Archives October 2019

What is a normal term for a mortgage?

What is a normal term for a mortgage?

It looks like the 25 year mortgage is over!

There is no “set” term for a mortgage. In theory it can be any length, the longer a mortgage… well the longer you pay it back for. But usually a longer mortgage means cheaper monthly payments, and more interest for the lender! Generally though mortgages have been 25 years. That is the “standard” I suppose.

But recently there has been research about the different length of mortgages that have been taken on and it looks like the “standard” of 25 years, is declining. At the moment the “standard” only contributes to 2.97%. Which is hardly anything really. Then looking at the nearest as the 30 year and the 35 year mortgage, they make up around 45% of mortgages in 2019. With 40 year mortgage making up the rest, which is over 50%. Source  (you are now departing from the regulatory website, Coleshill Mortgage Services or Quilter Group are not responsible for the accuracy for the linked site)

This is a huge shift in ideals, what products are on offer and shows the change in the market. And not only that but you can get mortgages when you are older now.

A part of this is the slow down in the market overall. Lenders need to lend so they have to make their products available to as many people as possible. It needs to be accessible, so allowing longer mortgages, with potentially less payments is a good start. Allowing older people to take on these longer mortgages, also opens up that market to people to get mortgages.

What are the potential downsides to a longer mortgage then. Well the issue is to do with retirement. If you say get a mortgage at 35 years old at 40 years. That means that you will not have paid off your mortgage until you are 75 years old. If all goes to plan in your life, you probably want to retire at 65. So you have an additional 10 years of mortgage payments. Can you and your pension afford that? That is the risk, and its hard to think about that at 35. You want a house, this is an option you can afford. But truly think of where you will be at 65. Can you afford those payments then.

With the market constantly changing, and what is the norm 30 years ago, is not the same as it is now. Make sure you understand what sort of mortgage you get, what ramifications there are for you. And think for the future.

Always speak to someone you trust. And someone who understands the market now!

Your home may be repossessed if you do not keep up repayments on your mortgage.

What you need for a deposit. Tips on how to save!

What you need for a deposit. Tips on how to save!

The deposit for a house is usually what you have to put down as an initial payment to apply for a mortgage. It usually sits around 10-20% of the value of the mortgage/property. So the average price of a home in the UK at the moment is £234,853. That means if you are going for 10% that comes to £23,485. Bearing in mind the average wage in the UK sits around £36,000 a year. Which means saving to £23,485 as a lump sum is quite a lot. So if you take out all your bills, rent, food and social spending; what do you have left?

If you were saving 10% a month, after tax you would have around £2583 a year (hugely depends on your personal tax code, pension contributions etc). So to get to the required deposit you need to save for around 9 years.

Wages are increasing, the average wage was £29,000 last year. This means it is getting better for people. So there is hope, 6.5 years is not too long and can be helped if you are doing it with a partner.

So tips for saving for your first home, or even your next home.

  1. Switch bank account. There are lots of perks for switching accounts. Some banks offer cash back for switching, or even cash for putting money in there each month, or high interest rates for a certain time. It’s not a huge amount but it is a good start.
  2. Look for deals. You don’t have to be a social pariahs, but if you look at 2 for 1 deals, coupon meals, go on special nights (curry night in the pub etc). You will find that saving is a little easier.
  3. Switch energy providers. This is a simple one, you are probably most likely paying a little bit too much if you have been with the same provider for years. Get it changed, the energy market is much more competitive than it used to be.
  4. Get rid of short term debts. Credit cards, short loans, PCP deals etc. These are all at high interest values, so if you are able to get rid of at least some of these, if not all of them, then this will save you money in the long run. Even if it means not saving for the first couple of months, if you are able to clear those debts it will help.
  5. Get rid of things you don’t need. Do you need all those computer games, all those clothes, all that furniture, all those kitchen gadgets. Anything you have not used in a year. Sell!
  6. Follow the people you like to buy from on Twitter or on their social channels. Most will advertise their deals through these channels and you can get your hands on them first.
  7. Can you get it for free? For things like white goods and furniture you might be able to get them for free. There are websites like Freecycle where people are selling all sorts for free. So if you desperately need that sofa or fridge, get if for free!
  8. Plan your meals, take food into work, it really helps. If you are getting a little meal deal every work day, is it really worth it. You genuinely could make better sandwiches at home.
  9. Get rid of the services. Netflix, Amazon Prime, Xbox game pass, Gousto… All of these services, cost money. I’m not saying get rid of all of them, but limited yourself. Set a budget – £20 a month, so what can you lose.
  10. Get into the saving spirit. This is about mind set, you need a budget for the week and then the weekend. Take that out in in cash, once it is gone, it is gone.

You cannot just do one of these things, it needs to be a multitude of little things that result in you making those savings. And that means you can put away your 10% every month.

And really they should be habits you keep for life, throw off those consumable traits and look at saving 10% every month for the rest of your life. You could even put it into a pension!

Why on earth would you go for an interest-only mortgage: Pro’s and Con’s

Why on earth would you go for an interest-only mortgage: Pro’s and Con’s

Is it worth that risk on an interest-only mortgage.

There are sort of three types of mortgages you can get for a house. There are more, but these are three of the main types. There are Fixed Rate, Variable Rate and Interest-only. We have spoke about variable rate and fixed rate mortgages in reasonable detail here. 

But we have not always spoke about interest only. Its not as common, or as risk averse as the other two types of mortgages. So what is an interest only mortgage.

What an Interest Only mortgage is.

An interest only mortgage, like any other mortgage is a loan. Its a loan to pay for a house, so typically, you place down a deposit, than the lender looks at your credit history and financials and you get the mortgage. Difference comes in what and how much you pay back. When you get a mortgage there is a percentage that is placed on top of that mortgage. You may lend £180,000 for a mortgage but you pay back more, because like every loan, there is interest placed on it. This is often where lenders can be competitive, offering you better interest rates, or a certain percentage over a set period of time.

When you get a fixed rate or variable mortgage, you pay back a portion of the mortgage plus the interest. Is the different in an interest only mortgage? Yes it is!

Very simply on an interest only mortgage, you only pay back the interest part of a mortgage. This means you are not paying back any of the actual loan, just the interest part. So in theory at the end of the term of the mortgage, you will have not paid any of the actual loan part left. You will own no more or the property of what you put down as a deposit. So I hear from the rafters “That seems like a silly idea!”

Well there are some reasons to do it, but as always there are risks attached to it.

Here is your list of Pro’s and Con’s

Pro’s

  • The repayments are low, much lower than if you were paying back another type of mortgage.
  • If your house increases in value, and you can sell it, in theory you can make money off of the sale.
  • Through inflation your debt depreciates in value over time.
  • After the general term of your mortgage, you can move onto a Fixed rate or Variable rate, but you will have increase mortgage repayments

Con’s

  • If by the end of the term of your mortgage, you may not approved for another mortgage, then you quite large debt, or which, none has been repaid.
  • Property prices may not have increased, so if you were looking to sell your property you may not be able to get what you lent back.
  • Some people who take on interest only mortgages chose to add money into an investment or endowment, with the idea that this develops and gives you a lump at the end of your mortgage. But if this has not matured how you would like then you can struggle with paying the rest of the mortgage back.

Interest only mortgages are usually used for people wanting the develop property, low repayments, have it for a short time, develop it, rent it out for a few years and sell it at a profit. But with all business ventures there is a risk.

As always speak to someone you trust, make sure you understand what you are doing and why you are doing it.