Author: Dax McLean

You’re a UK ex-pat if you’re a UK national but currently live abroad.

Expat mortgages allow you to take out a mortgage on a property in the UK if you’re a UK national currently living and working outside the UK and possibly earning in non-sterling currency.

Applying for a UK mortgage as an ex-pat can be complex and challenging as lenders continue to tighten their borrowing requirements.

However, the strength of foreign currency against the pound can put you in an excellent position to purchase property back home as an investment or a place to return to in the future.

Here’s everything you need to know about ex-pat mortgages in the UK.

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Types Of Expat Mortgages UK

You can get ex-pat mortgages and remortgages for residential and buy to let properties.

Expat Mortgages For Residential Property

You can take out an ex-pat mortgage for a residential property if you’re a British citizen working abroad and plan on moving back to the UK.

You can also have a family in the UK and want to buy a property for them to live in.

Residential ex-pat mortgages are available on interest only and repayment bases.

They also feature fixed, discount, and tracker rates, and you can find lenders who don’t mind your non-sterling income, lack of UK credit history, or self-employment status.

Expat Mortgages For Buy To Let

You can rent out your UK property through a buy-to-let mortgage while away, whether it’s your first investment or you’re looking to extend your portfolio.

You can use the rental income to cover the cost of the mortgage.

You can also take out an ex-pat mortgage if you want to remortgage a residential property on a buy-to-let basis.

You should inform your lender if you’re going to let out your home when you leave the UK. They’re usually willing to grant consent to let until your current mortgage deal ends.

Why Use An Expat Mortgage Broker?

Most high street lenders like banks don’t offer ex-pat mortgages mainly because they can’t conduct credit searches on applicants who aren’t in the UK.

They can also reject your application because you earn in foreign currency or are self-employed.

Specialist assistance is often required to secure an ex-pat mortgage in the UK. Specialist lenders are more flexible, and they’ll consider your situation and offer you the most competitive rates.

Most specialist lenders are only available through ex-pat mortgage brokers.

Before you decide on any ex-pat mortgage, it’s wise to consult an independent ex-pat mortgage broker.

They can understand your situation and search the entire ex-pat mortgage market for a fair deal.

Expat mortgage brokers usually have access to specialist lenders and products that consumers aren’t aware of, and they can present you with a broader range of options.

They can evaluate your circumstances and guide you on the most competitive deals, thanks to a firm understanding of this niche market.

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Difficulties When Applying For Expat Mortgages

You have to expect the mortgage criteria and application process to be trickier for you as an ex-pat.

Lenders have tightened their restrictions and must consider your risk level to ensure they only offer affordable mortgages with less likelihood of defaults.

Factors like currency fluctuations, economic uncertainties affecting employment, and lack of international credit ratings mean the risk is naturally higher if you live abroad.

More time and information are necessary to complete the lending process, making it difficult for the average ex-pat to secure a UK mortgage.

Different time zones, IDs, payroll verifications, and accounting systems are administrative burdens the lender will pass on to you through higher interest rates and fees.

The products on offer can be more expensive, but with the right advice from an ex-pat mortgage broker, you can get the best mortgage deal to suit your situation.

Factors That Can Improve Your Chances Of Getting An Expat Mortgage

Proof Of Earnings

Proving earnings is usually more straightforward for formally employed people than self-employed ones.

You can simply present payslips dating back over some time to prove income.

You’ll likely need to provide account statements dating back a few years and confirmed by an internationally recognised accountant if you’re self-employed.

Having your income paid into a UK bank account can make it easier to prove income, but it’s usually not a must.

Keep Some Kind Of Financial Association In the UK

You can get a broader range of mortgages in the UK if you maintain some form of financial association in the UK.

It can be as simple as a residential address like your parent’s home or a credit card. It helps you maintain a financial footprint in the UK, which lenders will consider positively.

Ensure you understand how it might affect your tax affairs by consulting an independent advisor who understands the tax affairs of ex-pats before deciding on your best course of action.

Deposits

You’ll need a deposit when purchasing any property in the UK, whether you’re an ex-pat or not.

Compliance with anti-money laundering regulations in the UK requires you to go through various due diligence processes, including providing evidence of where the deposit originates.

Whether the money comes from savings, equity from property sales, inheritance, or other investments, ensure you keep a record of any lumpsum payments to assist in the application.

