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General Mortgage FAQ
Land and Buildings Transaction Tax (LBTT) is a tax paid when you buy or lease property or land in Scotland.
For residential properties, Land and Building Transaction Tax applies to any properties that cost more than £145,000, the cost of which is based on the total value of the property and pre-set tax rate bands. First-time buyers, assuming they meet the criteria, can get LBTT relief where the tax is only payable on properties worth more than £175,000.
When purchasing a second home or a buy-to-let property, you’ll have to pay an extra 4% of Land and Building Transaction Tax on top of current rates if the property costs more than £40,000. This is calculated based on the property value and pre-set tax rate bands.
For commercial properties, Land and Building Transaction Tax applies to the purchase of properties that cost more than £150,000. The LBTT for commercial properties that cost more than £150,000 is calculated based on the property value and pre-set tax rate bands.
Land Transaction Tax (LTT) is paid when you buy or lease property or land over a certain value in Wales.
For residential property, (a property you wish to live in) the tax only applies to a property that costs more than £180,000. If the property you’re buying is worth more than £180,000 you’ll be charged Land Transaction Tax based on the value of the property and pre-set bands that indicate the percentage of tax you’ll pay.
It’s worth mentioning that first-time buyers don’t get any exemptions from Land Transaction Tax.
When purchasing second homes and buy-to-let properties, the Land Transaction Tax is different. You’ll be charged 3% more LTT than the main residential rates, but only if the property costs more than £40,000- if you’re purchasing a second property under that value then the tax won’t apply.
For commercial property, Land Transaction Tax applies to properties worth more than £150,000. For commercial properties worth more than £150,000 the Land Transaction Tax will be charged based on the value of the property and pre-set bands that indicate the percentage of tax you pay.
Yes – but stamp duty only applies if the commercial property is worth more than £150,000, after which it’s calculated based on the value of the property.
Please note, these are the rates for England and Northern Ireland.
If you live in Scotland, you’ll pay Land and Buildings Transaction Tax.
If you live in Wales, you’ll pay Land Transaction Tax.
Stamp Duty is the tax you’re liable to pay when you buy a residential property, or a piece of land, that costs more than £125,000. Also known as Stamp Duty Land Tax, this fee is non-negotiable and a necessity when purchasing land or property. There are several rate bands so the amount of Stamp Duty you pay will vary with the cost of the property.
If you’re a first-time buyer, you won’t have to pay Stamp Duty on properties worth up to £300,000. If the property is worth more than that £300,000 then you’ll only pay Stamp Duty on the sum over that value. So, if you bought a house for £330,000, you’d only pay Stamp Duty on £30,000 and that would only be 5% up to £500,000. https://www.gov.uk/stamp-duty-land-tax
If it’s your second home, the Tax applies to property or land that costs more than £40,000 and you’ll have to pay another 3% in Stamp Duty in addition to the current rates. This does not apply to caravans, mobile homes or house boats.
Please note, these are the rates for England and Northern Ireland.
If you live in Scotland, you’ll pay Land and Buildings Transaction Tax.
If you live in Wales, you’ll pay Land Transaction Tax.
A direct lender is a company that loans money directly to the individual borrower, without any ‘middlemen’ or brokers.
Applying directly to lenders can be risky as you don’t have a mortgage broker advising you which lenders are likely to accept you, meaning you could have to apply to several lenders who will all do a credit search, potentially impacting your credit score. You also don’t know if other lenders could offer you a better rate or other terms.
A mortgage broker acts as the ‘middleman’ between you and a potential lender. They are licensed and regulated by the Financial Conduct Authority, making sure that you, the borrower, get the best deal available for your personal situation. Many lenders only deal directly with mortgage brokers, meaning that the brokers often have access to a wider range of deals, rates and products.
Yes. After Brexit there’s a chance the available deals or rates that lenders offer may change in accordance with any economic changes, but mortgages will still be available.
A repayment mortgage is a mortgage in which you pay both the interest accrued and a portion of the capital initially borrowed in your monthly payment, meaning that when your mortgage term ends you’ve repaid all money owed to your lender.
An interest-only mortgage is a mortgage where you only pay off the interest accrued every month and wait until the end of the mortgage term to pay off the original sum borrowed.
You must be able to prove to the lender you’ll be able to repay the mortgage at the end of the term to access an interest-only mortgage, whether through savings, investment or other assets.
A tracker mortgage is a mortgage where the interest rate usually follows, or tracks, the base rate set by the Bank of England.
