Mortgages/Equity Release

Not only do you need to consider which mortgage is best for you, you also need to think about which interest rate options are most likely to suit your needs. This section has information on the various types of mortgage product which are available.

You can choose how we are paid for mortgages; pay a fee, usually an average amount of the loan amount or we can accept commission from the lender.

Re-mortgaging: means switching from your current mortgage to another deal with either your current lender or with another lender. Looking to make sure you get the most competitive rate available at the time based on their circumstances.

Most people switch mortgages because it will work out cheaper for them. For example, the introductory discounted interest rate may have finished with your current lender, and you might get a cheaper deal with another lender.

Other people re-mortgage to consolidate their debts or increasing borrowings to fund an extension.

It is worth noting that a re-mortgage isn't always the most suitable option. Sometimes any saving made by securing a cheaper interest rate can be outweighed by the fees incurred in setting up the new mortgage and converting unsecured debt to secured debt may not be in your long term interest.

If you plan to switch mortgage, remember to look at the overall repayment period too. You may be able to pay less monthly, but check the final repayment date of the mortgage. It may be longer than your current deal.

You may be able to find a new mortgage deal with your current lender - and it may even work out cheaper to do so.

In fact, many lenders allow you to switch your mortgage deal quite frequently or tee up a rate switch at the end of your current one so you do not fall onto a variable rate which is likely to be significantly higher than your current rate.

You may have to pay an early repayment charge to your existing lender if you remortgage.

These types of mortgages are designed for property investors and private landlords, who do not intend to live in the purchased property but want to make sure they have competitive rates from the whole of the market to keep landlord costs down.

Buying additional property for the purpose of letting it to earn rental income can be risky and complicated since there is no guarantee that house prices will rise nor that rental income will be uninterrupted.

That said, letting a second property to tenants could return respectable financial rewards over the longer term, but it's important to properly consider the risks, as well as rewards, involved in 'Buy to Let' first.

When buying a rental property, you will need to decide whether your investment objective is income or capital growth. Are you looking to cover the monthly costs and perhaps make a profit to supplement your income? Or, are you looking to make a profit later upon the sale of the property, with the assumption your property's value will increase in value over time? The decision may affect the type of property you purchase, its location, and also the risk involved since there is no guarantee that property prices will rise.

If you can't buy the property outright you will need to consider a Buy to Let mortgage. When it comes to this type of mortgage there are several differences to be aware of.

Normally a lender's decision about whether to offer a mortgage or not, will be based on the rental potential of the property as well as your own income, though in some cases, your income may not be considered at all.

Usually, a minimum of 20% to 30% of the property's value is required as deposit, which is often higher than the deposit required for other types of mortgage, and you can expect Buy to Let mortgages to have higher interest rates applicable to them. It's worth also mentioning that, as of 1 April 2016, there is an additional 3% in Stamp Duty to pay if you are buying a second property whether as a home or for purpose of letting.

As well as mortgage costs, potential landlords should carefully consider the costs of owning the rental property itself. These additional costs may include:

  • Property Maintenance. The upkeep of the property itself, such as repairs to appliances, and redecoration that may be required before a property can be let to new tenants.

  • Letting Agent fees. Though it varies, letting agents normally charge around 10% of the monthly rental income for managing tenants. If you need full management of your property, it is not unusual for these costs to be much higher, typically around 15% of monthly rent.

  • Ground Rent/Service Charges. These costs only apply to leasehold properties.

  • Legal insurance. Say for example in the event of non-payment of rent, anti-social behaviour or damage to the property. Legal insurance can be used to cover costs involved in pursuing eviction.

  • Buildings /Contents Insurance. The property will need buildings insurance, and any furnishings provided as part of the rental agreement will also need to be insured with a suitable contents insurance policy.

  • Furnishings. If the property is to be let as furnished then you'll need to consider the initial cost of providing the items needed to furnish the property.

  • Appliance Safety and Inspection. Certain appliances will need to be regularly inspected and serviced to ensure they are safe to use and compliant with current regulations. Examples include Gas Boilers and Gas Fires.

We are an active member of the Equity Release Council. The Equity Release Council (“The Council”) is a voluntary body which aims to ensure that its members are highly professional and act with integrity and transparency in offering high-quality products and services to customers.

We are completely independent and truly “Unbiased”, making sure we match your specific needs, goals and longer term aspirations to the correct lender when it comes to releasing equity from your home.

Lifetime mortgages are a popular means for homeowners typically over the age of 55 - they can help by releasing some equity in their homes. Thousands of people in the UK already choose this method to help achieve their retirement goals and supplement their retirement income.