Provide As Much Information As Possible

Lenders usually make their decisions based on the information you provide.

Since there are no international credit checks, you’ll need to provide more paperwork at every process stage.

Brokers can discuss the general options available, but they’ll still need a detailed understanding of your situation to determine whether they can help you.

Ensure you provide all the required information as early as possible to avoid wasting time and getting rejected later in the process because you don’t meet all the criteria.

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Final Thoughts

Because of the complexities involved in ex-pat mortgages, it’s vital to consult and seek advice from an ex-pat mortgage broker.

They’ll likely have access to specialist lenders and exceptional mortgage deals not available anywhere else.

They’ll also save you valuable time and make the process smoother than approaching ex-pat mortgage lenders directly.

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.

You can find many residential and buy-to-let tracker mortgages in the market, and they can be a viable alternative to fixed-rate and discount rate mortgages.

But what exactly are they, how do the best tracker mortgages work, and why would you choose one? Read on to find out.

What Are Tracker Mortgages?

Tracker mortgages are a type of variable mortgage where the interest follows or tracks an external interest rate.

Tracker mortgages usually follow the Bank of England’s base rate, and lenders use it to set the interest rate on their mortgage deals.

Mortgages lenders can add or deduct a percentage of interest on top of the base rate.

Your mortgage rate can potentially increase or decrease depending on whether the external Bank of England base rate goes up or down.

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How Do Tracker Mortgages Work?

A shift in the base rate can alter the amount you pay each month with a tracker mortgage. If the base rate rises, your monthly payments increase. If it falls, your payments will be cheaper.

For example, let’s assume you get a tracker mortgage where the pay rate is the Bank of England base rate plus 0.9%.

If the base rate were 1%, you’d pay 1.9%. If it climbed to 2%, you’d pay 2.9%.

However, if the Bank of England reduced its base rate to 0.5%, you’d pay 1.4%.

Because of the uncertainty around how much the base rate could change, it’s essential to ensure you can still afford the repayments if they were to increase.

Your lender will write to you informing you of your new rate and monthly payments if the pay rate on your tracker mortgage changes.

What Is The Bank Of England Base Rate?

The base rate is the interest rate that banks and other lenders pay when borrowing from the Bank of England.

It’s the most important interest rate in the UK because it influences most interest rates, including credit cards, savings accounts, loans, and mortgages.

The current Bank of England base rate stands at 1%. It rose from 0.75% on 5^th May 2022 to try and control inflation.

It was previously reduced to 0.1% in March 2020 to help control the economic shock of Covid-19.

The Bank of England’s Monetary Policy Committee (MPC) decides the base rate.

They meet every six weeks to vote on whether the base rate should increase, decrease or remain the same depending on government targets. They occasionally hold emergency meetings to adjust the base rate.

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Why Choose A Tracker Mortgage?

A tracker mortgage can be a good option if you’re confident the base rate will remain low or fall over the tracker period.

It’s an excellent choice when interest rates are low and steady or high but falling.

Your tracker mortgage will fall by the same proportion if the Bank of England cuts its base rate, giving you lower monthly payments.

Making a decision may depend on what you think the base rate will do in the future.

However, this can be difficult to predict, and even experts get it wrong sometimes. The base rate tends to increase when the economy is doing and decrease during a recession.

With tracker mortgage deals, you can pay less for your mortgage during tough times, but the interest rates can increase when the economy recovers.

Advantages Of Tracker Mortgages

• Great option when the base rate is low or is falling
• Very transparent, and payments won’t go up more than any increase in the Bank of England’s base rate during the tracker period.
• Some tracker mortgages have caps beyond which rates can’t rise, giving you security about the highest rate you’ll pay
• Some allow unlimited overpayments
• Some lifetime tracker mortgages don’t usually have early repayment charges

Disadvantages Of Tracker Mortgages

• Tracker rates are variable and linked to the base rate. If the base rate goes up, your mortgage rate monthly repayments increase.
• If the tracker mortgage doesn’t have a cap, there’s no limit on how much the pay rate can increase.
• Some tracker mortgages have a collar, which is a rate they won’t fall below even if the Bank of England cuts rates that far. Therefore, you may not benefit from falls in the base rate once it reaches a certain level.
• You may face an early exit fee if you need to change your mortgage or exit the tracker deal early. For example, if the interest rates start rising more quickly than you expected.