It’s important to note it’s unlikely you’ll get the exact base rate; lenders will often offer a mortgage set at a percent or two higher than the base rate and may have a cap on how low the interest rate can get.
Because the rate is variable, you could benefit from cheaper payments when the rate is low but could also risk higher payments when the rate raises. It’s also worth mentioning that arrangement fees tend to be lower for this type of mortgage as opposed to fixed-rate mortgages.
With a standard variable rate mortgage, the interest rate is subject to rise, or fall depending on the lender’s current rate. The lender will decide your interest rate for each month and doesn’t have to follow the base rate set by the Bank of England.
Variable rate mortgages are mortgages where the interest rate can be changed, or varied, from month to month. There are two traditional types of variable rate mortgages, standard and tracker variable.
A fixed-rate mortgage is a mortgage where the interest rate remains the same, or fixed, for the duration of the loan or a set period of time. The fixed rate usually lasts between 2 to 5 years, but it’s sometimes possible to get a fixed-rate of up to 10 years or more.
This means your repayments should stay the same during the fixed rate period, making it far easier to budget and track expenses.
When the fixed-term ends, your mortgage will most likely transition to the lender’s standard variable rate – unless you take a new product with your existing lender or remortgage to another lender that has a more competitive rate. You can usually arrange this 3 to 6 months before your fixed rate term ends.
Yes, you can accept a deposit gift, and often lenders will accept you for a mortgage with a gifted deposit, but it must be a gift, and not a loan. They’ll require a document stating the gifter’s name, the relationship to the recipient and a statement declaring the deposit money is a gift, and not a loan. Some lenders will also ask the person gifting the deposit to sign a document relinquishing any claim or interest they might have in the property.
It’s very important that the gifted deposit has traceable origins, as your solicitor has a duty to check the source of funds.
This can be an ideal option for parents, or grandparents who want to help their children get onto the property ladder. It’s worth noting that some lenders will only accept gifted deposits from close relatives, so if you’re applying for a mortgage with a gifted deposit, it’s worth going to an expert mortgage broker, such as Clever Mortgages, to make sure the right lender is approached.
A mortgage guarantor is usually a close relative, or even a friend, who promises to make any mortgage repayments you might miss. Your guarantor would have to hold their savings as security for your mortgage, by putting cash into a savings account or linking it to your mortgage. Or your
potential guarantor might offer their property as security, assuming they’ve paid off enough of their own mortgage for this to be possible.
Your guarantor will need to be a homeowner, with a high enough income to be able to cover their own expenditures and your repayments, should you miss them.
If you have a relative, or close friend who is willing to do this for you, you should be able to get a guarantor mortgage. ENQUIRE HERE
You’re never too old to buy a home, and luckily lenders have started warming up to that concept in recent years. You should be able to get a mortgage up to any age, including retirement, so long as you can prove you’re able to make the repayments. Whether that be with your pension, substantial savings or investments providing an ongoing income, if you can prove to your would-be lender that repayments won’t be an issue, you should be able to get a mortgage.
Some lenders do have age caps on when you can take out a mortgage, often ranging from 70-85, and some lenders limit how old you can be when the mortgage term ends, often ranging from 75-95. That being said, many lenders are open to consideration and there is no official maximum age limit when it comes to applying for mortgages – only lender policy varies from company to company.
At certain ages other products become available such as Equity Release and Retirement Mortgages.
Past missed payments can affect mortgage applications – however, having missed payments doesn’t necessarily mean you won’t get a mortgage. Lenders base their decision on a range of factors, and when it comes to missed payments they’ll look at:
- How long ago the missed payments were
- The amount of missed payments
- Type of credit owed
Having just one missed payment several years ago is unlikely to affect your mortgage application drastically. It’s likely to show up on your credit report (if within the last 6 years), but assuming you managed to eventually make the payment(s) and can demonstrate you’ve continued to make your payments on time it shouldn’t impact your application too much. You should still be able to apply for and get a mortgage.
If there are several, recent missed payments then you could struggle to find a lender that will accept your mortgage application. It’s still not impossible to take out a mortgage though, just more difficult and you won’t have access to the best rates or products.
Going to an expert mortgage broker is the best course of action for anyone applying for a mortgage with missed payments on their credit report, such as Clever Mortgages. Our specialist knowledge and access to hundreds of mortgage products, means we’re able to help more people who have missed payments in the past – so it’s worth speaking to us anyway
In short – yes you can get a mortgage with missed, or late payments.
Missing payments reduces your credit score, which can make it difficult to find and secure a mortgage, especially if your missed payments have turned into arrears. This doesn’t mean you cannot get a mortgage though; it does however mean you might not be able to get the best rates or deals on the market.
