Ask an expert

I have been renting for a few years now but I think it's time to become a homeowner. Can you give me advice on mortgages?

First of all, congratulations on your decision to become a homeowner. You have to consider the following issues:

1. Where to go for a mortgage? You can choose between banks, building societies and specialist lenders for your mortgage.
2. Which mortgage to choose? You can also choose from a variety of different mortgage products, such as fixed rate, capped rate, discount or tracker
3. How much will it cost me? You have to figure out, with the help from your lender, the amount of money you can borrow and the costs (one-off plus monthly repayments).

You should also take some time to visit Mortgage Assistant's Step-By-Step Buying Guide. This guide takes you through the whole buying process in a detailed way.

1. Where to go for a mortgage?

These days there are a number of different places to go for a mortgage:

• Building Societies
  Building societies are the historical home of mortgages. You can choose between the big building societies, which have national branch networks and offer a full range of mortgages, or small societies that could offer you the benefit of its local knowledge.
• Banks
  In recent years, banks have been aggressively increasing their share of the mortgage market. In fact, many of the big former building societies converted into banks in the late 1990s. Banks also benefit from a high street presence throughout the country, and can offer you a wide selection of deals.
• Specialist Lenders
  

  If your needs are more particular, you can try a specialist lender. If you are self-employed, your credit history is less-than-perfect or you want a buy-to-let mortgage, a specialist lender could offer a more suitable solution than a bank or building society. However, even though specialist lenders are branded differently, many of these lenders actually belong to the big mainstream lenders.

  If you are confident you know exactly what you want, you could apply over the phone or, with some lenders, take out a mortgage online. Not many borrowers choose to do this, at least at present, and it is easy to understand why. With over 4,000 mortgages on the market from such a range of providers there is plenty of choice, but you may well bewildered as to which deal is right for you.

  Taking out a mortgage is probably the biggest financial decision you will ever make, and so you want to get it right. So it could make sense to consult a mortgage broker. A broker may have access to every single mortgage on the market. They are experts, and can quickly find the best deal to suit your needs. So, rather than trawling the high street and agonising over your choice, you could save time and, in the long run, substantial amounts of money by visiting a broker and getting the very best deal for your needs.

2. Which Mortgage?

Luckily, there's plenty of variety in the market and products are being released tailored to specific situations (such as a first-time buyers) more and more often. Nowadays you can choose specific first-time buyer mortgages, including shared ownership, guarantor mortgages and 100% (or no-deposit) deals. Mortgages are also available for Key Workers, and in some instances you can buy with a Housing Association.

Most lenders offer a range of fixed and capped rates, discounts and flexible mortgages. Some offer base rate tracker mortgages, and some will give cashback. Chat through which deals are available for first-time buyers, and which will best suit your needs.

Make sure you visit our "Mortgage Assistant" section. Here you can find out about all the different types of mortgage available in the market.

Because the market is competitive, some lenders offer special incentives to get first-time buyers' business. They might pay for your valuation and / or legal fee, or waive the arrangement fee, for example.

3. How much will it cost?

You can start by sensibly planning a budget (link to budget section in buying guide). The mortgages available to you will largely depend on your income.

Typically, mortgages will offer you anywhere between 3 and 4 times the gross income of a single borrower. For joint borrowers, the maximum loan is likely to be 3.25 times the first income, plus one time the second income, or 2.5 times joint income. This, plus any money you might have to put down as a deposit, adds up to your maximum price for properties.

However, apart from the deposit money, you need to take into account all the additional upfront costs involved in purchasing a property. The legal aspects of purchase can't be ignored - stamp duty kicks in at 1% of the purchase price on properties costing more than £120,000.

Properties costing more than £250,000, and up to £500,000, are charged 3% stamp duty, while properties costing more than £500,000 are charged at 4%. And you'll have to pay solicitors' fees.

You may have to pay an application fee for a special mortgage deal plus, perhaps, an arrangement or completion fee when you finally take the loan. And watch out for Mortgage Indemnity Guarantee (MIG) charges - a form of insurance which protects the lender, but is paid for by the borrower. If there's a charge for this, it may be added to the loan, or could be payable over the early years of the loan.

And don't forget to budget for valuation and survey fees. Finally, it's worth finding out if any refunds or cashback lump sums are available from the lender and look out for lenders who keep fees to a minimum.

If you are on a tight budget you may need a 100% mortgage - a loan for the full purchase price of the property.

After you have a hold of your budget, work out the amount of your potential monthly repayments with your lender or broker. This, plus the one-off costs, will make you have a clear idea on the costs of taking up a mortgage.

4. Are there any benefits on repaying my mortgage earlier?

This is a frequent issue among people wanting to remortgage their property, either for a better deal or to release some equity.

Repaying your mortgage earlier could be beneficial for you on the long run. However, you must bear in mind that you will usually be liable to repayment charges, which may vary depending on your current deal.

• Early redemption charges (ERC) are levied if you repay your loan before a certain period.
• If you have an existing fixed, capped or discounted rate mortgage, or if you received a substantial cashback when you took your current mortgage, it will be more likely that early redemption charges apply on your loan.
• They are designed to help the lender recoup the costs of setting up the deal.
• Usually, the charge is a percentage of the loan you are repaying, or a number of months' interest. Most charges are payable only during the special offer period, but in some cases they are levied beyond that - these are called overhanging redemption charges.
• In some cases it may be worth paying this fee - for example, if you have several years left on a very high fixed rate after the initial deal has ended.
• Remember, it may make sense to wait until the redemption charge period has passed before you switch your home loan. Often, though, it's worth sitting tight until you can walk away from the deal without paying hundreds of pounds for the privilege.
• Ask your lender for a redemption statement outlining the outstanding mortgage balance and how much you need to pay in charges.
• On top of redemption fees, most lenders charge a sealing fee and/or a fee for releasing the deeds, which can add up to around another £100.
• If you had a cash back, then you will be expected to pay some, if not all, of the money you received before you move your mortgage elsewhere.

The first thing you can do is to work out whether it's better for you to pay off your mortgage or to wait until it's finished. The ERC's might seem a bit steep but if you've still got a long time until your deal finishes it might be better for you to pay the charges all at once and get a better rate deal.

For further assistance, have a look at Mortgage Assistant's Step-by-step guide to remortgaging.

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