Mortgage planning

Finding the right solution for you

Whether you’re buying your first home, relocating, or simply want to take advantage of better interest rates by re-mortgaging, we can help.

An independent financial adviser at AFH will review all the options available from the whole of the market to determine which mortgage type is best for you. They’ll identify the most competitive deals based on your personal circumstances and wishes. Your adviser will also be able to check how much you can afford and with your credit scoring, discuss your eligibility for a mortgage.

Your home may be repossessed if you do not keep up with repayments on your mortgage.

First-time buyers

Taking the first step onto the property ladder can be a daunting experience, so using the expertise of our independent financial advisers can really help to get you started. We’ll search the whole of the market to find the lender that best suits your specific needs. An adviser can offer both experience and expertise when it comes to finding the right mortgage deal, and we understand how to best position you to the lender, as some will have specific criteria you must meet.

Our in-house support teams will handle the mortgage paperwork, meaning you’re free to focus on finding the perfect home.

What is a mortgage?

A mortgage is an agreement with a bank or building society to provide a loan to facilitate the purchase of a property or land. If you fail to keep up with your agreed mortgage repayments, the lender is entitled to take legal action to repossess your home and sell it in order to get back the money that you owe.

The length of time that your mortgage is taken out for is known as the ‘term.’ Some lenders will allow you to take a mortgage term of up to 40 years.

How much deposit will I need?

Generally, the more deposit you can provide, the lower your interest and therefore loan repayments will be. Whilst some lenders will offer 100% mortgages with no deposit required, the minimum will normally be at least 5% of the purchase price of the property, which means you would take out a mortgage for the remaining 95% of the price of the property. A larger deposit could result in you paying back less interest, and entitle you to more competitive interest rates, because lenders will view you as less of a risk.

How do I repay a mortgage?

These days, the majority of mortgages will be repayment mortgages, although in some limited instances the lender may allow an interest-only mortgage. There are two parts of a mortgage: the capital is the amount that you have borrowed, and the interest is the amount that the lender charges for having granted you the loan.

How will my interest be set?

Aside from methods of repayment, you will also need to determine which type of interest rate is going to work best for you. Mortgages fall into two main categories; fixed-rate and variable rate, although there are a number of variations within each of these categories.

This is a mortgage in which you repay both the capital and the interest together in fixed instalments over an agreed period of time (the term).

In the early years, your repayments are mainly interest with only a small amount reducing the balance of the loan. However, as the term progresses, less of the payment is interest and the amount of capital you repay for each instalment increases.

The main thing is that, as long as you keep up your repayments, your entire mortgage will be repaid at the end of the term.

With an interest-only mortgage, you pay the interest due but none of the amount you have borrowed. While your repayments will be less than with an equivalent-sized repayment mortgage, at the end of the term you still owe the original amount that you borrowed. The remaining capital will be repaid under the conditions outlined by the mortgage lender.

Usually, you will specify an investment or other assets that you will use to repay the loan at the end of the term. This introduces a level of risk, as you must ensure the investment is worth enough to repay the loan at the end of the mortgage term.

With both means of repayment, the lender has the title of the property as security, and your home may be repossessed if you don’t keep up repayments on your mortgage.

The interest you are charged will stay the same throughout the period of the deal, typically one to five years, although some lenders will offer ten-year fixed rates. A fixed-rate mortgage will give you the security of knowing exactly how much your mortgage is going to cost you for a pre-agreed period of time.

However, if interest rates fall, you will continue to pay the fixed rate agreed until the end of your rate period, and would face an early repayment charge if you wanted to take advantage of them.

Your interest rate can change at any time. This means your payments can both rise or fall if interest rates change. There are different types of variable-rate mortgages;

Types of variable rate mortgages

Standard variable rate (SVR)

Standard variable rate is the term used by lenders to express the rate of interest they use for lending. Nowadays, most borrowers will select a fixed or variable rate deal at the outset, before being put on the SVR when the deal ends. Each lender will set its own standard variable rate, which can vary greatly. It's worth understanding a lender’s SVR and compare to others, whichever deal you choose.

Lenders can change their SVR at any time, although it is more likely to change after a rise or fall in the base rate set by the Bank of England. The lender can decide whether to increase, or decrease, the rate by more or less than the corresponding rate set by the Bank of England.

Tracker rate

The interest rate paid on a tracker mortgage, as the name suggests, will “track” the changes to the base rate set by the Bank of England. However, the tracker rate will likely be a fixed amount above the set base rate.

This will mean that your mortgage payments will increase or decrease accordingly.

Discounted rate

This is similar to a tracker rate mortgage, but the rate is a discount to the lender’s standard variable rate (SVR). You will often be offered a set percentage below the lender’s standard variable rate for a fixed term, typically two or three years. If the lender’s SVR changes during this time, so will your interest rate.

The same risks and potential benefits apply to the tracker rate; however, you must remember that the lender does not need to change the standard variable rate when the Bank of England base rate changes.

