LONDON PROPERTY MORTGAGE & FINANCING

London property mortgage strategies

THE BEST OPPORTUNITIES ARE NORMALLY ACQUIRED BY THOSE WHO ARE IN A POSITION TO ACT SWIFTLY

Therefore you must ensure that your finances are in place before you start looking.

There are many different ways to finance a property purchase, but the usual route is to take out a mortgage. The following advice will help you find the best mortgage available and make the process as simple as possible. It is essential that you seek professional advice. The information below is for guidance only.

Agreement in principle

Securing the purchase of your dream property can be a competitive business. Property which is attractive to you is likely to be attractive to a number of other potential purchasers and therefore it is imperative that you are in the best possible position to proceed.

A vendor may have interest from a number of parties and will therefore be keen to ensure that in accepting an offer, they have chosen a purchaser who is able to complete quickly. Some prospective purchasers may be buying using their own cash, but if you need mortgage funding you should obtain an agreement in principle BEFORE making an offer on any property.

This gives both you and the vendor peace of mind that funding is pre-approved and will be available at completion.

Getting advice

London property mortgage advice is readily available in the UK – but is all advice equal?

In every High Street there are institutions offering advice. However the vast majority of this is limited in some way. Please bear in mind that the majority of advisers are remunerated by recommending their employer’s products.

If you are seeking London property mortgage advice, ensure that your adviser is completely independent. This means that they will have access to the entire market and no ties with any product providers. Therefore, you can be absolutely sure that advice is focused purely on your needs and recommendations are formed through research of every available scheme rather than the sales targets of a particular institution.

Lenders

If you are seeking to purchase a standard residential property for your own personal use and you are based in the UK, it is likely that your London property mortgage can be placed with a High Street lender (bank or building society). An independent mortgage broker will be able to research the most competitive product for your circumstances.

However, not all brokers have experience in placing London property mortgage applications for unconventional lending where an offshore or private banking arrangement may be more appropriate – examples could be:

• Properties with commercial or part commercial use
• Buying property in a limited company name
• Buying property in the name of a trust
• Individuals resident or domiciled overseas
• Using cash or other assets as security for greater borrowing
• Bridging finance

It is essential that you find a suitable broker who is experienced in handling such applications.

Requirements

Lender’s requirements vary enormously, but as a rule of thumb, they will expect you to provide evidence of the following:

• Identity – passport, ID card or driving licence
• Address
• Deposit monies
• Income – typically 3 payslips and a P60 if employed or 2 years accounts if self-employed
• 3 or 6 months bank statements

Which interest rate is right for you?

There are several different interest rate options available to you and you need to choose the most appropriate rate for you based upon your particular requirements. These are detailed in the table below.

Please remember, do not choose an interest rate deal solely based on the cheapest initial monthly payments. Consider what the London property mortgage is actually going to cost you over the longer term and whether it is the most suitable for you.

Scheme	How it works	Penalties	Is it for you?
Standard Variable Rate	The monthly payment will fluctuate in line with the lenders prevailing interest rates.  A variable rate will often have no (or very low) early repayment charges and may be suitable if you want the flexibility of repaying your loan early. Many lenders are now offering two tier variable rates.  The higher tier being the rate which is reverted to following the end of a fixed or discount period and the lower tier being the one which is applied to a new variable rate loan. The mortgage rate will tend to move in line with the Bank of England Base Rate. There may be delays in passing on rate rises or falls. You can usually make overpayments with no financial penalty.	If a “cash-back” scheme is offered there is likely to be an early repayment charge.	Yes, if you can afford to pay more when rates increase. Yes, if you want to take advantage of penalty free overpayments. No, if during the early years you would be unable to cope with increased repayments due to rising interest rates.
Capped Rate	A capped rate allows you to budget maximum monthly costs for the scheme period whilst taking advantages of interest rate reductions if they fall due.  In other words, the interest rate will not rise beyond the level of the “cap” but could come down below the cap level if rates fall. At the end of the fixed period the loan usually reverts to the variable rate at that time. A capped mortgage may therefore suffer fluctuations dependent upon interest rates. A variation is the cap and collar mortgage.  This will restrict the lower level of interest rate that could be applied to the mortgage if interest rates fall.	There will usually be an arrangement fee and early repayment charges if the loan is repaid in the early years – even after the end of the fixed rate period.	Yes,  if you want a maximum interest rate that could be applied to your mortgage but want to take advantage of possible falling rates a capped rate may be worthy of consideration. Yes, if you think that interest rates will rise above the cap. No, if you can find a cheaper fixed rate deal elsewhere.
Fixed Rate	The mortgage rate is set at a fixed rate and allows you to budget your mortgage costs for a set period.  At the end of the fixed period the loan usually reverts to the variable rate at that time.	There will usually be an arrangement fee and there may be an early repayment charge if the loan is repaid in the early years – even after the end of the fixed rate period. Overpayments may be subject financial penalty.	Yes, if you are concerned about the interest rate rising. Yes, if want the security of knowing the level of your mortgage payment for a set period of time.  No, if you think interest rates are likely to fall a fixed rate mortgage could be less appealing (dependent on the rate offered).
Discounted Rate	A discounted rate enables you to reduce your monthly costs for a set period.  The discount will be calculated as a % off the lenders standard variable rate.  At the end of the discount period the loan usually reverts to the standard variable rate so your monthly costs will go up. Allowances should be made for this in future budgeting.	There may be financial penalties if the loan is repaid in the early years – even after the discount period.	Yes, if you are concerned about affordability in the early years of the mortgage. No, if you want to be able to budget exactly for your mortgage payments in the early years a discounted rate may not be suitable for you. No, if you are concerned that once the discount ends, or if interest rises during the discount period, that you will not be able to afford the monthly repayments.
Base Rate Tracker	Tracker schemes are becoming more popular.  A tracker rate will be based upon the Bank of England base rate and will be a % above that for a set period – which usually translates into a discount.	There are penalties with some loans.	Yes, if you can afford the variable repayments and want to benefit immediately in line with base rate changes. No, if you would not be able to afford the repayment increases if the base rate increased.

In addition to considering the above you will also need to decide whether you want a flexible London property mortgage, an offset or current account mortgage and whether you would like a repayment or interest only mortgage.

To be brutally honest, the mortgage market is huge and the sheer amount of choice is stifling – we have only brushed the tip of the iceberg here. It is very easy to take out the wrong mortgage product. Therefore it is essential that you seek professional, independent advice.

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