SimplyFinance - Mortgage & Home

How much is your Mortgage really costing you?

2010-01-28T00:00:00Z

When you buy a property there are a number of 'hidden' costs that you need to consider as well as the obvious ones. Buying a property is a complicated legal process requiring the involvement of various experts, including a surveyor, solicitor and conveyancer, so you will have to foot these additional bills for a start. This article details the main additional costs you will encounter when purchasing a property, to help you budget and make your purchase as streamlined as possible. You can also use our true cost mortgage calculator to work out your expenses.

Always read the small print on the mortgage rates

Although tighter controls have been imposed on consumer lending in the last few years, competition to attract new mortgage business is still fierce, and therefore lenders publish what seem at first glance to be extremely low rates. As many unfortunate customers of the Skipton Building Society found recently when the lender's Standard Variable Rate shot up by a couple of percent, a 'guarantee' of a capped rate is not necesssarily set in stone. However, be as prepared as you can by looking at the small print before agreeing to the deal.

Arrangement fees

There are other factors to take into consideration when calculating the actual cost of your mortgage. Is your mortgage broker charging an arrangement fee? This will typically be a percentage of the sum borrowed, although it could also be a flat fee. Not all mortgage brokers will charge you an arrangement fee as they get paid an introduction fee by the lender, but it is fairly common so make sure you ask them for full fee details before proceeding with the mortgage.

Valuation fees

A full property valuation is usually required by a mortgage lender before they will approve your application. This enables them to confirm the property's worth, something that is particularly important in the current financial climate when millions of consumers have seen the value of their property fall. Lenders sometimes foot the bill for the valuation themselves, although the cost usually falls on the consumer, and you should expect to pay between £100-200 for this service. An extra point to check with your broker or lender is whether the valuation fee is refundable in the event that your mortgage application is refused.

Surveying fees

It is important to have the property surveyed before you go ahead with the purchase, to protect yourself from making an unwise investment. There are two types of survey, the homebuyer's report and a full structural survey. The homebuyer's report is a more basic survey, costing about £300 and often included for free in the lender's service. This includes a check of the superficial condition of the house, making sure that there are no obvious faults.

Should you find evidence of structural damage, it would be wise to have the full structural survey (which would set you back about £800), because if you later find that you need to carry out serious repairs on the property as a result of any damage, the costs could be far greater. Any damage uncovered by this survey would enable you to push for a discount on the price, that would take any future repairs into consideration. Alternatively, evidence of significant damage or subsidence in the property would warn you against making an unwise purchase.

Stamp Duty

If you buy a property that costs more than £25,000, you must pay a Stamp Duty tax, which is calculated as a percentage of the total purchase price. This increases depending on the value of the property from 1-4%, so if the purchase price is between £125,001 and £250,000 you pay an extra 1% in Stamp Duty, if it is between £250,001 and £500,000, an extra 3%, and an extra 4% if the property costs over £500,000. If the property has a purchase price of £125,000 or less, you are exempt from paying Stamp Duty on the property. Use our Stamp Duty calculator to check the Tax payable on your new property.

Conveyancing fees

Conveyancing is the legal process by which ownership of a property is transferred from one person to another. This is carried out either by a solicitor or by a licensed conveyancer, and both buyer and seller need to have their own conveyancing representation to ensure that there is no conflict of interest. The conveyancer's role is to ensure that the terms and conditions of the contract are fair, and that all the financial information required for the sale is correct.

The conveyancing process can take several months to complete and the costs will vary depending on the company that carries out the work. When the Land Registry costs and other fees for searches are taken into consideration, the full cost of conveyancing can stretch to £600 or more. Due to the complicated nature of the work this process should only be carried out by an expert, so this would not be a good place to cut corners on your purchase costs.

Building Insurance

Lenders almost always require you to have home buildings insurance before they will approve your mortgage application. Buildings insurance protects you (and the lender's investment) should your house be damaged by fire, subsidence or extreme weather conditions such as floods, and would cover the costs of repairing or even rebuilding the property. Depending on the policy, some insurers will also pay the costs of temporary accommodation for you and your family while repairs are being carried out.

