Money to the Masses visited Habito to speak to Will, one of its mortgage experts, to ask all of your mortgage questions.
1) If I am looking to buy a house within the next 6-12 months, what should I be doing now?
- Speak to a mortgage broker - The first thing I would suggest is to speak to a mortgage broker. They will give you an idea of how much you can borrow and how much it will cost you every month.
- Review your credit score - When you apply for a mortgage, lenders will do a credit search and they will look at your credit score to see if there are any missed payments. So you need to have an idea what your credit score is, you can do this via Equifax, Experian or TransUnion who will be able to provide you with a report. Alternatively, use checkmyfile to access credit reports from all 3 main credit reference agencies in the UK - as well as alternative credit reference service, Crediva.
- Check your passport is in date - Have a look at your passport and make sure that it is currently in date. You will be surprised at how many passports have expired and when you come to apply for a mortgage that can cause problems.
- Ensure your address is updated on your bank statements - Make sure that your address is updated on your bank statements as, again, that can cause issues later on down the line.
- Have enough money to cover all the extra fees - It is also really important that you understand other costs. It's not just the deposit that you need for a mortgage, there are other costs such as stamp duty, valuation fees, solicitors fees, you will need to cover all of those on top of your deposit as well. What I would also suggest is once you have an idea of how much you can borrow, does that fit in with where you want to buy? Are you looking for a new-build property, are you looking for leasehold properties as well? They have different criteria and there are different costs associated with leasehold properties as well.
2) How much do I need to cover the additional fees?
There are a number of extra fees included in the house-buying process that you may not have accounted for. They are broken down into the below sections, although these costs will depend on the specific property you are buying.
- Valuation - £200 - £400
- Solicitor costs - £300 - £500
- Legal fees - up to £2,000
- Arrangement fees - up to £1,000 (this can be added onto your mortgage)
- Stamp duty - tiered payment payable on properties over the threshold of £250,000 (first-time buyers are exempt up to £425,000)
- Broker fees - up to £1,000, but remember, you can get free advice
The first upfront cost when you apply for a mortgage is a valuation. Some lenders will offer a free valuation but if you pay for a basic valuation it is about £200 - £400 depending on the property value.
There are different types of valuations you can get and your mortgage broker will talk you through which is the most appropriate for the property you are looking to buy. You get a basic valuation or a slightly more in-depth valuation; the more in-depth the higher the cost.
Solicitors costs, usually they charge around £300 upfront and I would say that £2,000 is more than sufficient to cover your legal costs.
Mortgages sometimes have arrangement fees that can be added to the mortgage balance so you don't necessarily need to pay that upfront but obviously, you pay interest if you were to add it to the mortgage. Typically they are about £1,000.
Another cost to consider is stamp duty. If you are a first-time buyer and are looking to buy a property below £425,000 then you are exempt from paying stamp duty. A house sold for over and above £425,000 means you would pay stamp duty. There are plenty of websites that have stamp duty calculators so it's really important that you review that as well. You can find more information on the current stamp duty fees in this article.
Broker fees, some brokers will charge up to £1,000 for their advice. I would always recommend a broker that doesn't charge any fees as that is one less fee to worry about. Our article 'How much do mortgage advisers cost?' has more information.
3) What mortgage type is best for a first-time buyer?
I would never say there is a set type of mortgage which is suited to first-time buyers. What we tend to find is that a lot of first-time buyers go for a fixed-rate product, they might have come from rented accommodation where they used to pay the same amount each month, therefore a fixed rate would give you that stability of payments so you know exactly what you are paying on a monthly basis.
One thing I would think about is, are you looking to move in the next 2/3/5 years? Is there going to be any changes to your circumstances, for example, a change of job or are you looking to get married, children on the way?
These are all factors you need to consider when thinking about what product is most suited to you. Again your broker will talk you through what your plans are and what is the best product for you.
4) What does a mortgage broker actually do?
Ultimately they are there to give you advice and to arrange your mortgage for you. However, don't feel you need to have a property in mind. If you just want to know how much you can borrow, they will talk you through that. They will provide you with the maximum you can borrow and the monthly costs and they can also give you something called a 'mortgage in principle', which is a confirmation in writing as to how much you can borrow.
Once you have found a property, and your offer has been accepted, they'll search the market for you to find the best deal. They will also show you how they've sourced that product, they'll tell you if there's anything better for you and, obviously, you can go directly to the bank if the broker cannot access that product. They'll then submit the application to the lender and they'll deal with everything right up until you have your mortgage offer sent out by the lender.
5) How much does a mortgage broker cost? Are they expensive?
They can be, yes. Some will charge up to £1,000 and beyond, but several brokers don't charge any fees whatsoever, so I would certainly recommend going for one like Habito which doesn't charge a fee.
6) If you go for a free mortgage broker, do you get an inferior service than with a paid-for broker?
Not at all: any good broker will highlight what is called true cost, so they will show you which product is the best for you, taking into consideration the initial interest rate, and any fees associated, including any cashback. So if there is a better product they should be able to show you the better product, so you can therefore see for yourself what you are getting and what you are potentially missing out on.
7) How does a free mortgage broker make money?
All mortgage brokers will earn money from a lender, it's called a procuration fee. It will be clearly highlighted on any illustration and it will show how much the lender is going to pay the broker for recommending or referring a customer over to themselves. Brokers that charge a fee will get that in addition to their procuration fee and it's a complete myth that you will get a better service if you pay.
8) What is the best way to find the best mortgage deal?
I would always speak to a mortgage broker. Mortgage comparison sites are great, however, they are not always going to tell you whether you are eligible for that specific product. Also, a lender will tend to highlight their lowest rate and that doesn't always take into consideration any fees that are associated with that product.
Your mortgage broker will work out which is the best product for you based on what is called true cost. And that includes the initial rate, the monthly cost and any associated fees and they will be able to show you which one is the most cost-effective for yourself.