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How Long Do Tracker Mortgages Last?

Lenders usually provide tracker mortgages over a fixed period, either two, three, five, or ten years.

You’ll start paying the lender’s variable rate when the tracker period ends, usually higher.

Lifetime tracker mortgages are also available among many lenders and last the entire mortgage term.

Remember, a lifetime tracker mortgage is not the same as a lifetime mortgage. You can take out a lifetime tracker mortgage and repay over the mortgage term.

With a lifetime mortgage, you can take out equity on your home, and it’s only repaid when you die or go into a care home.

Lifetime tracker mortgages usually have a cap that the lifetime mortgage rate can’t rise above.

You’ll also not pay early redemption charges if you want to remortgage or pay off your mortgage early.

What’s The Difference Between Tracker And Standard

Variable Rate Mortgages?

All lenders have their standard variable rate (SVR). Lenders can choose to change their SVR at any time, and although the changes are usually in line with the Bank of England base rate, they don’t have to be.

Tracker mortgage rates follow the external Bank of England base rate rather than the SVR set by the lender.

Do Tracker Mortgages Charge Fees?

Like fixed-rate mortgage deals, many tracker mortgages come with a set-up fee.

You can find fees like product fees, arrangement fees, or booking fees, which vary in cost.

You can pay the fee upfront or add it to the loan.

Final Thoughts

Tracker mortgages can provide various benefits and savings, especially if the base rate remains low or falls.

Consulting a mortgage broker or advisor can help you get specialist information on the terms, rates, and lenders available in the market to ensure you make an informed decision.

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.

The idea of climbing the property ladder and owning a home may seem unattainable, with the average price of a home almost 11 times the average wage in London.

However, it’s no longer impossible.

You can now get a mortgage seven times your salary, well above the traditional maximum, allowing you to buy properties you thought were out of your price range.

Here’s everything you need to know about mortgages seven times your salary.

How Can You Get A Mortgage 7 Times Your Salary?

You no longer have to be classed as a high net worth individual to access a mortgage based on seven times your salary.

However, you’ll not have many choices since only one mortgage lender in the UK offers mortgages based on seven times your salary.

The mortgage deal is fixed for life, and it allows you to borrow a higher income multiple and lock the monthly payments at the same amount for a minimum of 10 years and a maximum of 40 years.

It provides you with guaranteed, far-reaching security and certainty about what you’re paying for the lifetime of the mortgage, meaning no nasty surprises or rate shocks from rising interest rates along the way.

To qualify for a mortgage seven times your salary, you may need to:

• Work in one of the various professions like firefighters, NHS clinicians like paramedics or nurses, police officers, or teachers in the public sector.
• Earn a minimum basic salary of at least £25,000 annually.
• Have a deposit of at least 10%.

You’ll not need to work in a particular profession if you’re a higher-income earner with a minimum annual salary of £75,000.

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If you’re taking out a joint mortgage, only one of you will qualify for seven times salary multiple while the other’s income is multiplied by five.

You’ll get interest rates that start at 2.99%, and while other mortgages only let you overpay by up to 10%, you can pay as much as you want towards mortgages seven times your salary without any penalties.

Getting A Mortgage Seven Times Your Salary With A High Net Worth

You can also get a mortgage seven times your salary if you’re a high-net-worth individual.

You must meet a least one of the following criteria to qualify for a high-net-worth mortgage exemption:

• Hold assets worth £3 million or more.
• Have an annual net income of £300,000.

If you meet the high-net-worth criteria, various mortgage lenders can offer bespoke deals outside the standard lending criteria.

You can borrow high loan amounts up to seven times your salary or even higher.

You can also apply for asset-backed mortgages among specialist lenders if you have a high net worth with wealth tied up in assets.

It allows you to secure the debt against a valuable asset like shares or a stock portfolio.

Private mortgage lenders often offer mortgages for high-net-worth individuals, and you can’t simply find them through a Google search.

Therefore, you’ll need to consult a mortgage broker who specialises in arranging mortgages seven times your salary to gain access to such lenders.

Alternatives To Mortgages 7 Times Your Salary

Possible alternatives to consider when you need to borrow more than six times your salary include:

Secured Loans

A secured loan is a common way of funding a seven times salary mortgage.

