Real Estate Investment and Mortgage Financing Resources
Mortgages The Inside Story
Getting a mortgage to buy a property (or a remortgage to get a better deal on existing property) is not easy. Mortgaging is a complex process and will always involve some professional services and advice.
At a minimum you will require a solicitor to handle conveyancing and title of the property, you may also use a mortgage broker or advisor and even perhaps a property consultant and/or surveyor (in addition to the surveyor acting on behalf of mortgage lender).
For some, particularly first time buyers, dealing with all these "experts" can seem daunting. So lets examine some of the basic issues regarding mortgages and remortgages to better prepare you.
A mortgage is simply a "home loan", basically a type of secured loan using the property as security for the lender. To protect themselves lenders will need to know how much property is worth just in case they have to sell it to recover the mortgage (i.e. if you fail to make mortgage repayments), to establish rough property value lenders will instruct a home valuation survey.
Using the valuation recieved from survey report lenders can establish the loan to value (LTV) they are willing to offer. Loan to value is a basically the percentage of the value of the property up to which they are prepared to lend, for example, if a property was valued at ?100,000 and the mortgage lender was happy to lend at 75% LTV, this means they will allow you to borrow a maximum of ?75,000 towards cost of property purchase, with the balance remaining (?25,000 in this case) to be the deposit.
The lenders decide on the LTV available using various criteria, firstly by checking your previous credit history, the "cleaner" the credit profile the higher the LTV available. So, for example, for someone unlucky enough to have been through a bankruptcy or other severe credit problem the lenders may be willing to lend up to 70% LTV, but for a couple with impeccable credit they may be happy to lend up to 110% of property valuation.
Secondly they have to assess your ability to repay, the way this is normally achieved is by using income multiples, for instance if you earn ?25,000 gross per annum, some lenders will stipulate that they will lend a maximum of 3* income (in this case ?75,000 irrespective of property value).
Basically the credit checks assess the probability of you repaying the mortgage while your income is used to assess ability to repay. For more information see http://www.fm-money.co.uk.
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