MORTGAGES...
Mortgages – so what’s really out there?
There are many kinds of mortgages – capital repayment, flexible, offset, current account, interest only, fixed rate, discounted, variable rate, and many more.
So, understandably, it can all be quite confusing. In addition, your own individual circumstances are constantly changing, which means the mortgage you set up three years ago isn’t necessarily the best for you today. This is why advice is so important.
The following will give you a quick taster of what each has to offer.
There are four main types of interest payment on either interest only or repayment type mortgages. On this page we will explain the workings of each of these interest charges. Fixed Rate, Variable Rate Capped Rate , Discount Variable Rate.
Fixed rate - Fixed rate mortgages have an interest rate that remains the same for a period of time - usually between 1 and 5 years. After this period of time the interest rate reverts to a variable rate. The fixed rate is usually at a discount as an incentive to take out the mortgage.
The advantage of fixed rate mortgages is that there are no surprises for the duration of the fixed rate. The downside to this type of mortgage occurs if the Bank of England base rate or Libor rate falls, in which case you could end up paying more than you would have with a variable rate mortgage. Also if you want to leave before the agreed term the early redemption penalty is usually significant. For example you may be charged six months gross interest if you leave a five-year fixed rate agreement - this can be many thousands of pounds.
Return to the Top
Variable Rate - with a variable rate mortgage the interest rate varies according to the Bank of England base rate or the Libor rate. A lender's variable rate is set above the base rate by usually 1 or 2%.
With this type of mortgage the upside is the same as the downside; the interest rate can go down, saving you money, or up, in which case your interest payments increase.
Capped Rate - With a Capped rate mortgage the amount of interest you pay can go down if the variable rate falls but cannot go above a predefined maximum. The advantage is that the rate can never go too high and if the rate falls then you pay less.
The disadvantage of this type of mortgage is that there are only a limited number of these deals on the market and they can be less competitive than fixed or variable rates. There is often also an administration charge.
Discounted Variable Rates - As the name suggests, to tempt new customers, lenders will offer a variable rate at a reduced initial rate or below their standard variable rate. After the agreed period, again one to five years typically, the rate reverts to the lender's standard variable rate.
The interest rate during the discount period will go up and down in line with the standard variable rate. Disadvantages of this type of mortgage are obviously that the rate can go up and there are penalties for leaving early. It is possible that penalties may be charged for a period longer than the discount period. This is called overhang.
For further information about interest rates on mortgages please contact us.
Other things to think about: 
Very low rates may tempt you, but they do come at a price. See how long you will have to stay with the lender before you can switch without penalty.
A flexible mortgage is great but unless you use the flexible options then a traditional mortgage might offer better value. Making overpayments at the right time could save you money.
A mortgage with daily interest calculations but a slightly higher interest rate than a mortgage with annual interest calculations could actually be cheaper.
Paying lender fees for a lower rate could work out cheaper over the term of the mortgage.
Choosing a lender with slow service could leave you on a higher rate while waiting for the mortgage to complete making that fantastic deal not so fantastic after all.
Explanation of the possible fees involved: 
Higher Lending Charge (also known as High Percentage Lending Fee or Mortgage Indemnity Guarantee):
For high Loan to Value (LTV) mortgages i.e. where the loan is not much less than the value of the property, it is common practice for the lender to take out a form of ‘insurance’ to protect against some, or all of the losses incurred, if the property needs to be taken into possession because of serious arrears. It is common practice for lenders to pass this charge on to the borrower.
Depending on the amount of loan and the LTV the Higher Lending Charge can be a significant cost e.g. a £47,500 mortgage on a purchase price / valuation of £50,000 would result in a £750 charge on a typical HLC charge of 7.5% on a normal lending limit of 75% loan to value. Most lenders have a different name for this charge i.e. it may appear on the mortgage Offer as Mortgage Indemnity Charge, or High Percentage Lending Fee.
There are some important facts to understand about the Higher Lending Charge. It acts as a form of insurance for the lender not the borrower. This means that the lender can claim part or all of its ‘losses’ incurred repossessing the property from the insurance company providing the HLC cover.
Note that even after repossession the former borrower will remain liable for any sums owing (shortfall between selling price and mortgage outstanding plus arrears, lenders legal costs and any other charges applied to the mortgage) and can be pursued by the insurance company for payment at a subsequent date.
Arrangement/Booking Fees:
Both can be either up-front fees/charges levied at the outset of the mortgage or added to
the loan amount on completion, or deducted from the loan funds sent to the solicitor on completion.
A booking fee will normally be required with the application form. A booking fee is paid to reserve funds on a mortgage product that has limited funds available e.g. a first-come,
first-served fixed rate. Booking fees are often non-refundable, so if the mortgage applicant cancels the mortgage application before completion the fee will not be reimbursed.
An arrangement fee is typically charged on completion of the mortgage. Arrangement fees
are common on most types of mortgages. Frequently they can be added to the mortgage hence the fee does not become an ‘out of pocket’ expense.
Survey Fees:
The amount charged to conduct a valuation of the property on behalf of the lender. It is important to note that the valuation is carried out on behalf of the lender - not the mortgage applicants! Frequently lenders include an administration fee as part of the valuation fee collected to cover the costs of arranging the valuation. The valuation does not represent a detailed inspection. For peace of mind it may be appropriate to obtain a ‘Homebuyers Report’ or a ‘Full Structural Survey’. These are more detailed than a lender valuation but they produced on behalf of the applicant. They are more expensive than the lenders valuation.
Solicitor's Fees:
It is necessary to have a solicitor or licensed conveyancer to act on behalf of the mortgage applicant and the lender in the house purchase or remortgage transaction. The costs will be greater for house purchase than for remortgage. It is the role of the solicitor or licensed conveyancer to note ownership of the property on the title deeds; note the lenders interest in the property; register the transaction with the Land Registry and conduct searches to identify if there may be factors which could affect the property e.g. coal mining search to check for subsidence; check to see if there are some planned major road developments going through the back garden etc.
Broker's Fee:
Depending on the complexity and the man hours involved in a case we may also charge a Client Fee. Should this be the case, you will be requested to sign a separate fee agreement,
detailing the scale of fees chargeable and the terms, prior to any commitment on your part and processing of any applications. Please refer to our Initial Disclosure Document.
Stamp Duty:
Purchase tax on a property over £125,000, = 1% of the purchase price, over £250,000 = 3%
of the purchase price, over £500,000 = 4% of the purchase price. This is collected by the solicitor before the completion of the purchase, and is a tax levied by the Government.
Please read our Privacy Statement before completing any enquiry form or before sending an email to us. The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. The FSA do not regulate some types of buy to let, commercial, overseas mortgages, and credit or loans not secured on property. Calls may be monitored and recorded for training / compliance purposes.
Neville Richards Financial Services Ltd is an appointed Representative of Intrinsic Mortgage Planning Ltd which is authorised and Regulated by the Financial Services Authority. Intrinsic Mortgage Planning Limited is entered on the FSA register (http://fsa.gov.uk/register/) under reference 440718.