A secured loan is also called a second charge, and it requires you to use something that you own as collateral or security for loan repayments.

You can use your home or any other high-value asset like your car.

Many lenders are willing to provide up to 10 times your salary with secured loans, but the interest rates can be higher. Some can even offer more because the risk is lower for the lender.

If you default or fail to keep up with repayments, they can repossess your home or other assets you use as security and resell it to recover any outstanding balance.

Therefore, you must be realistic and ensure you only borrow what you can afford to repay comfortably.

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Joint Mortgages

You can take out a mortgage with another person to borrow a higher amount. Joint mortgages allow you to borrow a multiple of the highest earner’s salary plus the salary of the second applicant.

For example, if you earn £34,000 annually, getting a mortgage seven times your salary (£238,000) can be difficult.

However, you’ll be closer to achieving your goal if you apply with a partner earning £31,000 annually. A lender can offer 5 x £34,000 (£170,000) plus the second income of £31,000, meaning you can borrow up to £201,000.

Other lenders can offer you a slightly lower multiple based on the combined total of both incomes.

Remortgaging And Equity Release

Remortgaging can help you raise extra capital if you already own a home and want to purchase a second home or invest in a buy to let.

You can get funds to boost the deposit you can put up towards a second property.

Equity release is another opti0n if you own most or all of your home. You can release some of the equity and put it towards a deposit for a second home or property.

However, equity releases can be expensive, and you need to consider the associated risks before proceeding.

Factors That Can Affect Your Eligibility

If you don’t qualify for high-net-worth mortgage exemptions, your chances of qualifying for a mortgage seven times your salary or borrowing such amounts through other avenues can be affected by how closely you meet the lender’s eligibility criteria.

Lenders may assess factors like:

• The amount of deposit you have.
• Your credit history.
• Your age.
• Your income sources or how you make your income.
• Your monthly expenses or outgoings.

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Mortgage Seven Times Salary UK Final Thoughts

Getting a mortgage seven times your salary is no longer a distant dream, but there are few ways to secure such a mortgage and few alternatives to consider.

Working with a qualified mortgage broker or adviser who helps people borrow such amounts can help you access specialist lenders and increase your chances of approval.

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.

Being a contractor can offer you many perks, including independence and flexibility. However, it also comes with uncertainty, especially when buying a home.

Getting a contractor mortgage can be challenging, but it’s very achievable with the right approach and the help of a contractor mortgage broker.

Here’s everything you need to know about contractor mortgages.

What Are Contractor Mortgages?

Contractor mortgages are suitable for workers without permanent employment.

Contractors can be self-employed individuals, zero-hour workers, fixed term contractors, umbrella company employees, or agency professionals.

Applying for a mortgage as a contractor can be challenging, and it tends to have higher failure rates.

Many lenders turn down contractors and prefer applicants in full-time employment who they view as lower risk.

Freelancers tend to have less predictable incomes than people in employment.

Lenders are more cautious if your income fluctuates or you work on fixed term contracts, seeing you as a higher risk when lending.

You’ll need to show evidence that convinces the lender otherwise.

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What Are The Lending Criteria For Contractors?

Together with usual criteria like age, income, credit rating, and the property type, mortgage lenders who are contractor friendly consider various factors when deciding whether you’re eligible for a mortgage, including:

• The period you’ve been contracting.
• The kind of contracting you do.
• How long you’ve worked in that industry.
• If you’ve had any contract renewals.
• The period left on your contract.

Getting a mortgage as a contractor early in your career can be difficult because you’ll need to show lenders you’ve been working consistently.

Most lenders will require a 12 months’ worth of working history, and some may accept six months.

Others can consider you on the first day of a new contract and offer a contractor mortgage using multiples of your day rate, provided it’s for at least six months, and you have a history of working in such a capacity.

The lender will use the day rate to calculate the amount you’re likely to earn by multiplying it by the number of weeks.

How Much Can I Borrow On Contractor Mortgages?

The amount you can borrow will depend:

• The types of income you have.
• How much deposit you have.
• How the mortgage provider works out affordability.

Mortgages providers generally assess your affordability by looking at how much you earn, your monthly expenses, and your income stability.

A specialist lender who considers your contractor mortgage application based on your daily rate is a viable option.

