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All your mortgage questions answered!

Hello and welcome! Ray Boulger is Senior Technical Manager for Charcol Online, and one of the UK’s leading mortgage experts. Ray has answered a selection of YOUR questions. Please refer to chat transcript below.

N.B. Answers and information are intended for general information purposes, and not intended to constitute advice or guidance which you may rely on, nor are they a substitute for professional advice based on a full understanding of your personal circumstances.

Chataboutmoney Moderator: Thank you very much for taking part in the webchat. We have had hundreds of questions so unfortunately have not been able to answer them all. This is the end of the webchat.
Ray Boulger: I am taking away a huge postbag - and will try and answer some further questions and make them available either here or on the chataboutmoney.co.uk website. Do check there for the transcript of this chat today and further questions and answers. Thank you to everyone who took part and sent in questions.

Anonymous: Is it horrible being a mortgage advisor!!!? i am training to become one!!!
Ray Boulger: The buzz I get out of being a mortgage adviser is being to help people achieve their ambition of being able to buy a property. For some people it is simply a question of identifying the most suitable deal out of many which may be available to them. However, the real buzz comes from solving what clients find a difficult problem when their circumstances are such that one has to think 'outside the box'. Experience and help from your colleagues will all be important in enabling you to be a good adviser. Good luck with your exams and your future career!

John S: Hi ray, Where do you see the Bank of Englands interest rates going ??
Ray Boulger: I think we will see inflation fall next year and the base rate cut by the Bank of England. I expect to see two or three cuts of a quarter of a per cent over the next year.

Monkeyman: How does an offset mortgage work?
Ray Boulger: An offset mortgage consists of a mortgage and a linked current and/or savings account. Interest is charged each day on the net borrowing, i.e. the mortgage less any amount in the current and/or savings accounts. Therefore, the more money you have in these linked accounts the less money you are charged and hence this helps you repay the mortgage quicker. This is a very tax-efficient way of using savings because if you received interest on your savings it would be taxable, but by paying less interest on your mortgage instead, the effect is to receive the interest on your savings tax-free.

SJL: Do all mortgages allow you to pay additional amounts to without penalties?
Ray Boulger: No - but most do. The most common feature is to allow up to 10% of the mortgage to be repaid each year with no early-repayment charge. Some have a minimum amount for any such overpayments, typically around £500. Before making any overpayments you should check the terms of your mortgage offer to see how much, if anything, you are allowed to overpay.

Rog: Hi Ray,
My wife earns Approx £45k annual salary, however i have recently set up my own company and will have no stable income until the spring. I expect this income to be approx £30k in a 6 month period. My business is tourism and is obviously seasonal. Can we get a mortgage on my wife's salary alone and how much could we borrow?
Ray Boulger: It is perfectly feasible to apply for a joint-mortgage but for this to be based solely on your wife's income. Provided she has a good credit record she should be able to borrow up to about 5x her income i.e. approximately £200,000 providing you have no other financial commitments.

Olive1: I am in the process of completing a remortage, but they have just told me about an higher lending charge which i have to pay. is this correct.
Ray Boulger: You should have been told about this charge before you made the application, and indeed it should have been shown on the Key Facts Illustration (KFI) that you will have been given, therefore you should have known about this before you parted with any money. However, one possibility is that the valuer has valued your property at less than you estimated resulting in the loan-to-value (LTV) being higher, pushing you above the level at which a higher lending charge is incurred. Unless the value is well below your estimate, I would have expected your mortgage adviser to have pointed out this risk to you.

Ann: I am about to take out a new mortgage as I ambout to purchase a new property. I am very tempted by the fixed rates for 25 years, would you reccomend this?
Ray Boulger: The only lender currently offering such a deal is the Cheshire Building Society with a rate of 4.99%. This is an excellent rate for such a long-term mortgage and it does offer significant flexibility. You can repay up to £5000 each year without incurring an early repayment charge, and any overpayments can be borrowed back as a lump sum, or you can take a payment holiday should you need to do so. Crucially, you are not locked into this mortgage for 25 years - you have the option to redeem it, with no early repayment charge after 6 years and then every other year thereafter. It's an excellent deal offering flexibility combined with long-term security.

Cicily Roberts: my partner and I plan to buy a new home together and wonder if there is a mortgage we can get that lets us both pay toward it but seperately into parallel accounts so we can easily note who has contributed how much toward the mortgage.
Ray Boulger: An important point to bear in mind is that the mortgage will be a joint and several liability, which means that even if you pay different amounts into the mortgage, you will both be equally liable for the amount. A convenient way to achieve your objective would be to have an offset mortgage on an interest-only mortgage and for you both to set up individual current and/or savings accounts linked to the mortgage. You can then each pay in as much as you like and easily keep track of how much you have each contributed. Although no lender yet markets a mortgage in this way, identifying how an existing product can be used to meet this sort of requirement is the hallmark of a good mortgage broker!

JoJo: Are there any advantages to keeping a mortgage when you have the funds to clear in full?sorry if this is a daft question
Ray Boulger: There is no point in having your savings invested and earning a lower rate of return after tax than you are paying on the mortgage. Therefore, in general, providing you don't anticipate needing the savings, I would recommend paying off the mortgage. Property deeds are now held electronically at the Land Registry but your lender will hold your paper deeds and if you leave £1 on your mortgage this is a convenient way of storing your deeds at no cost - to you!

Micha: How will SIPS investments in domestic propert. impact the housing market next year?
Ray Boulger: I expect it to have a very modest impact and any additional source of funds to invest in the property market is bound to mean that property prices are bound to move higher than they would have otherwise done - however, the proportion of SIPP purchases to other purchases is likely to be relatively small. I do expect house prices to increase gently over the course of the next year.

