cash deposit as the Government will then lend you up to 20% of the cost of your property. You will borrow the rest, up to 75%, from a mortgage lender on a repayment basis.
How do I obtain a mortgage to buy my council house?
There is a specific mortgage used to purchase a council house, called ‘Right to Buy’. You will need your ‘Right to Buy’ offer provided by your local Council or Housing Association to obtain a mortgage. You will not need to provide your own deposit as most lenders will take your discount as the deposit.
As with all residential mortgages a full affordability assessment will be carried out by the lender to determine whether you will be able to borrow the amount you require. You will need to provide evidence of income as well as provide details of your regular monthly outgoings.
What is a Self-Build Mortgage?
This type of mortgage will enable you to raise funds to purchase land and build your own property. The main difference between a self-build mortgage and a house purchase mortgage is that with a self-build mortgage money is released at specific stages as the build progresses, rather than as a single amount.
What does a mortgage broker do for you?
A mortgage broker will take much of the stress out of applying for a mortgage and provide you with assistance throughout the whole process. You will likely have a face to face meeting where you will be able to discuss your individual mortgage requirements and be provided with answers to your questions.
A broker is able to research the mortgage market and will then provide you with a recommendation that suits your needs.The broker will also act as an intermediary between you and the mortgage lender and will prepare and collate all necessary paperwork.