Mortgages

Mortgages Whether you are a First Time Buyer, Moving Home or even an experienced Professional Landlord we offer a free review of your current mortgage. We will help you find the best rates from the whole of the market and we also offer to revisit them with you as the deals finish.

We will search the whole of the market for you and find you the most suitable mortgage deal. We have some exclusive rates that are not normally available on the high street. Most importantly, we are totally independent and we can even review the deal you have with your existing lender.

A large number of people simply never review their mortgage and stay on the lender's own variable rate for long periods of time. This will normally mean that you end up paying thousands of pounds more than you need to for your home. We are also able to help you from the beginning to the end with either a house purchase or remortgage. We normally charge fees for our mortgage services and full details are available on request.

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More information on Mortgages >

More information on Mortgages

Repayment vs. interest-only
In some ways, buying a property can be an excellent investment: unlike a pension scheme or an ISA you can live in it, there's no tax on any profits you make (on your main residence, at least), and it will provide days of harmless fun mowing the garden.

The disadvantage, of course, is that most people need a mortgage to buy a property, and a mortgage is a debt - and usually a very substantial one. It typically lasts for 25 years, which can feel like forever, and the size of your monthly payments can go up (or down) quite dramatically depending on interest rates. Mortgages break the cardinal rule of financial planning that you should pay off your debts before thinking about saving.

The other problem with mortgages is that they involve making a major financial decision which isn't easily reversible later: whether to take out a repayment or interest-only mortgage.

A repayment mortgage is like most other sorts of loan. You borrow an amount of money, and then pay it back monthly. Your payments cover both the original loan and the interest on that loan. In the early years you are mostly paying off interest, and only small amounts of the original capital. However, as time goes on the capital decrease, and your payments cover more and more of the actual debt and less and less interest until the whole loan is paid off.

Interest-only mortgages are radically different. You borrow the same amount, and only pay the interest on the loan as you go along. At the end of the mortgage term you still owe the lender £100,000, or however much it may be. Therefore, you make two monthly payments: one to the lender to cover the interest, and a second into an investment vehicle which is designed to grow in value so that it can pay off the loan at the end of the mortgage.

Mortgage advisers are always asked "Which is better?", and there isn't a definitive answer. Repayment mortgages suit relatively cautious people who want to know that the mortgage will be paid off - the investment vehicle for an interest-only mortgage isn't guaranteed to contain enough to pay off the loan.

On the other hand, interest-only mortgages are slightly more flexible in terms of moving house and changing your monthly payments, and there is always the possibility that the investment fund will contain not only enough to pay off the loan, but a surplus as well.

Types of interest-only mortgage
There are three main types of interest-only mortgage - in other words, three main types of investment vehicle which are used to pay off the loan. It's worth bearing in mind that none of these is guaranteed to pay off the loan, and you need to keep a careful eye on the value of the fund and be prepared to top it up as necessary.

The first type of vehicle is an endowment. The major benefit is that the endowment also includes life cover, which therefore doesn't have to be arranged separately. The major problem with endowments is the charging structure: if you have to "close" the endowment early its value may be substantially less than the amount you have paid in.

The second vehicle is an ISA (previously, PEPs). ISAs are explained in greater depth elsewhere, but the key benefit is that the money you pay in grows free of tax (other than tax credits on dividends). The major disadvantage is one of lost opportunity - you can only pay in a certain amount to ISAs each year, and if you are using this to pay off your mortgage you are losing the ability to make tax-free savings.

The final way to pay off an interest-only mortgage, and by far the least common, is using a pension. Most forms of pension fund let you take 25% of their value as a tax-free lump sum at retirement. The idea behind pension mortgages is that you are paying off the loan not only using a fund which grows free of tax (like an ISA), but you are also effectively getting tax relief on your mortgage contributions as well. The problem is a distinct lack of flexibility, and the fact that you can't pay off the mortgage before retirement.

Capped, fixed, discount
Having decided between repayment and interest-only mortgages, you're then faced with a second decision. What sort of loan do you want?

The simplest is a variable rate. The rate of interest on your mortgage, and therefore your monthly payments, simply goes up and down according to whatever interest rates currently are in the economy at large. The only problem is that this variation can be very wide. If interest rates move from 5% to 15%, which has happened within the last ten years, your monthly payments triple.

Strangely, many borrowers don't like the prospect of this happening, and are therefore attracted by two sorts of guarantee which lenders offer: fixed and capped rates. A fixed rate mortgage is what it says: the interest rate is set at a certain level, and therefore so are your payments. A capped rate is slightly more complex: there is a maximum level above which your payments can't rise, but they can also fall if prevailing interest rates fall below the cap.

On a 25-year loan these guarantees are quite dangerous for lenders to make. They have major problems if prevailing interest rates are 15% but they have fixed or capped people's mortgages at only 5%. In fact, they would go out of business. Therefore, fixed and capped rates are only usually available for the first few years of a mortgage (up to 5 years), after which the mortgage switches to the normal variable rate.

The other short-term incentive which lenders offer is discounted rates. Your payments are variable, but you get a discount off the standard variable rate. Once again, this discount is only for a limited period.

These short-term incentives only make commercial sense for the lender if you stay with them beyond the point at which the incentive ends. Therefore, there are almost always stiff early-payment charges (redemption penalties) if you try to pay off a fixed, capped or discount mortgage before the incentive period ends.

If the range of products on offer were not already confusing enough, there are two other incentives which have become popular in recent years.

The first is "cashback", which is not fundamentally different to getting cashback at a supermarket. You take out a loan with a lender, and they give you not only the amount you are borrowing, but a bit more as well. This can be used for home improvements, furniture, a party etc. Ultimately, of course, you are paying for this cashback in one form or another. There's no such thing as a free lunch.

Finally, there are "flexible" mortgages, increasingly driven by new technology and its ability combine many different financial schemes in one place. In a flexible mortgage your mortgage loan is combined with other sorts of debt such as credit cards, and sometimes even with your current account. The idea is that the rate on a flexible mortgage may be slightly higher than the standard variable rate, but you benefit from lower rates on your credit cards and from earning interest on your current account.

Your home may be repossessed if you do not keep up repayments on your mortgage. The FSA do not regulate some forms of mortgage. Please see the pages on Our Services for information about our charges for mortgage advice.

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