Our experience shows that clients who use the services of a reputable independent mortgage adviser have a far smoother move than those who try to manage the mortgage maze themselves. To get you started here is our simple, at-a-glance guide to the main types of mortgage for you to consider:
Standard variable rate mortgages
The simplest mortgage type, where the interest rate fluctuates with financial market conditions. Very few people now choose this option at the outset of the mortgage as the discount / fixed rate offers provided by lenders usually provide more attractive terms.
Fixed rate mortgages
A fixed rate mortgage means you will pay the same amount of interest for an agreed time (usually 2-5 years). Rates are usually slightly higher than a variable loan. This is one of the most popular types of mortgage as it offers stability by avoiding the risk of a rise in interest rates upsetting your household budget. However if interest rates fall you won’t see the savings. When your fixed term ends your payments may rise as you switch to the normal variable rate.
Discount rate mortgages
These are lower, incentivised rates for a fixed period offered by lenders to attract new borrowers and can be very competitive. However, when the fixed period has elapsed, the rate will revert to a standard variable rate, so the buyer must be able to afford the mortgage payments when the discount no longer applies.
Tracker rate mortgages
Unlike an ordinary mortgage where the lender can set any rate they like, tracker rate mortgages are set at a specific percentage above the Bank of England’s base rate for a fixed period, usually 2-3 years. This means your interest rate will only fluctuate in line with Bank of England rate movements and not those arbitrarily set by the lender.
Capped rate mortgages
A capped rate mortgage is where the lender has set an upper and lower threshold that the interest rate cannot go above or below, and has similar benefits to fixed rate mortgages in that the homeowner will be better prepared to avoid the worst of financially damaging rate increases.
Increasingly popular, this type of mortgage works best for those who have significant savings. The main advantage is that interest on those savings is offset against the interest to be paid on the mortgage, reducing repayments. While this means reduced interest is paid on the savings account, this can usually save income tax and often proves most suitable for those on higher income tax bands.
Capital & Interest mortgage repayment method
This is the most popular method of repayment. Your monthly repayment pays off the interest owed and a part of the initial capital borrowed until eventually the entire loan has been repaid in full.
Interest only mortgages
An interest only mortgage allows the borrower to only pay the interest on the loan (with no capital repayments) to keep the monthly payments down in the early years of the mortgage. This type of loan carries a higher risk and advice must be sought on the suitability on this type of repayment method.
Flexible repayment mortgages
This allows you to vary within previously agreed terms the amount you can repay depending on your financial circumstances and can prove ideal for those with fluctuating incomes, for example the self-employed.
There are several government initiatives available in the UK, such as the LIFT scheme(Low Cost Initiative for First Time Buyers),Mi New Home Scheme(in Scotland only) and the (in England only).
These schemes have been put in place to help those struggling to save a deposit get onto the property ladder, particularly first time buyers, by making it possible to secure a mortgage for a deposit as low as 5% of the property value.
We would encourage you to take advantage of the initial, no-obligation consultation with one of our recommended NewBuy scheme independent mortgage advisers:
Phone us on 0131 662 4747 to get a quote for the costs of buying and to arrange a call from an independent mortgage adviser.
Alternatively, complete the mortgage advice request form below and we will supply a quotation and refer you to an independent mortgage adviser.