You could look to improve your credit score and there are numerous ways that you can achieve this – but it’s important to understand that this could take time.
We specialise in helping people with bad credit secure a mortgage. Just get in touch!
You don’t need a specific credit score to get a mortgage, in fact there is no universal credit score. Different credit agencies have different methods of scoring and different lenders have different requirement for accepting mortgage applications so there really is no set score you need to have to get a mortgage.
Typically, a higher credit score shows that you historically have made your repayments on time and borrow responsibly which makes lenders more likely to give you a mortgage, but if you have bad credit or a poor credit history, this doesn’t mean you can’t get a mortgage.
If you apply directly to lenders, some may do a hard credit search which will show up on your credit report and may lower your credit score if you don’t get accepted. Multiple checks can reduce your credit score.
At Clever Mortgages, we specialise in helping people with bad credit get a mortgage from specialist lenders that accept people with a poor credit history. Plus, our brokers will make it clear which lenders are likely to accept you, vastly reducing the amount of hard credit searches you may face going directly to a lender.
Lenders often want to see your bank statements from the last three months to verify your income and outgoings – but several banks have been moving away from this practice and have started focussing on credit score to determine eligibility.
You should have your bank statements to hand while applying, and be aware that they could be checked for possible risks, but as long as the information you’ve given your lender is accurate and there are no causes for concern within your outgoings, this shouldn’t hinder your application.
It is likely your mortgage broker and solicitor will need to see your bank statements for affordability, proof of deposit, compliance purposes and other admin within the application process.
Also known as a Decision in Principal, a mortgage promise or an agreement in principal, a mortgage in principal is a statement from your mortgage lender stating the amount they’re willing to lend you – subject to final checks, which can be of huge help while house hunting or discussing home improvement with a builder. This isn’t a definite offer and is only a guideline as to how much the company lending you the money will let you borrow.
It’s important to be aware:
- Some lenders view their mortgages in principle as time-sensitive, meaning you will usually have a few months to apply for an official mortgage.
- The deals can also change in this time period so double check you’re getting the best rate.
- A mortgage in principal isn’t a definite offer or an official contract and you will be subject to a full credit check.
It’s best to be in continuous work for at least 12 months before you get a mortgage, but not essential. Some lenders offer mortgages to people who have been employed for less time, say 3-6 months, and it’s even possible to get a mortgage while you’re in your probationary period, but this is often not advised as you can’t be certain of your income and ability to make long-term repayments.
To prove you can make the repayments you usually need at least 3 months’ payslips to evidence your income, this is why it’s best to be employed for at least 3-6 months before applying for a mortgage.
Different lenders offer different deals, but if you’re able to prove you can make repayments and keep a consistent income, you should be able to get a mortgage.
To buy a house in the current market, you’ll usually need at least 5% of a property’s value. Saving a larger deposit can give you access to better products and lower interest rates, but 5% of the property’s value is accepted by many lenders and can get you onto the property ladder.
If you’re struggling to save and want some tips
If you can’t save up a deposit, there are other options.
If you’ve saved up your deposit and want to know what to do next, you can get in touch with one of our expert brokers that can advise and guide you to the best mortgage available.
More than a 5% deposit will work in your favour as there are often more and better mortgage options available, plus with a higher deposit you’ll be taking out a smaller mortgage so paying less interest.
All lenders follow a similar process, but the requirements can vary from lender to lender. Below is a rough guide on what normally happens when applying for a new mortgage.
It’s a good idea to speak to a mortgage broker to see if it’s likely you’ll be able get a mortgage or remortgage. A mortgage broker can do the leg work for you, by sourcing from 100’s of lenders, this should also lead to one credit check rather than multiple checks if you went from lender to lender yourself. This is helpful to know before you start house hunting or thinking about home improvements.
The mortgage broker will need to check whether you can afford a mortgage and which product you may be eligible for. They’ll need to check your:
- Income – this is usually proved with your last 3 months’ payslips, accounts and any additional income such as benefits
- Outgoings – including your household bill, credit cards, loans and general living costs
- Your credit score – to find out whether you’ve had any missed payments, defaults or CCJs in the past
- ID – such as your driving licence or passport
- Bank statements – this can range from 1 to 3 months
- Address details – to cover at least 3 years
- Details about your chosen property
If you’ve found a property you wish to buy or currently own the property and wish to remortgage, then the mortgage broker can start the application process for you. This will consist of an initial decision in principle (DIP) with the chosen lender. This DIP will be the lender considering you for the loan using basic information, such as income and credit score. Once this is accepted your mortgage broker will move to a full application with the lender and eventual mortgage offer.
