Money to the Masses visited Habito to speak to Will, one of its mortgage experts, to ask all of your mortgage questions.
1 - Are there any ways of increasing the lending level without increasing your income?
There are. If you've got credit outstanding such as loans or credit cards, you can pay those down and that will increase how much you can borrow. Also, the most obvious way is by increasing your deposit. This will not only allow you to buy a bigger property but it's a slightly lower risk from a lenders points of view, therefore, they're generally happy to lend a little bit more.
2 - What are the different repayment methods?
- Capital and interest repayment - The most common repayment method is paying both the capital and the interest, this then means at the end of the term you will have paid the entire mortgage off.
- Interest-only - You can also have an interest-only mortgage, where, as the name suggests you're only paying the interest. But at the end of the mortgage term, you need to have a suitable means of repaying that capital.
Alternatively, you can have a combination of the two, so part capital and interest and part interest only. When applying for an interest-only mortgage the lender will ask to see how you intend to repay the capital at the end of the term so it could be a pension or it could be an ISA or through the sale of the property. But it's really important to factor in if you are looking to sell the property at the end of the term, where you going to live and have you got enough money to buy another property.
What does capital mean?
Capital is the amount you're looking to borrow so if you were buying a property for £100,000 and you're looking to borrow £60,000, the £60,000 is the capital.
3 - Do I have to pay a mortgage indemnity premium?
Mortgage indemnity premiums are often referred to as higher lending charges. It was a charge that was applied for borrowing over 90% however they don't exist anymore so you wouldn't need to pay it. Sometimes lenders do apply them but they will pay for that as effectively it's an insurance premium should the borrower not be able to service the mortgage and pay it back. So if they lost their job, for example, they've got a bit of an insurance premium to support that.
4 - Can I get a shorter mortgage term as I am nearing retirement?
Lenders are becoming more and more open to this as people are living longer. If you say you're going to work until age 75 then lenders are generally happy with that assuming the job is within your ability. For example, if you had a very physically demanding job then it is unlikely the lenders would be happy with that, lenders would prefer an admin based job.
If you are in receipt of a pension, lenders will accept that income as well as they would with someone that's employed, so there are plenty of options available and some lenders will allow you to mortgage up to age 80 and beyond and it works in exactly the same way as if you were employed.
5 - Can a first-time buyer get a buy-to-let mortgage?
It is possible, however not all lenders will allow a first-time buyer to get a buy-to-let mortgage and the reason for that is that lenders fear that they may buy that property not to rent out but to actually live in them themselves. So it is possible but there are fewer lenders that are open to that.
6 - Is it easier for you to get a buy-to-let mortgage over a standard mortgage?
Buy-to-lets require a larger deposit, a minimum of 15% whereas a residential mortgage you can get with a 5% deposit. So with a buy-to-let mortgage, you need a bigger deposit to start with. The way that they are assessed is based on how much rental you could get from the property as opposed to earned income.
7 - Can I rent out my property on a standard mortgage, if I did not plan to let when I bought my property?
The first thing I would suggest is if you're tied into a deal and you were to move to a buy-to-let mortgage you might have to pay early repayment charges in order to come out of that deal. If that is the case speak to your existing lender and request what's called a 'consent to let'. Most lenders will be open to it, particularly if you have moved away due to a job etc.
Another thing that you can do if you've come to the end of your deal is consider a let-to-buy mortgage. So when you're letting out your existing mortgage you could possibly take some money out of that property to then use as your deposit for the onward purchase, so therefore you end up with your existing property which is rented out and then you've then bought a new property for you to live in.
One thing I'd always recommend doing is read your mortgage T&C's. If you don't have a copy you can speak to your lender and they'll be able to provide you with a copy but there are quite serious implications for not adhering to the T&C's. If you're letting out a property and they are not aware of it they could charge you retrospective interest and the worst-case scenario is they could repossess that property.
8 - Can I rent out my property on Airbnb on a standard mortgage?
A lot of lenders don't tend to like the Airbnb setup so again, read the T&C's make sure your lender is comfortable. If in doubt give them a call but most lenders aren't comfortable with Airbnb so the underlying thing is whatever your plans, cover yourself by letting your lender know what you are doing.
9 - Can I rent out my property if I bought it with the Help to Buy schemes?
In short no.
You're not allowed to rent out the property as the schemes are designed for residential purposes. You can often rent a room but you need to let your lender and the Help to Buy agent know what your intentions are.
10 - Does your buy-to-let property affect the amount you can borrow when you buy a new home?
Lenders will look at whether the rent that you achieve from renting out that property covers the mortgage payment. Lenders usually look for it to cover the mortgage payment by a certain percentage above that. So long as you can provide evidence (such as your tenancy agreement confirming rent or bank statements) showing the money coming in and your mortgage payment going out, all should be fine. Lenders then treat the payments as self funding, therefore, it doesn't really play into how much you can borrow for your onward purchase.
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