Twixinix: Hi there,we have been agreed a mortgage in principle from a lender through a broker what does that mean exactly.
Ray Boulger: Approval in principle should mean that the broker has submitted an application to a lender who will then do a credit check. Providing this is satisfactory, they will confirm they will lend you up to a specified amount - subject to the valuation of the property being acceptable and any references the lender needs.

RobL: Do really need a lumpsum to make offset mortgages pay off?
Ray Boulger: Offset mortgages tend to have a higher interest rate than non-offsets but with increasing competition the gap is narrowing. However, to make an offset worthwhile, you either need to have a reasonable amount of savings to offset against the mortgage and/or a volatile cash flow. This could be because your income fluctuates significantly, or perhaps because you have significant large items of expenditure occasionally. So, for example, someone who is self-employed and has to pay a tax-bill twice a year could save the tax money through their mortgage until it is needed. One very competitive offset mortgage that Charcolonline has launched as an exclusive is Bank Base Rate plus 0.19% (current pay rate = 4.69%) until Jan 31 2009. On remortgages, there is a free valuation and free legals and with a low set-up cost and an interest rate close to the best non-offset mortgages. You don't need much in the way of savings for this mortgage to be very attractive.

Bins: I,m about to be divorced and will have a cash setlement. Will i be able to get a mortgage as i have never had one before
Ray Boulger: The cash settlement will provide a useful deposit but you will need to demonstrate to a lender that you can afford the mortgage payments. The fact that you have not had a mortgage before is not a problem, providing you have sufficient income to support the mortgage you want. A few lenders will take account of any maintenance payments you receive so if you have both earned income and maintenance payments you will be able to get a larger mortgage.

Mark: What is the best option, if you have the opportunity to either pay off a remaining 50k mortgage or use that 50k to purchase another property for letting?
Ray Boulger: There is no simple answer to this! If you are happy to take the risk of investing in another property because you believe that property prices will perform well over the medium-to-long term then investing in a buy-to-let property is worth considering. If you do this, you need to think about whether to buy the property in your own name or to take advantage of new rules coming in next April, which will allow you to buy it in a pension scheme called a Self Administered Personal Pension scheme (SIPP) which has significant tax advantages. If you are risk adverse, using the money to pay off your mortgage will leave you with more money each month out of your income.

Dawn: I currently have a discounted rate repayment mortgage for £110k, this discount comes to an end in jan 2006. I plan to move my mortgage at the end of the discounted rate. I will have 23 years left to run on my mortgage can you recommend what type of mortgage i should consider
Ray Boulger: There is no need to change the type of mortgage you have, assuming you are happy with the deal. I would recommend asking your lender what deals that can offer you, and compare those with remortgage deals available from other lenders, which you can discover, for example, at our website. To make a valid comparison, you need to compare the total interest you will pay over the period of the deal with the total costs such as any valuation, legal and arrangement fees. Ignore the APR, as this will be misleading if you plan to take another deal after your new deal expires.

Sonicsue: If you have a mortgage do you have to have buildings insurance and life insurance?and what happens if you have not got these?
Ray Boulger: All lenders will insist that you have buildings insurance. If your property is freehold, this will be your responsibility to arrange, but if it is a leasehold property the service charge you pay will normally include your share of the buildings insurance. Life insurance is not a requirement of any mortgage these days, but either life insurance and/or critical illness insurance would be strongly recommended for most borrowers.

Pammy: If i earn 30.000 per year how much of a mortgage could i get
Ray Boulger: If you have no other financial commitments and a good credit rating, you would be able to borrow up to about five times your income - in this case then around £150,000. The more financial commitments you have, such as loans or credit cards, the less you will be able to be borrow. There is a calculator available online on our website which will give an indication on how much you can borrow.

Twiggy: Can you explain an interest only mortgage and how we can apply for one.
Ray Boulger: Essentially, all mortgages are either interest-only or repayment. An interest-only mortgage is cheaper because you are not paying back any of the capital each month. You therefore need a plan to repay this capital, which could be making occasional payments from e.g. a bonus or you could have some other funds that you simply expect to have available in the future. With a flexible mortgage, including offset mortgages, you can simply put all your spare cash into the mortgage and the more you pay in, the quicker you will repay your mortgage. Interest-only mortgages can be particularly helpful for young professionals who will often have other debts (e.g. university) to repay but who might expect well above-average pay rises and can switch the mortgage to repayment after a few years.

Scottylad: How exactly does a fixed rate mortgage work and what are the good and bad points of one
Ray Boulger: It will have a specified rate of interest for a set period of time, usually between 2 and 5 years. The major plus of this type of mortgage is that because you know exactly what your monthly commitment will be, it is easier to budget. Most fixed-rate mortgages have early repayment charges during the period but are portable - and so if you move they can usually be transferred to a new property. If you think interest rates are likely to fall and you don't need the certainty of knowing what the monthly payments are, then a tracker or discount mortgage is the alternative.

Michaela: How long do you have to be in a job before you can apply for a mortgage?
Ray Boulger: If it's your first job, most lenders would want you to be employed for at least 3 months, however if you have changed jobs then in most cases there is no minimum period, particularly if you continue to do the same type of work. Many lenders don't mind a probationary period but some will not grant a mortgage until you have finished it.

Tas: How does a lifetime mortgage work?
Ray Boulger: It's aimed at the retired market, and mostly those aged 60 and over. Interest is charged and added to the mortgage rather than this sum being paid each month, so that when you die or move into a home, the property is sold and the total debt is repaid - including the interest - from the sale of the property. You can either have a lump sum, a series of lump sums or a regular monthly amount guaranteed until you die, tax free.

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