They’ll calculate your income by multiplying your day rate by the number of days you work each week x 48 (even if you work longer than this).

It will provide your average annual income. Most lenders offer income multiples of 4 times your yearly income, giving you a rough idea of how much you could borrow.

You can find numerous free online contractor mortgage calculators to tell you how much you can borrow working in a self-employed capacity.

Remember, the amount you can borrow will likely be lower than what the online calculators say since lenders consider other factors in their decision.

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How Much Deposit Do I Need For Contractor Mortgages?

Your mortgage deposit as a contractor can be similar to most other borrowers.

You can get a contract mortgage on a residential property with a 10% deposit if you’re a lower risk borrower, meaning the lender offers the loan on a 90% loan to value (LTV) ratio.

Most lenders accept 10% deposits, but some might expect 15-20% if other risks are involved in the deal, like bad credit or non-standard properties.

It would help if you’ve had at least one renewal on your contract or you have a minimum of six months left on it.

Under the right circumstances, some lenders can even offer mortgages with a 95% LTV.

With government schemes like Help to Buy, you can get a contractor mortgage from specialist lenders with a 5% deposit.

Working with contractor mortgage brokers with access to the entire market can help you access lenders positioned to offer you a good deal.

Ensure you save up as big a deposit as you can. The more money you can put down upfront, the more likely you’ll get good deals with lower interest rates.

Documents Needed To Get A Mortgage As A Contractor

It can be more complicated to prove monthly earnings in contractor mortgages than in traditional mortgages.

Your lender or broker will tell you precisely what you need, and they’ll usually ask for the following:

• Proof of experience and day rate.
• An SA302 with a summary of the income reported to the HMRC.
• Invoices.
• Bank statements.

Getting A Mortgage If You Contract Under A Limited Company

Most contractors operate under limited companies to do their freelance work since most businesses don’t hire sole traders.

If you operate under the off-payroll working rules, you’re still not considered an employee, meaning you still face stringent application processes like other freelancers.

Lenders will determine your affordability based on your salary and dividends.

If you supplement your earnings with other income, you’ll need to adjust your earning structure or work with specialist lenders who will accept your supplemental earnings.

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Top Tips To Get A Mortgage As A Contractor

Follow the following tips to put yourself in the best position to get a mortgage:

• Create a consistent working pattern like having a steady workflow and avoiding many breaks in the 12 months before applying.
• Work on your credit score by determining what it is and improving it.
• Establish new contracts or renew agreements to show current and future stability.
• Gather evidence of your monthly work through invoices, bank accounts, and statements.

Mortgage Lenders for Contractors Final Thoughts

Most mainstream lenders will not understand the challenges and complexities of borrowers who work as contractors. They can turn you away altogether or offer less favourable rates.

A specialist contractor mortgage broker will help you find niche lenders willing to lend to contractors.

You’ll get access to all the best mortgage lenders for contractors in the UK based on your needs and circumstances to increase your chances of success.

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.

A mortgage is likely to be one of your most significant financial commitments, so it’s essential to shop around for the best deals.

A fixed mortgage rate holds great appeal, especially at times like now when interest rates are rising, and the cost of living is reaching crisis levels.

Whether you’re a first-time buyer or are looking to remortgage, fixed-rate mortgages can provide you with peace of mind, more security around monthly household costs and various benefits.

Here’s everything you need to know about the best 5-year fixed mortgages in the UK.

What Is A 5 Year Fixed Mortgage?

A 5-year fixed mortgage is a mortgage where the interest rate you get charged remains fixed for the first five years. The fixed-rate term is usually different from the overall mortgage term.

The overall mortgage term is the total amount of time you pay back the mortgage.

For example, you can take out a mortgage of 25 years but have a fixed rate of 2% for the first five years.

Once you reach the end of your fixed-rate period, the lender transfers you to their standard variable rate (SVR) for the remaining mortgage term.

It’s usually higher than the introductory rate you were on, so many people remortgage or make new deals with the lender as they approach the end of the fixed period.

You’re allowed to make arrangements for a remortgage or other deal up to six months before the end of your introductory rate.

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Why Choose A 5 Year Fixed Rate Mortgage?

A five-year fixed-rate mortgage is suitable if you intend on staying on the property for the medium to long-term future but expect your situation to change later on.

They’re prevalent among borrowers, providing you with stability without thinking too far in advance.