Although this insurance is compulsory, there is nothing to say that you have to buy it from your lender. Many insurers offer very competitive rates for buildings insurance (often with a reduced premium for home contents insurance if both are taken out together), so you can often get a much better deal by shopping around. The cost of buildings insurance will depend on many factors, including the size, age and condition of the property and whether you live in an area prone to flooding or subsidence.

If you would like to talk through your options with an experienced mortgage adviser, you can request a free mortgage quote by filling out our short mortgage form.

Is your Standard Variable Rate Mortgage rate on the rise?

2010-02-04T00:00:00Z

Last week, Skipton Building Society used the small print in mortgage contracts to raise its Standard Variable Rate (SVR) from 3.5% to 4.95%, breaking a guarantee to its customers. To put this into perspective, this amounts to a monthly repayment increase of around Â£120 for a homeowner on a 25-year Â£150,000 repayment mortgage.

The trend began with Marsden Building Society at the start of the year, and since then, in addition to Skipton, Norwich&Peterborough and Holmesdale Building Societies (to 5.35% and 4.89% respectively) are among those who have announced an SVR hike. More building societies are expected to follow in their footsteps.

Naturally consumers are angry - you simply don't expect a guaranteed maximum payment to be exceeded. But the building societies must have their reasons for risking losing a number of their customers, right? We look at the reasons behind the SVR increases, and what you can do about it if your mortgage rate has become unmanageable.

What is the Standard Variable Rate?

The Standard Variable Rate (SVR) is the 'default' rate of interest that banks and building societies charge customers for borrowing. The SVR is different at every lender, and the lenders can change the rate at any time. Normally, the SVR reflects changes in the Bank of England base rate, although lenders are under no obligation to track the base rate if they choose not to.

If you have been on a mortgage rate with an attractive introductory offer, such as a fixed rate mortgage for say, the first three years of your deal, you would automatically revert to the lender's Standard Variable Rate mortgage product once this fixed rate period is up. In most cases, the lender's SVR is much less competitive than their other mortgage products - after all, new consumers cannot get these rates, so they have no incentive to make them sexy.

How can these building societies change a 'guaranteed' rate?

Even when there are guarantees against raising the SVR above a certain percentage, there are usually clauses in the small print stating that this guarantee can be withdrawn in 'exceptional circumstances'. These could include any circumstances in which the lender's business may be put at risk, and in the current economic climate - with interest rates at unprecedentedly low levels - many other smaller building societies could use this reasoning to increase their Standard Variable Rate.

Why are the building societies doing this?

For the smaller building societies, the majority of their customers are on tracker rate mortgages, which will mean relatively low monthly repayments whilst the base rate remains at 0.5%. The smaller building societies are therefore working on very tight margins where it comes to their lending.

All of the banks and building societies need to attract savers, because these are the consumers that bring regular cash flow into the business. And if smaller building societies are unable to attract new savers because they cannot afford to pay competitive interest rates on savings, they need to find some way of bringing in some extra cash. Although the tracker mortgage rates cannot be put up, the SVR can be changed at any time, and so this is how the small building societies have had to adjust their rates to counteract their earlier low-rate lending.

What can you do about it?

If you are on your lender's Standard Variable Rate at the moment, you can choose to remortgage and find a better deal elsewhere. Choosing a fixed rate remortgage would at least guarantee that the rate would not be able to rise for the period of the remortgage loan, guaranteeing you a higher level of financial security.

The only reason this may not be an option is if you do not have any equity available in your property, as this would make it harder for you to actually improve your rate by moving. However, there is no harm in shopping around to find out whether you could improve your current mortgage situation.

Want free, no-obligation quotes and advice tailored to your personal circumstances?
Request a callback from a qualified remortgage adviser today by filling out our remortgage form.

Do You Know which Mortgage Rate You're Paying?

2010-03-04T00:00:00Z

A mortgage is likely to be the most significant expense that most of us will face in our lives, and yet a surprising number of people would not be able to say which rate they were currently on. According to recent research by the Post Office, 28% of mortgage holders do not know what interest rate they are paying on their home loan. This amounts to a staggering 3 million UK borrowers who could potentially be paying back their mortgage loan at an uncompetitive rate.

Over a third of borrowers (35%) are currently on their lender's Standard Variable Rate (SVR). Some may be on this rate because in fact they have decided that it is the best decision for the moment. However, at least a third of these SVR borrowers are assuming that the lender's 'default' rate is the best one for them.

