This film is part of the series "Other Types Of Mortgages"
What is a family offset mortgage?
A family offset mortgage is like an advanced form of an offset mortgage where the family of the borrower, it would normally be a parent or perhaps a grandparent, can link their savings to the mortgage of their child. So, the benefit is that the child will pay less interest because they will pay interest on the difference between their mortgage and their parent's savings. And it's a very tax efficient way for the parent to help their child while still keeping full control of their money because their money will be available anytime. It's particularly useful if the parent wants to help their child but they're a little bit nervous about giving them money. Perhaps because they're living with a partner and they're worried that should their child split up from their partner, they might lose part of their money. So, with a family offset, you always keep full control of your money as the parent, while you can still help your child pay less mortgage interest in an extremely tax efficient way.
What are the pros and cons of a family offset mortgage?
The big pro of the family offset mortgage is that it provides a way for a parent, another family member, or even a friend to help someone else pay their mortgage, because the money that they put into the linked savings account will be used to reduce the mortgage interest that, for example, the child is paying. Due to the tax advantages, it's a very tax efficient way to do that because the child will pay less interest on their mortgage. The parent earns no taxes on their savings; as no interest is being earned on the savings, there's no tax to pay. The parent nevertheless will still keep full control of their savings, and they can withdraw from the savings at any time, but clearly it makes good sense if they let their child know if the savings are about to be withdrawn, because that's going to mean the child's mortgage payments are about to go up. If they get lulled into a false sense of security by having lower payments than they would normally, it might come as a bit of a shock if they suddenly have to make higher payments.
What is a cashback mortgage?
A cashback mortgage is a mortgage whereby the lender gives you some cash back in exchange for you taking the mortgage out with them. Essentially, there are two types, but most people think of a cashback mortgage as one where you get a reasonably large cashback, typically five percent, based on the amount of mortgage you take out. There is, however, a more common type of cashback where you get a small amount, it might be £250 or £500, as a contribution towards the cost of the mortgage, perhaps towards the legal fees or refund evaluation fee.
What are the pros and cons of a cashback mortgage?
The main pro is that you get a chunk of cash in your hands on day one when you take the mortgage out, and therefore, that could be used to buy furniture, if you're a first time buyer, or pay stamp duty, pay solicitors fees. Those sorts of things. However, most lenders won't offer a cash back mortgage if you're borrowing a large amount, i.e. 95% lender value. And that's really when you become most valuable. So, although, you would be able to get a lump sum to use for things such as I just mentioned, you could achieve the same objective by borrowing a larger amount on a non-cash back mortgage. And, normally, that would offer better value, because with a cashback mortgage, the interest rate is usually the lender, standard, variable rate. So, you will be paying a much higher rate of interest than you would pay, if you had, for example, a discount mortgage, and you would be locked into earlier payment charges, or redemption penalties typically for five years. And over the five years that you're locked in, the total amount you pay will tend to be relatively large in relation to the cash back. Therefore, in most cases, a discount mortgage would offer better value.
What is a self certification mortgage?
A self certification mortgage, or self cert for short, simply means that you're not required by the loaner to prove your income. Self certification mortgages are particularly useful for people who are self-employed, who may not have got their accounts up to date or may not have even been trained very long. And the lender will guarantee not to require you to prove your income with a self certification mortgage, although in some cases they may call your accountant just to confirm that actually you are trading.
How much can I borrow with a self certification mortgage?
Most lenders will advance up to 85 percent of the regular property on a self certification mortgage. Some, however, will go higher. A few will go to 90 percent, and a small number will even lend 95 percent. However, if you do want to borrow 95 percent of regular property, then your choice of lender will really be quite small, and that means that the interest rate you pay will be relatively high. Having said that, if you can't use your income and you don't have much in the way of savings then it's useful to have the option to only put down a five percent deposit.
What is a CAT standard mortgage?
All mortgages have terms and conditions, and a CAT standard mortgage is one where the terms are restricted by the government. A "CAT" stands for Charges, Access, and Terms. And, to meet the standards for CAT standard mortgage, the maximum interest rate that is charged has to be not more than two percent above bank base rate on a variable rate mortgage. The maximum fees are limited to £150 on a CAT standard mortgage and the maximum annual repayment charge is limited on a CAT standard mortgage to 1% for each year left of a fixed rate mortgage but no early repayment charge is allowed on a variable rate mortgage.
What are the pros and cons of a CAT standard mortgage?
The cons greatly outweigh the pros, because although the pros may sound good in that the maximum fees, the maximum interest rate and the maximum overpayment charge is limited, the disadvantage of that is lenders will not offer a very good interest rate because of all those restrictions. So if you want a really simple mortgage with low fees, which could work for a small mortgage particularly if you don't want it for very long, CAT standard mortgage might be suitable, but otherwise you can get a mortgage with a much cheaper interest rate if you go for a non CAT standard mortgage. So for most people, a CAT standard mortgage will actually not be the best option.
What is a Rent a Room mortgage?
A rent a room mortgage is designed for somebody who wants to buy a property with spare bedrooms and let out one or two of those bedrooms to a lodger. The lender will take into account not only your earned income, when calculating how much to lend, but also the income from the lodger. If for example, you have an earned income of£25,000 and you are letting out one room which might generate £4,250 the lender will calculate the maximum mortgage at £29,250 pounds rather than £25,000, which clearly gives you the option of taking out a bigger mortgage. The government has a scheme which means that the first £4,250 that you receive from letting out the room is tax free. So, it is particularly worthwhile to let out at least one room; if you let out more than
one room the income will be taxable.
