Special Purpose Mortgages

When considering mortgages there are some types or uses of mortgages that differ from the normal use. Below we have listed these mortgage types and describe what they are and what they are used for.

Charges:

Extended Early repayment charges

Mortgage lenders often charge fees should you wish to end the mortgage during a specified period of time. Usually you will only be charged a fee if you end the mortgage during your fixed, tracker etc rate period, however some charge after this time, these are referred to as Early Repayment Charges.

Be sure to ask your mortgage broker about Extended Early Repayment Charges as they can often prove to be an uncomfortable sting when you are looking to remortgage onto more competitive mortgages.

Higher Lending Charge

This is sometimes charged by the mortgage lender if your mortgage is in excess of 90% of the value of your home (known as the Loan To Value ratio).  You don’t gain anything from this – it just protects the lender.  So keep a look out for it.  However, do not automatically rule out a mortgage deal if the charge applies.  Again, consult your mortgage broker.

Purposes:

Capital raising

A capital raising mortgage is were the mortgage is taken out for a greater amount than the properties worth, for example 125% mortgages. The purpose of this type of mortgage is to allow the borrower to ‘raise capital’ a fancy term for get some money together, usually for the purpose of refurbishing the property.
The main advantage of a capital raising mortgage is that your mortgage rate is likely to be significantly less than  a personal loan rate.
In the current climate such mortgages do not really exist but it is worth keeping in touch with your mortgage broker as similar or alternate product may be suitable for your needs.

Debt consolidation

Debt consolidation mortgages are another example of taking advantage of  the lower rates found with mortgages (secured loans). The advantages are that you will have your debt in one place subject to one interest rate that is lower than most of the other, lowering your monthly repayment commitments.

The downside is it can damage your financial health as a greater amount of money borrowed on a single credit line is bad news (its better to have 10 x 10,000 loans than 1 x 100,000 loan from a credit profile stand point)

Endowment shortfall

An endowment policy was popular form of investment used along side interest only mortgages. They have been highlighted in the press as many endowment policies were mis-sold and an even greater number will mature and pay out less than the capital owed on the mortgage.

People with endowment policies that are expected to fall short can improve their position by changing from interest only to repayment to help cover the mortgage cost, leaving less of a gap at the end of the mortgage term.

News

Nationwide Offers First Time Buyers a Discount

Friday 16th October
The nationwide today has stepped forward with 2 new offers to help open up the market for first time buyers.

The offers are as follows; a £500 discount off any reservation fee’s or a £250 discount off reservation fee’s and no legal’s to pay.

The offers are available on The Nationwide’s 3, 4 and 5 year fixed rate deals and also on its 3 year tracker deal.

Mortgage director at Nationwide, Andy McQueen, said: "We are reducing the amount that [first time buyers] need to pay upfront and so hope we've removed a barrier which may have prevented people from buying a home ."

The move will be welcomed, however the true barrier to first time buyers at the moment is the excessive deposit amounts required by all major lending institutes, making a £500 discount as practically useful as a £5 reduction for most.

Coalition to Fight Stamp Duty Formed

Friday 16th October
The National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents have formed a coalition named “1808 Coalition” after the date Stamp Duty was introduced.

The two groups and of course the coalition they form, believe the reinstallation of Stamp Duty at its normal levels will be detrimental to First Time Buyers and Buy to Let Investors.

Stamp duty, which is normally in place for transactions on residential property above £125,000 in value has for some time sat at £175,000 in a bid to re-light the fire under the housing market, however it is due to return to 125,000 on December 31st this year.

Stamp duty is applied to the total sum paid in consideration for a property where that sum exceeds the threshold. For example on a property transaction of £190,000, £1,900 is due in stamp duty (1%), not as many believe 1% of the sum exceeding the threshold i.e. £15,000 (£190,000 - £175,000) or £150 in stamp duty.

Chief executive of the NAEA, Peter Bolton-King, said: "Stamp duty is a barrier to entry for many first-time buyers and is also prohibitive for those looking for a step up the property ladder . The time has come to re-assess Britain's most unpopular tax."

Whilst we cannot agree that it its the most unpopular tax (recent surveys show 31% of respondents take the most displeasure in paying inheritance tax, compared to a mere 23% loathing Stamp Duty) however we support their call for an extension to the raised threshold as in the current market conditions, all stops should be pulled in efforts to draw in first time buyers, life blood, into the market.