You get peace of mind that your mortgage repayments will stay the same throughout the fixed period even if interest rates go up elsewhere.

Mortgage lenders usually have fixed rate deals that last from 1 to 10 years or more.

Generally, the longer the fixed term, the more expensive the rate, so choosing t’s best to choose a deal that best suits your needs.

A few things you can consider when making your decision include:

• Is cost or security more important?

Short term fixed rates are likely to be cheaper, while long term fixed rates offer payment security.

• How often do you want to remortgage?

You can get the lowest rates with short term fixes, but you’ll have to remortgage more often, usually with fees each time.

• Are you likely to move house?

It can be difficult or expensive to move house when you’re locked in a fixed-rate deal for a more extended period.

What Are The Pros And Cons Of Fixed-Rate Mortgages?

Pros

• Easier Budgeting – A fixed-rate mortgage enables easier budgeting because you know how much interest you’ll pay, and the monthly repayments remain the same throughout the fixed term.
• They’re stable because you’re protected from any increase in interest rates.
• You’re allowed to choose the term for your fixed-rate deal, and this can be one to ten years or more. Mortgage deals with one year and over ten years fixed rates are rare and usually only available from specialist lenders or mortgage brokers.
• Fixed-rate deals will usually offer lower rates than a lender’s standard variable rate, which can help you save money on your repayments.

Cons

• Compared to variable-rate deals like tracker or discount rates, fixed-rate mortgages tend to have higher rates.
• You won’t get any decrease in your monthly payments if interest rates fall, while variable-rate mortgages will become cheaper.
• You can face early repayment charges if you leave your fixed-rate deal early or pay off the mortgage.
• You may need to pay high upfront fees, usually upwards of £1,000. The interest rate is usually higher if there are no upfront fees, so you can decide to pay high upfront fees for the benefit of lower rates and monthly payments.

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How Much Do Fixed Rate Mortgages Cost?

The total cost of your fixed mortgage deal will depend on various factors, including:

• How much you borrow or the size of your loan.
• The interest rate you pay. The rate you get depends on how long you fix for. The longer the term, the higher the rate.
• Whether you’re on a repayment or interest-only mortgage.
• Any upfront fees attached to the fixed deal.
• The loan to value (LTV) ratio influenced by the size of your deposit or the equity you have in your home if you’re remortgaging or moving. You’re seen as less risky if you have a lower LTV and are awarded lower rates.

What Fees Will I Pay For Fixed Mortgages?

• Arrangement fees are standard when taking out mortgages, and £1,000 is the average for competitive deals. You can add the arrangement fee to your mortgage debt instead of paying upfront, but this can increase your borrowing and the interest you pay.
• When applying for mortgages, a booking fee is a one-off non-refundable cost, but not all deals come with one, so it can range from zero to a few hundred pounds.
• You may also pay for the valuation where the lender confirms the property is worth the sum borrowed. Some lenders can waive this fee as an incentive.
• You may also trigger an early repayment charge if you quit the fixed-rate mortgage before the agreed term ends. It’s usually a percentage of the outstanding sum and can reach substantial amounts.

How Can I Get A 5 Year Fixed Mortgage?

All mortgage lenders offer fixed rate deals, so they’re easy to find. You can either apply directly or through a mortgage broker or specialist.

A successful application can depend on various factors, including your income, any outstanding debts or loans and your credit rating.

Brokers often have access to deals not available elsewhere and can come in handy if your finances are unconventional.

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Best Mortgage Rates 5 Year Fixed Final Thoughts

The best five-year fixed mortgage deal will ultimately depend on your situation and needs.

Consider how long you intend to stay on the property, how your situation can change in the next five years and consult a mortgage adviser to figure out the best deal for you.

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.

All mortgages are not created equal, and if you have savings in your account, an offset mortgage can help you reduce the amount of interest you pay.

Read on to find out everything you need to know about offset mortgages and what to consider for the best offset mortgages in the UK.

What Are Offset Mortgages?

Offset mortgages are mortgages where your mortgage account is linked to your savings or current account.

The savings in the account are then used in reducing or ‘offsetting’ the size of your outstanding home loan on which you pay interest.

The lender deducts the savings in your account from the outstanding mortgage balance, and you only pay interest on the remaining amount.

You pay less interest on the mortgage than if your savings weren’t considered.

