Mortgages Explained
Buying a home is likely to be the largest purchase you’ll make in your life and the mortgage process can sometimes seem quite confusing. Here, we’ll try to simply and clearly outline all the information you’ll need and what the overall mortgage process entails when purchasing your new home.
General
What is a Mortgage?
A mortgage is a loan taken out for the specific purpose of buying a home. You borrow money from your mortgage provider and pay it back over a pre-agreed term with interest included.
What’s the difference between a Mortgage and another Loan?
The difference between a mortgage and most other types of loan is that the mortgage is secured against your home. This means that if you don’t keep up the repayments on your mortgage, we are legally entitled to repossess your home and sell it to recoup the money we have lent out to you.
When you apply for a mortgage, we carefully check your income and expenditure using an Affordability Assessment to make sure you can comfortably afford the repayments on the mortgage product you are applying for.
What type of Mortgages do we offer?
There are two main types of mortgages which we offer at Progressive: Repayment and Interest-only.
With a Repayment mortgage, your monthly repayment includes both interest and some of the capital you have borrowed. In the early stages of your mortgage, the monthly repayment will comprise of mainly interest along with a small amount of capital. However, as time goes by the amount of capital you repay each month will gradually increase, until you have completely repaid your mortgage by the end of the agreed term.
With an interest only mortgage or a part interest only mortgage, you only pay interest each month (on the interest only amount of the mortgage) and then pay off the whole of the capital amount borrowed at the end of the mortgage term. To do this, you must have a repayment plan in place to ensure you have enough funds to repay the interest only loan amount at the end of the term e.g. a personal pension lump sum, a Stocks & Shares ISA, another property etc.
If you wish to arrange an interest only loan, the amount of loan is restricted to a certain percentage of the purchase price or the value of the property. Please contact your local branch to discuss your requirements.
What are the different types of Interest Rate?
Standard Variable Rate (SVR)
As the name implies, this is our standard mortgage rate.
Most people will take advantage of one of our special mortgage rates whether Fixed or Variable, when applying for a mortgage with us. Once the initial rate period of your Fixed or Variable rate product ends, the SVR is the rate your mortgage will automatically revert to. For that reason, the Standard Variable Rate is also sometimes referred to as the ‘reversion rate’.
The SVR is variable: which means it can go up or down depending on external market factors. At Progressive Building Society we set our own rate, which does not track the Bank of England Base Rate, so despite what you may hear on the news about interest rates going up or down, our rate may not correlate.
If our rate is going to change and you have a Standard Variable Rate mortgage, we will always write to you to let you know beforehand.
Fixed Rate
This means your mortgage rate is set and won’t change for an agreed period of time. Typical Fixed Rate terms are 2, 3 or 5 years although other options may also be available.
At the end of your Fixed Rate period your mortgage rate will revert to our current Standard Variable Rate.
Pros: Fixed rates make budgeting more straightforward as you know your monthly mortgage repayments won’t change during the Fixed Rate period.
Cons: As the rate of interest you pay is fixed, if our Standard Variable Rate falls you won’t benefit from lower repayments during the term of your product. You will also have to pay an Early Repayment Charge if you want to repay a significant amount (typically more than 10%) or your entire loan during the Fixed Rate period.
Variable Discounted Rate
This type of mortgage product offers a discount from our Standard Variable Rate for a set period.
At the end of the discounted rate period your mortgage will revert to our current Standard Variable Rate.
Pros: For a set period, your mortgage repayments will be lower than if they’d been calculated using our Standard Variable Rate alone. If the SVR falls so too will your mortgage rate.
Cons: If the SVR rises, so will your discounted rate. You may also have to pay an Early Repayment Charge if you want to repay a significant amount (typically more than 10%) or your entire loan during the Variable Discounted Rate period.
Mortgage terms
How long can you have a mortgage for?
Many borrowers will opt for a 25-year term, but you can choose to take your mortgage over anything from 6 years to 40 years!
There are some things to consider though:
A shorter term means you’ll repay your mortgage sooner and pay less interest. However, your monthly repayments will be higher so you’ll need to make sure you can afford them, especially if your mortgage rate was to rise.
A longer term means your monthly repayment will be lower but the total amount of interest you will repay over the full term will be higher so you will end up paying more overall.
You also need to be careful that the longer term doesn’t risk your mortgage running into your retirement when your income may fall significantly.
A Clear Look at Costs Involved
Valuation Fees
We will carry out a valuation of the property you wish to purchase to make sure it provides us with adequate security against the mortgage you are applying for.