The problem is that if you rely on the goodwill of your lender to put you onto the most competitive rate for your circumstances, you are likely to lose out. Banks have absolutely no incentive to make their SVR competitive because it is never available to potential new borrowers. Instead, this is the rate that you will be moved onto when your fixed rate mortgage deal, your discount rate mortgage deal or your stepped rate mortgage deal has come to an end.

Post Office Personal Lending Director, Marco Hughes, said: "Although it might seem that staying on your current SVR is the easiest thing to do, you are much more vulnerable to interest rate rises. Some providers have increased their SVRs quite significantly even though the Bank of England base rate has not moved and as a result many borrowers are seeing their monthly mortgage repayments increase more quickly than they thought.

"If you're thinking about switching mortgage, now is the best time to do it, before rates rise further. With many SVRs at or above 4% there are already better deals to be had out there. Switching mortgage does not have to be a stressful experience and spending a bit of time searching and comparing deals could save you a significant amount of money in the long term."

If you try and move your mortgage to another provider (or to a different product at the same lender), you'll probably be subject to charges for doing this within the introductory period. This is because the bank can only afford to offer you a cheap fixed, discount or stepped rate deal if they can guarantee your business (and those lovely interest payments) for a certain period of time. However, once you are out of this introductory period, you can have your mortgage with whomever you choose, and you (usually) have absolutely no obligation to stick with your current provider. In the world of personal finance, loyalty definitely does not pay.

The first step should be to find out from your lender which interest rate you are currently paying on your mortgage loan, if you do not know already. If you've been with a lender for a few years, don't assume it's the same rate you started on. If you are tied into an existing mortgage deal, find out how long you have left on this deal and make a note to start shopping around several months before it runs out. Whichever stage you are at currently, it makes sense to shop around and see what else is available in the market.

If you'd like to talk through your options with an experienced adviser, simply fill out our short mortgage form and an adviser from the Simply Finance network will be in touch with you shortly to give you no-obligation advice and quotes tailored to your current circumstances.

First Time Buyers, Your Time Has Come!

2009-10-08T23:00:00Z

According to new research from national lender Abbey, it is now actually cheaper for potential first time buyers in the UK to purchase a property than to continue renting. The only exception to this is in London, where it would still work out more expensive to get a first time buyer mortgage than it would be to remain a tenant.

The research found that 1.61 million Britons were looking to buy in areas outside of London, and based on today's first time buyer mortgage rates, the people surveyed would save £624 each or a collective £1 billion over the next 12 months if they did decide to buy a place of their own. Unfortunately for those based in the capital looking to get onto the property ladder, the fact that house prices are still at a premium means that they would actually be £466.19 worse off per month by choosing to buy rather than rent.

For the potential first time buyers outside London, the average monthly rent comes to £434. First time buyer mortgages, as they stand in the market today, would cost an average of £382 per month if taken out with a 25 per cent deposit - a saving of £52 per month. Of course if you are able to put more upfront capital into your property in the form of a larger deposit, your savings could be even greater.

Across the UK, typical first time buyer properties (new-build flats and terraced houses) now cost an average of £92,861, a decrease of 9 per cent from last year. Therefore, if you were looking to take advantage of these lower prices, you would need an average deposit of £23,215 (or 25 per cent) for a first time buyer mortgage. It's particularly good news for potential first time buyers living in Wales, where you would make an average monthly saving of £90.91. This is followed by the North West (£87.43) and Yorkshire (£77.06). Buying a place in East Anglia as opposed to renting would save you a fairly disappointing £2.59 per month.

As the mortgage market is so competitive, many lenders will offer you free valuation and legal fees with first time buyer mortgages, so you should make sure that you shop around to see who can offer you the best deal. If you have a deposit totaling 25 per cent or more of the value of the property you wish to buy, you are hot property for mortgage providers, so if you don't have sufficient savings yet but you want to buy a place, get started as soon as possible. Consider an ISA for tax-free savings or a savings account where you have limited access to your money, as these types of saving usually yield the highest returns.

To find out more about first time buyer mortgages, and talk to an experienced adviser from the SimplyFinance network about your options for getting a mortgage, simply fill out our short first time buyer form and an adviser will be in touch shortly.