What are the pros and cons of a Rent a Room mortgage?
The main pro with a Rent a Room mortgage is that you can borrow more money than you would normally be able to borrow with most lenders, and that could make all the difference between whether you can afford to buy a two- or three-bedroom property or just a one-bedroom property. And of course, just because you plan to have a lodger initially as a term of the Rent-a-Room mortgage, doesn't mean to say you have to have a lodger indefinitely. You might subsequently be able to stay in that property rather longer and perhaps even keep it when you have a family. The main downside is that only a few lenders offer a Rent a Room mortgage and therefore the choice of deals is relatively small, and consequently the interest rate you pay on a Rent-a-Room mortgage is unlikely to be the most competitive in the market.
What is a green mortgage?
A green mortgage basically is frankly mainly a marketing tool, where the lender will agree to make some contribution to the environment in exchange for you taking out that mortgage. One option is for the lender to make a small anual contribution to plant some trees. Another is for the lender to give you an energy efficiency report, which will allow you to see how you can improve your property to save energy. So essentially its any mortgage which has a marketing bit attached to it which allows the lender to market it as a green mortgage, and hence get a few brownie points.
What are the pros and cons of a green mortgage?
If you are a keen environmentalist, you may be quite prepared to go for a green mortgage because you want to do your bit for the environment. The main con is that there are only about three lenders who offer green mortgages. As in any situation, where the choice of mortgages is quite limited, you would almost certainly end up paying a higher rate on a green mortgage than you need to. So frankly, rather than take out a green mortgage, just because it's a green mortgage, you would be much better off taking out the cheapest mortgage you can get and making a separate contribution to an environmental charity, to allow the environment to be helped in which ever way you choose.
What is a fast-track mortgage?
Quite a lot of lenders now offer the fast track mortgage facility. It's a way of cutting down the admin. Fast track mortgages mean that the process is speeded up. Fast track mortgages make life easier for the borrower if they don't have to prove their income, by perhaps providing pay slips or getting a salary reference. And, because the lender can get enough information from the credit check, they're happy, if they get a good credit report and the client gets a good credit score, to actually not require you to prove your income for a fast track mortgage. So it speeds the whole process up, and in some cases, means you can get a mortgage offer, immediately, online.
What are the pros and cons of a fast-track mortgage?
The real pro of a fast-track mortgage is that it speeds the whole process up. The mortgage will be on normal best terms from the lender. So providing that lender offers a fast-track facility, if they don't require you to prove your income, it just saves you some paperwork and, in some cases, particularly for self employed, it may avoid you in some extra expense in terms of asking your accountant to produce some more figures. There aren't really any cons except that if you specifically limit your choice of mortgages to lenders who offer fast-track then, of course, you do have a smaller choice than if you, perhaps, look at the whole market. But as most of the mainstream lenders now do offer fast-track mortgages you will still have a good choice.
What is a buy-to-let mortgage?
A buy to let mortgage is a mortgage used to buy an investment property. And the key difference between a buy to let mortgage and a residential mortgage is that with a buy to let mortgage the lender bases the maximum loan on the rental income as opposed to your own earned income. The maximum percentage of the value of the property you can borrow is ninety percent, whereas with a residential mortgage you can borrow a hundred percent and sometimes even more. So you do need a ten percent deposit on a property woth a buy to let mortgage, as well as all the other expenses that you'll need to account for.
What types of buy-to-let mortgage are available?
The two main types will either be a fixed rate mortgage or a variable rate mortgage, and most variable rate mortgages are tracker rates. That is, they are linked to the Bank of England base rate. Fixed rates will normally be for periods of between two and ten years, and the tracker rate might be for a short period such as two years, but it could be for the whole life time of the mortgage. The key consideration of any buy-to-let mortgage is the rental income, because with the gross rental yield on the property as a proportion of the value of the property is quite low today compared with a few years ago, because property values have gone up much quicker than rent. And because the amount you can borrow on a buy-to-let mortgage is based on the rental income, often a key consideration in terms of choosing a mortgage will be which lender will actually allow you to borrow the amount you want. So there are a lot more considerations to take into account with a buy-to-let mortgage than there would be with a residential mortgage in terms of choosing the right deal.
What is a sub prime mortgage?
A sub-prime mortgage is for people who have got adverse credit of some sort. This could mean they've got one or more county court judgments, they may have had serious mortgage arrears, they may have got arrears on their credit card payments or their loan payments. They might have even been bankrupt or been in an IVA—an “individual voluntary arrangement”. People in that situation can still get a mortgage, but they will pay a higher rate for it and they may have to have a bigger deposit, a sub prime mortgage. If the adverse credit is actually quite minor, perhaps a county court judgment for a few hundred pounds then if that's the only adverse credit someone has, they can often get a mainstream mortgage, provided they get the right advice.
What is a divorcee mortgage?
A divorcee mortgage is designed for people who have either been divorced, as the name implies, or people who are separated. And the key aspect of a divorcee mortgage is that the lender will take account of the maintenance payments the divorcee is receiving from their ex so that when calculating the maximum amount that 's available, in addition to taking account of any earned income that person has, the lender will also take account of the maintenance payments for a divorcee mortgage and, more than that, they will actually gross up the maintenance payments to allow for the fact they're received net of tax. So it helps the person receiving the maintenance payments to get a mortgage. A divorcee mortgage also helps the person paying the maintenance payments because it means that they will normally be able to come off the mortgage for the family home which wouldn't always otherwise be the case. And therefore, a divorcee mortgage makes it easier for them to get their own mortgage on another property, assuming they want to buy again.