The higher the credit balance in your savings or current account, the lower your debt since the balance offsets the debt, and you only pay interest on the difference.

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How Do Offset Mortgages Work?

Offset mortgages allow you to reduce the interest you pay on a mortgage.

For example, if your mortgage is £120,000 and you have £30,000 in a linked account, you would only pay interest on £90,000.

If the interest rate is 3.5%, then you pay £3,150 in interest annually on £90,000 instead of £4,200 on £120,000.

The savings are not used to pay off the mortgage, and they don’t reduce your loan amount. Your savings only help reduce how much interest you’re charged on the mortgage.

You can still access your savings and withdraw and deposit money, but you won’t earn interest on the savings in the linked account.

However, if the balance goes up or down, it affects how much interest you’re charged.

If the balance goes down, the mortgage payment increases because there’s a lower amount to offset.

If there’s no money in your offset savings account, you won’t get any offset benefit.

Is An Offset Mortgage Right for You?

Offset mortgages can help you slash the amount of interest you pay and help you pay off your mortgage early, but they’re not for everyone.

A traditional repayment mortgage is a better fit if you’re a basic taxpayer with a regular salary and limited savings.

Offset mortgages are more suited for you if:

• You have decent savings, and you don’t rely on them to supplement your monthly income.
• Your savings earn less interest than you would save by offsetting them against your mortgage.
• You’re not reliant on the interest earned on your savings account.
• You’re an additional or higher rate taxpayer who pays income tax on savings interest.
• Instead of gifting money to your child, you want to link your savings to your child’s mortgage with a family offset account.

Individual circumstances will ultimately influence whether an offset mortgage is suitable for you.

Lenders will assess your finances and whether the mortgage will be affordable for you now and in the future. They’ll look at things like your income and outgoings and the size of your loan.

When making your decision, you need to ensure you’ll make the best out of it to get the best deal overall.

Benefits Of Offset Mortgages

• Pay less overall interest on your mortgage for significant interest savings over the loan term.
• Lower payments each month with a payment reduction offset since you’re charged less interest.
• Choose to make overpayments where you pay the same amount each month and pay off your mortgage early with term reduction offsets.
• There is no tax to pay on savings interest because your linked account won’t earn interest.
• You can access your savings whenever you like if you wish to draw on them.

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Drawbacks Of Offset Mortgages

• Even with the cheapest offset mortgage, the interest rates may be higher than standard mortgages.
• You must be confident you can leave your savings untouched to reap full benefits. There is a high temptation to dip into your savings because there’s no penalty, and if you do, the balance reduces, and interest goes up.
• Limited choice. Fewer lenders offer these products, and you may have less choice of deals and providers than with standard mortgages.
• You may need a lower loan to value (LTV) ratio than standard mortgages with equity or deposits of at least 25%.
• Your mortgage and the linked savings account will need to be from the same lender or provider.
• Some lenders require a minimum balance that you have to maintain in the account, meaning you can’t always get all your savings if you need them.
• It’s only good if you’re in it for the long term. You must stick with an offset mortgage for most of the mortgage term to significantly lower your monthly payments or pay it off sooner.

Difference Between Offsetting And Overpaying

Overpaying refers to paying more than the amount set out in your contract. When you overpay on a standard mortgage, you can’t dip into those funds unless you can remortgage.

Most mortgages allow you to overpay by up to 10% monthly, and you can be penalized if you exceed that threshold.

With offsetting your savings, don’t pay off what you owe. They only sit alongside your mortgage and reduce the interest you pay.

If you pay more into your linked savings account, it reduces how much interest you’re charged, reducing the overall mortgage debt.

Any repayments you make cut deeper into the loan and reduce the mortgage term, similar to penalty-free mortgage overpayments.

Things To Consider

You may find a few differences between lenders who offer offset mortgages. A few things you should consider when taking out offset mortgages include:

• How many accounts you can link to your mortgage
• Whether or not the lender accepts savings from a family member to offset the mortgage
• The access you have to your savings if you need them
• The type of offset mortgage benefits you get. They can include term reduction, payment reduction, or both.

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Final Thoughts

You can get offset mortgages for purchases or remortgages, and they’re excellent if you have significant savings and require a mortgage.

They’re also suitable if you wish to overpay and still access the overpayments over time.

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.