We have a set scale of valuation fees available on our website, and in branch. Please visit our contact us section to find details of your nearest branch
Please note: The valuation is for our purposes only and it is not intended to give you an indication of the condition of the house. We sometimes use an AVM (Automated Valuation Model) to give us an indication of the estimated value of your property. If we use an AVM, you will not receive a copy of a valuation report and we recommend you arrange to have an independent valuation carried out by a qualified surveyor, prior to purchasing a property. If you need further information about your home, you will need to instruct a surveyor - see Survey Fees below.
Survey Fees
It’s wise to instruct a qualified Surveyor, who should ideally be registered with the Royal Institute of Chartered Surveyors (RICS) to undertake an independent survey of your home.
They will be able to tell you about the condition of the property and if there are any structural issues you need to be aware of, especially if the house is older, so you know exactly what you’re buying.
You will arrange to pay the surveyor directly for the survey report. Please ensure you obtain a quotation from the surveyor before instructing them. A little outlay now could save you a significant expense in the long run.
Conveyancing Fees
You’ll need either a Solicitor or a registered Conveyancer to look after all the legal work involved with applying for a mortgage. If you don’t already have a Solicitor, we can help you find one and give you an idea of what they charge for the services they provide.
Your Solicitor will work on your behalf to represent your interests as well as preparing and checking all the legal paperwork. They will also carry out searches to ensure no local factors will impact your house, such as other nearby building work or plans to build new roads.
Stamp Duty Land Tax
Stamp duty is another of the costs and fees you need to consider when saving up for your home.
Stamp duty is a Government tax which applies depending on the purchase price of your property. Find out if you would have to pay Stamp Duty on the property you’re interested in buying at www.gov.uk (type ‘stamp duty’ into the search box).
Insurances; the right cover, the right price
Buildings insurance
This provides cover against damage to the structure of your home from incidents such as flooding, fire, subsidence or a major accident like an explosion. You need to ensure there is sufficient insurance in place to cover the complete rebuilding of your home. The rebuild cost can vary considerably from the purchase price and the valuer will confirm the rebuild cost when carrying out the valuation. It will be a condition of your mortgage that you have buildings insurance in place for your property.
Contents insurance
Dependent upon the level of cover you choose, you can protect everything within your home and garden, such as all your personal possessions. There are many different levels of cover available and you usually have the option to insure some items such as bicycles, cameras and jewellery when you're away from home.
Most insurers will give you the option to take out a combined Buildings & Contents policy, which is generally more cost-effective.
The Society can refer your details to AXA insurance dac who have branches across Northern Ireland. AXA can provide you with a non-obligation quotation for the cover you require. Please contact one of our branches for more information.
Put the right cover in place to help protect your happy place.
Life Insurance
How would your loved ones manage if the worst happened to you?
Life cover provides insurance protection should you pass away during the term of your mortgage and can be arranged so that it pays out the outstanding balance on your mortgage. You can also arrange cover against critical illness and loss of income cover.
The Society is unable to offer any advice on the suitability of any protection or investment products. For Protection Cover, we may refer you to an appointed representative of Mortgage Advice Bureau Limited and Mortgage Advice Bureau (Derby) Limited, who are authorised and regulated by the Financial Conduct Authority. Please speak to a member of staff for more information.
Other Fees
In exceptional circumstances, there may be additional fees associated with your mortgage application. For example, you may need a specialist survey carried out such as a specialist tree survey, or a damp and timber report.
No two properties or mortgage applications are the same, so we’ll walk you through each step that’s relevant for you.
Other Information
What income and expenditure do I need to declare?
It’s extremely important to be upfront and honest when declaring all your income and expenditure so we can get a true picture of what you can comfortably afford. Your net monthly income, basic essential and commited expenditure and basic quality of living costs will all be required.
It’s in everyone’s interest to accurately assess affordability, so you don’t come across difficulties repaying your mortgage in the future.
What’s more, withholding information or deliberately misleading a mortgage lender is classed as fraud and is a criminal offence.
What should I do if I have difficulty repaying my mortgage?
The first and most important thing to do is to tell us.
If you are having financial difficulties, which may cause you to struggle with your monthly mortgage repayments, we will do everything we can to help you manage your repayments and avoid putting your home at risk. Simply contacting us to discuss your mortgage will not impact your credit file.
We may be able to restructure monthly repayments for a short period to help you get back on your feet. See our section on Financial Difficulties.
Please don’t ignore the problem and hope it goes away.
If you need help, talk to us today on 02890 821853
Speak to our team today
We’d love to talk you through the mortgage process and help you find a suitable product. For more information or to apply, you can call us, email us, pop into one of our 12 branches. We look forward to hearing from you.