A lifetime mortgage is a way of borrowing a set amount of money against the value of your home, in the form of a long-term loan, and without the need to move. You continue to own your own home, for the duration of the plan and as long as you are living in it - you'll also be responsible for keeping your home in good repair. The loan is paid back using the proceeds from the eventual sale of your property. This is usually when you die or have moved into permanent long-term care.

The money released can be used for whatever you wish (so long as any outstanding mortgage has been paid off). You should be aware that taking out a lifetime mortgage could reduce your eligibility to means-tested benefits and could affect your tax position.

Also, as the interest is added to the loan, there may be no value left in your home at the end of the plan. Taking out a lifetime mortgage may also reduce the options that you have for moving or selling your home. You should talk to your Financial Adviser and/or solicitor about this if you're at all unsure.

What are Home Reversion Plans?

With these types of plans you sell your entire home, or a proportion of it. While you no longer fully own your home, you continue to live there as a tenant for the rest of your life. You will live in your home rent-free, or you may have to pay a nominal rent, perhaps £1 a month.

If a scheme is purchased jointly, both partners have the right to live in the house for the rest of their lives, even if one partner should die. You can choose to receive a cash lump sum, or a monthly annuity income, or both.

When you take out a home reversion plan you will not receive the full 'market value' of the property, but a percentage of it according to your age. The older you are the more you will get. When the property is sold on your death, the investment company receives a share of the proceeds, in proportion to the amount of the property you sold to them.

If you sold them the whole property they will get all of the proceeds, or if you sold them a 75 per cent share of your home they will receive 75 per cent of money resulting from the sale.

Remember that if you sell your entire home, and it becomes more valuable in the future, the increase in value will benefit only the investment company. If you retain a share, your estate will benefit from part of any increase in the value of your home.

Before you think about equity release, you should also consider your other options:

  • ▲ Savings and assets that could help fund your retirement
  • ▲ Consideration of a conventional Mortgage as an alternative
  • ▲ Sell up and trade down
  • ▲ Sell up and live with children or other relatives
  • ▲ Sell up and hope that the local authority can provide housing
  • ▲ Selling and renting
  • ▲ Take in tenants (not an ideal option for many elderly people)
  • ▲ Local authority or other grants

Equity Release Schemes may affect your eligibility to means tested benefits. Equity release products involve borrowing against or selling all or part of your home. There may be more suitable methods of raising the funds you need.

Equity release schemes may work out more expensive in the long term than downsizing to a smaller property.

A Lifetime Mortgage will reduce the value of your estate, will not be suitable for everyone and may affect your entitlement to state benefits.

A Home Reversion Plan will reduce the value of your estate, will not be suitable for everyone and may affect your entitlement to state benefits. To understand the features and risks, ask for a personalised illustration.

Buying a home for the first time can be a daunting prospect. There are so many things to think about - and that's before you've even considered the many mortgage products, rates and lenders to choose from.

To help you reduce the stress, here are our Top Tips for First Time Buyers.

  • Budget accurately: Be realistic about how much you can afford to spend on a house, and ensure the intended mortgage is affordable. Don't forget to allow for furnishings, and remember older properties may require extensive work, such as re-flooring, tiling or renewing the wiring. Make sure you budget for these likely expenses in addition to the purchase price, along with other fees such as conveyancing and stamp duty.

  • Ask for a second opinion: When buying for the first time, there may be a number of details to look out for that you may not be aware of. Always take an experienced home buyer with you when viewing a property. If this is difficult to arrange, make sure you at least get some assistance at the second viewing stage.

  • Remember the bills: If you have been used to living at home with your parents, remember to budget for expenses such as council tax, gas and electricity bills, boiler servicing, and other home repairs.

  • Consider Council Tax: Make sure you know what the likely council tax charge will be in your new property. The selling agent should be able to help you.

  • Look at the local area: Even if you do not have children, remember that property in the catchment area of good local schools will always be much easier to sell on (though it may be reflected in a higher purchase price). Also, write down a list of local amenities which are important to you (shops, gym, cinema etc.). Before making any final decision about where to move to, take a stroll or bike ride around the local area.

  • Speak to your motor insurer: If you have a car, your insurance premium may increase if you move to an area with a higher crime rate, or are trading off-street parking for on-street parking.

  • Check transport links: Consider the availability of public transport services, like local bus routes or the frequency of train services from your nearest station. Even if you drive everywhere, this information will be useful for anyone coming to visit you who doesn't.

  • Check connectivity: If you are a heavy internet user, check the broadband speeds available in the area you're moving to. The selling agent should be able to provide this information.