Capped rate

This is a variable rate with an upper limit, set at which the rate will not increase further even if the interest rate is increased. The rate that you pay will move in line with the Bank of England base rate, or the lender’s standard variable rate, but it will not rise above the capped rate during the term.

This can be particularly useful for borrowers who feel interest rates may fall but would be significantly impacted if rates rise above a particular level.

Another term worth knowing about is a “collared” rate, which sets a lower limit below which interest rates paid wouldn’t fall, irrespective of whether the standard variable rate or Bank of England base rate fell further. Whilst popular in years gone by, they are not widely available currently.

It is possible for a mortgage to be arranged on a combination of different deals offered by a lender, whether fixed or variable, in order to tailor the loan characteristics to meet your personal needs. Your AFH adviser will be able to help you with this process.

Re-mortgaging

A re-mortgage happens when you either come to the end of your mortgage deal, you want to borrow more money, or you want to switch to a more competitive lender.

At AFH, our advisers are able to search the whole of the market for competitive rates and the right mortgage solution for you.

By being independent, we’re not limited to a restricted list of lenders, so we can search for the best possible deal that matches your specific criteria. Once a suitable offer has been found, we’ll manage your application for you, so you don’t have to worry about the paperwork.

We offer a truly holistic service, meaning we can review your mortgage to ensure it remains suitable for your needs.

Buy-to-let

Buy-to-let refers to a property you own but do not live in. Instead, this property is rented out to tenants.

There are many advantages and disadvantages to consider but, we can use our experience and expertise to help you navigate the market and search for the best possible deals to suit you.

Lifetime mortgages

A lifetime mortgage is a specialist option, usually for those in their later years that wish to access the value of their home, in the form of a lump sum or income. You can either agree to pay a rate of interest for the remainder of your life, or until you sell the property; or agree to make no repayments and let the agreed rate of interest accrue and compound until you die, move into long-term care, or decide to sell the property.

Importantly, you hold ownership of the property, and the loan is repaid when you die or go into long-term care. However, the impact of compounding interest over time, or the responsibility to pay interest from your retirement income sources, is significant and needs specialist financial advice.

We only use lifetime mortgage providers that are a member of the Equity Release Council, as they insist on minimum standards. Importantly, lenders must agree on a no-negative equity guarantee. This means you can feel safe in the knowledge that no matter how long you live, the outstanding loan will never exceed the value of the property on your death. It also guarantees security of tenure, allowing you the right to live in your home rent-free until you die – at which point the property would be sold to repay the debt – or you decide to sell the property and pay off the loan.

Entering into a lifetime mortgage is a big decision. Care and attention is needed to consider all of the benefits and drawbacks for your particular circumstances, whilst selecting the most appropriate rate and provider. This may come at a time when you are feeling vulnerable, and therefore need support and education when considering your options. Our independent financial advisers are highly trained and will provide expertise, patience and knowledge, giving you as much time as you need to feel secure in your final decision.

This will depend heavily on your personal circumstances. A lifetime mortgage may affect what you can leave as an inheritance and could affect your tax position. There are different types of lifetime mortgages available, and interest rates will vary from lender to lender. You should seek professional advice before taking out a lifetime mortgage. An independent financial adviser will be able to assess all of your options.

Commercial mortgages (businesses only)

If you are looking to purchase a new building, or wish to release equity from your existing one, we can explore a range of commercial mortgages from across the market, finding the best possible option for you and your business.

Purchasing a commercial property is a big step, and you need to be certain on the maximum amount your business could commit to paying. If you miss repayments, your business premises could be at risk of repossession.

An independent financial adviser at AFH can help by searching for lenders offering the most competitive rates.

Home improvement loans, capital raising or debt consolidation

If your home has increased in value since you bought it, you may be able to borrow more money from your mortgage lender. This could be for many reasons such as home improvements, the deposit on a second home, or to repay debts, amongst others.

If you are thinking about increasing your mortgage, also known as a further advance, you must determine whether you will be able to afford the additional monthly payments, as the money that you take out will be secured against your home.

The advantage of securing a further advance is that interest rates may be more competitive than other forms of borrowing. However, if you are considering capital raising or the repayment of debt, remember that the loan is secured on your home, leaving it at risk if you fail to keep up repayments.

Alternatively, unsecured options may be better and should be considered before committing to a further advance or other secured loan. Remember, whilst the interest rate may be higher with unsecured options, the lender has no security attached and your inability to repay would unlikely result in the loss of your property.

You should speak to an independent financial adviser about the best solution for your financial needs, and when a further advance is suitable or not.

Protecting your mortgage

Your mortgage is a loan secured against your property, meaning if you can’t keep up with repayments, your home could be repossessed. To prevent this possibility, it is important to consider protection when taking out your mortgage, providing financial stability should your circumstances change. To learn more, visit our protection planning section.