The Current State of Britain's Mortgage and Financing Options

Getting yourself the right type of loan may determine whether you’re set to make a profit, or doomed to make a loss on your property investment. It may seem a headache to plan but it pays to get it right; everything’s easier when you understand. We spoke to Ray Boulger, John Charcol spokesperson and mortgage guru, about the current state of mortgage and financing options in the UK.

Property prices may be high and seem to be ever rising, but if you already own your own home and are thinking of expanding your property portfolio, you may have more financing options than you think. Over the past couple of years, lenders have opened up more options for borrowers – particularly for multiple-home owners.

Secured or Unsecured: Which is best for me?

The days of zero percentage interest are long gone - and not set to return - but it is possible to secure a good loan if you understand your situation and do your research.

Secured Loans

There are three main options for refinancing, using your existing properties as security.

Remortgage
  1. Re-mortgage – if you have no mortgage on your existing property /properties, you may re-mortgage these as they will incur better rates than taking out a mortgage on a new property, particularly one that requires renovations.

  2. Second charge – if you are still in the process of repaying a mortgage and have an excellent low interest deal that you don’t want to change, you may choose to take a second charge (another mortgage with the same lender). Second charge mortgages take secondary priority over your main mortgage (a.k.a. first charge mortgage). More information here

  3. Further advance – This is essentially to add money to your existing mortgage (typically at a higher rate). More information here

Unsecured Loans

An unsecured loan will not use your existing assets as security.

Credit score
  • Pro: Unsecured loans do not use the borrower’s home as security.

  • Con: However, therefore they are more difficult to get for large amounts of money.

Popular options include:

  1. Bridge loan – This is the most common short-term solution – but not necessarily the best for you. It is not always unsecured as sometimes lenders will want a second charge on property you already own.

    • Watch out for exit fees, which you need to include when considering how much your loan will cost you. This is crucial to remember if you only need the loan for a short period of time – read this article from Money Super Market for an example of how exit fees can catch you out.

    • Some bridging lenders will guarantee the option to switch to a normal mortgage at the end of the bridge – some people like this security.

  2. Credit cards – Sometimes the best option for those with excellent credit. If you don’t have excellent credit, forget it – this is not the option for you!

  3. Money transfers – These are offered by some banks. While it’s most common to shift debt from one credit card to another, a money transfer allows you to shift cash from the card to your bank account, giving respite from overdrafts of loans onto 0% for up to 36 months, saving you thousands of pounds.

  4. Loan for buy-to-let – Some lenders will lend based on an evaluation of purchase price and an evaluation once all work is completed.

 

Ray Boulger is Senior Technical Manager at John Charcoal – a trading name of John Charcol Limited who are independent mortgage experts.

Sources

http://moneystepper.com/property/average-mortgage-length/

http://news.bbc.co.uk/1/hi/business/593477.stm

http://www.parliament.uk/briefing-papers/SN00917.pdf

http://www.which.co.uk/money/mortgages-and-property/guides/mortgage-deposit-explained/how-much-deposit-do-i-need-for-a-mortgage

http://mortgage-x.com/general/national_monthly_average.asp?y=1995

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/418665/Table-a1.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/418669/Table-a2.pdf

https://www.ukpower.co.uk/home_energy/average-energy-bill

http://www.ifs.org.uk/comms/r85.pdf

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