Special Mortgages

Special mortgages designed for particular purposes . . .

Some providers have products specifically designed for particular circumstances, e.g. Buy To Let properties, First Time Buyers and Remortgage. These products are derived from one or more of the 7 standard mortgage products. Certain features are added to the standard mortgages by providers to accommodate these special mortgage types:

Buy to Let: This offers you a mortgage to buy a property which is not intended to be your residence but is intended to be rented out to tenants. To accommodate this providers will expect:

• An estimate of the annual rental income which should be a significant percentage of the loan amount, e.g. 10%
• Evidence that a professional letting or managing agent will be appointed
• Proof of your income to supplement the rental income
• A significant deposit for the property, e.g. 30%
• Reasonable demand exists for rental property in that area

Note: Buy to Let mortgages are not regulated by the FSA.

First Time Buyers: To assist First Time Buyers providers sometimes offer added features to their standard mortgages - a small deposit on the property (could be less than 5% of the property's value); a cash back amount to spend on furniture and home improvements; a discount on the interest rate for the first few years (but be alert to subsequent penalties if you wish to change mortgages); some support for payment of professional services, e.g valuation report.

Remortgage: If your property has risen in value significantly or if you have repaid a substantial amount of the mortgage, some providers offer you a remortgage product which enables you to cash in on the increased value of your property.

Remortgage allows you to realise cash out of the increased value in your property without selling or moving home or gives you the opportunity to negotiate a better deal. However, be aware that property values fluctuate and remortgaging should be considered as if a new mortgage is being taken out. You will need to consider your personal circumstances especially your personal cash flow.

Repayment methods: Repayment or Interest Only

Repayment

Your monthly instalments will contain two elements, one to repay interest and the other to repay some of the capital borrowed. The lender may require you to take out life insurance to cover the repayment of any mortgage outstanding.

Plus Points: This is the simplest form of repayment and reduces the amount owed to the lender with each instalment payment.

Points to Watch: Usually mortgages are taken for a period of 25 years (although you can choose a shorter period). This means that each time you move homes and re-mortgage you will be extending the period to repay the mortgage.

Interest Only

This means that your monthly instalments will cover only the interest you owe on the loan. Normally you will need to make arrangements to repay the capital from your other resources or set up a savings plan to cover the repayment in the future.

Plus Points: Keeps your instalments low and gives you the flexibility to invest in a range of savings plans, some of which can have tax advantages (e.g. Individual Savings Accounts (ISAs) or Pensions).

Points to Watch: As no repayment of capital is included in the monthly instalments you will need to make provision for this. There is no guarantee that your investment or savings plan will cover the mortgage repayment when it becomes due. You will need to monitor this carefully and increase your savings early if required.

Standard investment or savings plans are offered as options to repay the capital on an Interest Only Mortgages: