Changes To Mortgages

Another change to the mortgage market in recent years is the increase in the amount you can usually borrow. Nowadays, it's common for lenders to set a maximum of three (sometimes three- and-a-half) times your salary if you're single, and between two-and-a-quarter and three times the higher salary plus once the lower salary for a couple. And you may be able to get a loan for the full value of your home without having to provide part yourself (though the value will be decided by the surveyor and may be less than the asking price, and you'll still need to pay the fees and expenses involved in buying the property).

Borrowing the maximum possible mortgage is fine as long as you can afford the repayments, but don't borrow up to the hilt - if interest rates rise you could be in difficulties. And remember that your income could fall unexpectedly - if you're made redundant, or suffer a lengthy illness, say. You could consider taking out insurance which would cover your mortgage payments if you were made redundant or fell ill, though such insurance is fairly pricey.

WARNING If you're unable to keep up your mortgage repayments, you could lose your home ), and, if house prices have fallen, you might still owe money on the mortgage.

The amount you can borrow varies from one lender to another, so shop around. Other factors you should take into account are the cost of the mortgage, the quality of service that you get, and the small print of the mortgage documents - watch out in particular for 'early redemption charges' which are a special charge of perhaps three months' interest if you decide to pay off the mortgage within the first few years. Do make sure that you read all the documents you are sent, and get an explanation of anything you're unsure about.

TIP - If you're a first-time buyer, you might qualify for the government's Homeloan scheme. If you register under the scheme and save for at least two years with one of the building societies or banks (including the National Savings Bank) in the scheme, you can get a tax-free cash bonus of up to £410, and a loan of £600 which is interest-free for the first five years. You must be buying a home under a certain value which varies according to the part of the country you're buying in. In order to take advantage of the scheme, you must register before 31 March 1990. For full details, see the leaflet Homeloan - special help for first time homebuyers available in many building societies and banks.

TIP - You're not stuck with the mortgage you took out when you bought your home. If you find it's expensive compared with mortgages from other lenders, or if you're not happy with the standard of service you're getting, consider switching to another lender. But weigh up the costs of switching which will include valuation and legal fees - and possibly an early redemption charge - against the benefits, and remember that a lender whose mortgages are relatively cheap now might not stay cheap.

Read more about The Basic rules of Borrowing

Types of Mortgage

The range of different mortgages has increased too, so that you now have a surprisingly wide choice. But not all lenders promote the full range, and unless you ask you might not be offered some of the more unusual types of mortgage. Lenders offering to arrange insurance or pension policies linked to your mortgage are covered by the Financial Services Act, and must either be selling the policies of just one company or must give you completely independent advice - and they must make clear which they are doing. If they are independent, they must offer you the policy which is best for you.

WARNING... see: Types of Mortgage

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