INTRODUCTION
One of the first matters a purchaser has to consider when buying property is how they are going to pay for it. Very few people have the resources to be able to buy property outright. Most of us have to arrange some form of finance usually by way of a loan or a mortgage.
INDEPENDENT FINANCIAL ADVICE
This page only provides very basic information about Mortgages. We believe it essential that if anybody requires accurate and comprehensive advice about Mortgages and Loans then the advice from an Independent Financial Advisor should be sought. You can find one by looking in your local Yellow Pages or of course, the Internet!
SOURCES OF FINANCE
Banks, Building Societies, Insurance companies, Local Authorities, and even some Private Individuals offer mortgages.
SOLICITORS
All mortgage providers will instruct their own solicitors to act on their behalf to make sure that the mortgage is properly set up and that the mortgage loan is secured against the property. If you are using a solicitor, most mortgage lenders will usually instruct him to advise them as well. They will want to make sure that the property is sound and that they are not risking their own money by lending against it. Also they want to make sure that the buyers are people who will keep up their mortgage payments and that if things did go wrong that they would be able to sell the property and recover their money.
MORTGAGE ADVANCES
The amount a purchaser can borrow from a Bank or Building Society depends on two main factors. Firstly the value and condition of the property itself needs to be checked. This can be done by way of a valuation and survey of the property. Secondly details and evidence of the purchaser's own personal financial position, particularly income, needs to be provided. The amount, which a lender will lend, is usually based on the amount of a number of years' income for a buyer.
SURVEYS
Mortgage providers will always require a valuation and survey to be carried out against the property. A qualified valuer and surveyor usually carry this out. The report will detail any defects and problems and of course provide the surveyors opinion of the value of the property. The costs of the survey and report have to be paid by the purchaser. We always recommend that a full and comprehensive survey and report be carried out prior to the purchase of any property. These can cost anything up to £500.00 but they are well worth it.
FINANCIAL DETAILS
Typically, some Banks and Building Societies would provide an advance to a couple, based on three times the major income and once of the minor income. However there are many different ways of assessing the amount that can be advanced.
MORTGAGES
There are all sorts of mortgages available. We really cannot provide any detailed advice as to these. We highly recommend you seek advice from an Independent Financial Advisor. The main types are Repayment, Endowment and Pension mortgages.
REPAYMENT MORTGAGES
These are the most traditional and well known. Basically a loan is provided for a term of say 25 years. The capital and interest on the loan for the period are calculated and then the total sum is repaid in equal monthly instalments over the same term.
ENDOWMENT MORTGAGES
This type has also proved popular in the past. A loan is provided for a term of say 25 years. However in addition the purchaser takes out an endowment policy over the same period for the full amount of the loan. The theory is that the purchaser pays only the interest on the loan (but not the capital) over the 25 years. At the same time the purchaser pays the premiums on the endowment policy for the same term. The end result should be that when the endowment policy matures at the end of the 25 years there should be sufficient funds to pay off the mortgage. However, many people have suffered in the past when the value of the policy has proved to be less than the balance outstanding on the mortgage.
PENSION MORTGAGE
This is similar to an Endowment mortgage. A loan is taken out for a term of say 25 years. In addition the purchaser takes out a pension plan. Tax relief is available on the payments into the pension. The theory is that the purchaser pays only the interest on the loan (but not the capital) over the 25 years. The purchaser over the same period pays into the pension plan. The end result is that at the end of the 25 years there should be enough of a lump sum available from the pension plan to pay off the mortgage.
MORTGAGE PROTECTION POLICY
If a purchaser takes out a normal Repayment mortgage then they may want to protect the rest of their family should the purchaser die before the mortgage is paid off. One way this can be done is to take out a Mortgage Protection Policy. For a regular monthly premium if the purchaser dies before the mortgage is paid off the policy will pay out an amount to hopefully pay off the amount outstanding on the mortgage.
INDEMNITY INSURANCE
Many mortgage lenders will also insist on indemnity insurance for loans of more than 90% or 95% of the value of the property. Do not confuse these with the mortgage protection policy. They are taken out for the benefit of the lender and not of the borrowers.
MORTGAGE DEEDS
There are many important terms and conditions that from part of a mortgage. All the documents and papers must be very carefully read and fully understood and will be fully explained by your legal adviser.
Obviously it is essential that the stated payments of capital and interest be paid on time each month. Otherwise the lender can take drastic action. The purchaser usually will have covenanted (promised) not to let the property out to anyone else. This is because a tenant occupying the property might acquire rights that could adversely affect the lenders rights should they want to sell the property. Other clauses are that further advances may be made on certain terms and conditions. The property will have to be insured at the purchaser's expense.
POSSESSION
Should the purchaser default with payments then the lender will have various remedies available. These include the right to take possession, to appoint a receiver, sell the property, or foreclose. The Power to sell the property is the most important but it can only be used where the purchaser defaults and does not comply with the terms of the mortgage deed. No lender can obtain possession without first obtaining a court order.
The court has the power to suspend the lenders request for possession and state new terms such as allowing the purchaser to pay off the arrears over a period of time. However, failure to comply with the terms upon which a possession order is suspended can lead to an immediate instruction to the bailiff to recover possession of the property.