  • Think about commuting time: Commuting can be one of the biggest household expenses. Since you're likely to be spending much more time on domestic chores and/or DIY, minimising your commuting distance could be important. If property is more expensive nearer to your place of work, make sure you weigh up this additional expense when compared to the costs and time of commuting.

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

Sometimes people get into debt through no fault of their own and, even if they have been to blame, want to sort things out. Fortunately, there are now some lenders willing to provide adverse credit mortgages and this short guide will help you understand what to expect.

In their ideal world, lenders would lend only to those with faultless credit histories, perfect work records and adequate deposits.

But money problems can affect anyone. Adverse credit problems can be linked to a loan default, a county court judgement or bankrupt. Sadly people are linked to an account they were not aware was still open but is in negative balance and affects your credit rating badly.

Sometimes people get into debt through no fault of their own and, even if they have been to blame, want to sort things out. Certainly no-one taking out a mortgage wants to see their property repossessed.

Thankfully, some lenders are willing to provide adverse credit mortgages. Deals are unlikely to match standard mortgages; lenders in the adverse credit market (also known as 'sub-prime' or 'non-conforming') will usually charge higher rates.

Your application will be thoroughly vetted and the interest rate set according to the 'risk' you pose (in the eyes of the lender). You may also be subject to early repayment charges.

With an offset mortgage you can potentially reduce the amount of interest you pay by offsetting a credit balance against the mortgage debt. Some lenders facilitate this through a single account (usually known as a current account mortgage), others offer multiple accounts that allow customers to virtually separate their finances, but whichever the mechanism, the offsetting principle is the same.

Unspent income is offset against the amount of mortgage debt outstanding so you only pay interest on the net amount owed. For example, if the mortgage balance outstanding is £150,000, but you have a credit balance of say £10,000 in a current or savings account, interest is calculated on the net £140,000.

Normally a borrowing limit applies, and it is usual that a borrower can redraw against this limit as the mortgage is paid down. Although limits may be decreased over the term to lock in capital repayments, problems can still arise for undisciplined borrowers who choose to effectively 'withdraw' previously made mortgage payments.

However, with good management and discipline, an offset mortgage can result in significant interest savings and facilitate earlier repayment of the mortgage, but it is very important to ensure you are the right person for this type of mortgage.

Flexible mortgages recalculate the outstanding capital and interest (the amount you owe) on a daily basis. This allows you to make overpayments when you have money to spare, and see an immediate reduction in your loan.

Some also allow you to make underpayments when finances are tight, which will increase the interest you have to pay.

They may even allow you to take repayment holidays - a complete break from making payments as long as a reserve amount of money is in your account.

Any unpaid interest will be added to the outstanding mortgage; any overpayment will reduce it. Some flexible mortgages have the facility to draw down additional funds, to a pre-agreed limit.

The main difference between a self-build mortgage and a house purchase mortgage is that with a self-build mortgage money is released in stages as the build progresses rather than as a single amount.

Some lenders will lend you money to purchase land - typically 75% of the purchase price or value (whichever is lowest).

After this, the money for the build is released in stages. These stages can be fixed or flexible, depending on the lender, but usually there are five (see table below).

There are two methods by which the money can be released during the build - at the end of each stage (known as arrears stage payments) or at the start of each stage (advance stage payments).

With the arrears stage payment method, money is released after a valuer has visited the site and confirmed completion of the stage. This can cause some self-builders cash flow difficulties.

The advance stage payment method works in the opposite way, with money released at the beginning of a given stage, before work starts. This method has become popular as it provides positive cash flow during the build, making it easier to stay in your current house while the build progresses.

The stages of a build depend on whether or not you are building a traditional (brick and block house), a timber frame construction or if you are renovating or converting an existing property.

The following table provides an indication of the typical stages:

Stage Brick & Block Timber Frame Renovation/
1 Purchase of land Purchase of land Purchase of the property
2 Preliminary costs &
Preliminary costs &
Preliminary costs &
structural overhaul
3 Wall plate level Timber frame kit erected Wind & watertight
4 Wind & watertight Wind & watertight Plastering &
5 First fix &
First fix &
Second fix
6 Second fix to completion Second fix to completion To completion

Unbiased Financial Planning (UFP) is a trading name of Unbiased Financial Group LLP, which is authorised and regulated by the Financial Conduct Authority no 726137. Registered Office and Business Address: 37 Dorset Road, London, SW19 3EZ, Registered in England no: 6564739. Terms and Conditions. Site developed by TC Designs.