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Arranging a mortgage can be a very daunting experience with so many different options, generally any new mortgages for buying an investment property would be a buy to let product – this means that the lender has given their permission for you to buy the property for the purpose of letting, however please make sure you read the small print as sometimes there will be restrictions on the type of tenant or duration of the tenancy. To help guide you we have listed the main types below:
Fixed rate mortgage - This is where the interest rate is fixed for a set period of time, usually 1 - 5 years, this means that regardless of what happens to the Bank of England base rate, your mortgage repayment will remain the same for the duration. Currently fixed rates are very high compared to the base rate, but offers stability.
Tracker mortgages - A tracker mortgage is where the mortgage interest rate follows either the Bank of England base rate or the LIBOR rate over a fixed period of time. This rate will go up or down in accordance of the movement of the base or LIBOR rates throughout the duration of the mortgage - this can be speculative if rates are set to rise.
Off-set mortgages - An off-set mortgage is where you have savings in account off-setting any interest you would pay on a mortgage, for example if you had a mortgage of £200k, but had £150k in an off-set account, you would only pay interest on £50k - good if you have cash in accounts, but generally the interest rates are higher.
Standard Variable mortgages - This is where you pay interest at the lenders standard variable rate, normally this isn't the best option when taking out a mortgage, however when a tied in period ends, the mortgage would normally default to this rate unless you re-mortgaged for another product. By default, most mortgages defaulted to standard variable when the market crashed and no-one could re-mortgage at the time.
Refurbishment mortgages - This is more of a specialist mortgage and not offered by many lenders, but its where an advance is made on a property that needs refurbishment and once the works are completed, the lender will allow you to withdraw further monies as the property has increased in value.
With so many different mortgage products, lenders and rates, you need to be quite sharp as often there may seem to be a very good rate, but then the lender will slap on excessive arrangement fees which make the mortgage expensive over time.
Another one to watch for is tie-in periods imposed by lenders; again this can be costly if you need to terminate the mortgage before the end of the initially agreed period.
Finally watch out for insurance clauses, some lenders will want you to prove insurance, which can be difficult if the property is part of a large leasehold development and if you don't furnish them with a copy of the certificate of insurance, then often they will insist you take out insurance with them which can be quite costly.
In the minefield of mortgages, who do you choose, who do you trust? Well again it’s all down to personal choice and feeling comfortable with the advice given, but please remembers:
Independent brokers will offer whole of market, but as they are on commission, they may be tempted to push lenders where they make more commission!
If arranging a mortgage through your bank or building society, they are limited to offering only the products available from their company.
If you go to a Mortgage Broker and they want to charge you for arranging a mortgage, and then run a mile as this is not necessary - the lenders pay favourable commission rates.
The above views, whilst cynical, are based on our own personal experiences over the years. We have used many different brokers over the years, but have found just a couple of retained and trusted mortgage brokers that we deal with on a regular basis and are happy to make referrals for you.