If you haven’t found a property yet or you just need to know the amount you can borrow, its likely a mortgage broker would complete the initial decision in principle to ensure you can get the mortgage loan you need. Then you just need to find a property or confirm the remortgage you want.
Once you have found the property you wish to buy and had an offer accepted, you can move to the full application process with the lender via the mortgage broker.
Contact a reputable mortgage broker (OPTION TO CONTACT) to make sure you’re getting the best deal and correct information for your situation.
This could also be an ideal point to look at which solicitor you want to use. Some lenders have a pre-approved list so it’s worth checking before you choose. A mortgage broker can usually help you with a recommended solicitor.
- Get a decision in principal. This will give you an idea of how much you can borrow, the lender agrees to give you a mortgage (in principal) subject to final checks and approvals.
- Make formal application with lender. You can do this with the help of your mortgage broker, face-to-face, online or via telephone – dependant on your lender.
- Once your application has been accepted by your lender, your solicitor will arrange for all searches and conveyancing.
- Finally, your solicitor will arrange for the funds to be transferred and contracts to be exchanged on the day of completion.
The initial lenders decision in principle can take minutes to around 24 hours, this is based on your basic personal, income and credit file information, plus your lending requirements.
The amount of time it takes to get a mortgage offer (full approval) depends on the additional information a lender needs, but can typically take between 5 to 30 days, however this can vary based on your circumstances. Straightforward, simple mortgages are usually quick to process, but if your situation is more complex it can take longer.
Please note that this timeframe is the amount of time it will take for the company lending you the money to process your mortgage application and decide, not the amount of time it will take for your property to complete.
Using a mortgage broker is often the best way to speed up the process, as they have access to a broader range of mortgage products and solutions.
The largest expense you’ll probably face when buying a house is the mortgage. There are other fees you’ll need to budget for as well.
- Mortgage Booking – not always chargeable and sometimes known as an application fee, this is charged by the mortgage lender and covers the cost of ‘booking’ your loan product while your mortgage application is processed by the company loaning you the money. An upfront fee, can be free to usual maximum of £200.
- Mortgage Arrangement – not always chargeable, this is the fee the company lending you money will charge you to set up the mortgage. This is likely to start around £500 but varies significantly
- Mortgage Valuation – before a company lends you a mortgage to remortgage your current property or buy a property, they’ll usually want to be sure they’re happy to provide a mortgage for the property (based on its current state) and decide how much they think it’s worth before offering a sum. They’ll have been given an estate valuation but need to check for themselves how much the property is worth. This fee pays for your lender to survey the property. Lender sometimes offer special ‘deals’ with free basic valuations. Lending companies can allow you to upgrade the mortgage valuation that your lender carries out to a homebuyer’s report, which looks at the property in a bit more depth. If your lender is happy to do this, you could save some money. You can opt for a full structural survey; you would need to instruct this yourself with a surveyor and the lender would still carry out a basic valuation.
An upfront fee, starting around £300 (some lenders include this for free).
- Survey – A full structural survey is optional but strongly advised. A survey tells you if there are any structural problems or hidden problems with the property that could affect its value and your decision to buy. These usually start at around £400, but could be more dependant on the type you choose. Please see the point on mortgage valuation as lenders may allow you to upgrade the mortgage valuation to cover this.
- Legal fees – If purchasing a property you will need to pay for a conveyancing solicitor to do the legal paperwork. Conveyancing solicitors specialise in residential property. They will liaise with the seller’s solicitor, mortgage lender and Land Registry to arrange your contract. If you are arranging a remortgage on your current property, the lender may instruct a solicitor and cover the costs. If they don’t you will need to instruct one. For a purchase, legal fees are likely to start at around £1000-£1500. For a remortgage, it can be free to around £350
- Stamp Duty – if you’re a first-time buyer, you don’t need to pay stamp duty if the property’s value is below £300,000. If you aren’t a first-time buyer, it’s mandatory to pay stamp duty tax to the Government when you buy a property in the UK which has a value over £125,000. See more on stamp duty The amount of tax you pay depends on the property value.
- Land Registry – the Land Registry charges a fee to register the property in your name on the title deeds. Your solicitor should arrange this for you and the include the cost within your legal fees. This tool can help you work out how much you’ll need to pay (https://www.gov.uk/government/collections/fees-hm-land-registry-guides) but it’s likely to start at £200-£500.