Getting a mortgage: your questions answered

Richard Morea answers your mortgage questions

Interest rates are very low but mortgage rationing is still in full swing.

This means obtaining a home loan is trickier now than it has been for years.

Gone are the days when you would come home and find junk mail from a host of lenders on your doormat, offering to throw money at you at very cheap rates.

So, what should you do if you do not have quite enough money for a large deposit, or are finding a lender a bit reluctant to give you the loan you need?

Richard Morea of mortgage brokers London & Country answers your questions.

Q1. I am 25 years old on a salary of approximately £15,000. My sister's income is approximately £6,000, and my father is in full-time employment with approximately £100,000 equity in his home, with £47,000 on a mortgage. What would be the best way forward for me and my sister to buy an apartment for approximately £72,000. We have a 10% deposit and all three of us are confused as to the right path to take. Michael Parker, Liverpool.

Loans above 90% are severely limited

You have a number of options. Firstly you could apply for a mortgage jointly with your sister. Assuming you have no debt, there are a number of mortgage lenders whose income multiples (the multiple of your income they will lend you) will be sufficient for you to borrow the £64,800 you need.

If you do have other commitments, you could apply jointly with your sister and your father, but the lender would want to ensure that the available income is sufficient to service all debt including your father's mortgage.

As the property is unlikely to be your father's main home, on sale, he could face a capital gains tax (CGT) bill on his share of any rise in the property value.

As such, using your father as a guarantor for your application would be preferable, but the lender would still need to be satisfied that the total debt was affordable.

Major lenders such as Cheltenham & Gloucester, for a guarantor application or Halifax, for generous income multiples, should be your first ports of call.

You will find that borrowing at 90% is severely limited as many lenders are reluctant to lend beyond 80% or 85% of the property's value.

So if you are able to increase your deposit, this will give you more choice, and access to lower interest rates.

Q2. I have a job paying £27,500 per year and currently rent a one-bed flat for £650 per month and have been doing so for four years now, but the 25% deposit seems far away. What are my options?Gentian Dema, Palmers Green, North London.

Despite being in pretty good financial shape (no debts, decent sum in the bank), having to save the equivalent of the purchase price of a new low end Porsche 911 is not the easiest task in the world for a mere non-banker mortal.

Would it, in fact, make more sense to simply wait for house prices to adjust to the lending environment instead? After all, there has got to be a limit to the number of people out there whose parents can lavish £60,000-£70,000 on them for a deposit. Mark Craft, Cranleigh, Surrey.

Since the credit crunch, mortgage availability has shrunk, and lenders often demand a greater deposit before allowing access to their best deals.

While things have improved over the last 12 months, finding sufficient deposit is still a major hurdle for many borrowers, especially first-time buyers.

Some lenders will lend up to 90% of the property's value, although choice will limited, and the rates on offer may not be attractive.

If you are able to raise a deposit of between 15-20%, this will give you considerably more choice, and access to much lower rates.

If things still seem out of reach you could buy with a friend or family member to boost your options, or consider the Government backed HomeBuy schemes , designed to help people onto the housing ladder.

Waiting for prices to fall is a risky game.

While we may well see further falls in property prices, this is by no means certain, and is against the current trend where lack of supply is helping prices recover.

Even if prices do fall, other factors such as restricted mortgage supply, or rising interest rates, could be equally difficult hurdles to overcome.

Q3. I am a contractor. My earnings are based on a good daily rate but expenses are offset against tax. Equivalent earnings are often distorted due to taking profits rather than PAYE earnings. Are there any mortgages specifically for this situation and do they offer good value? Chris Richmond, London.

I work through my own company as a director in consultant type roles. With the demise of the self-certificated products what type of products are available - do you need to provide a couple of years' accounts? What sort of income multiple can I expect to achieve and will this take into account dividends or is it based on my company's net profit? Jamie, Edinburgh.

Borrowers who are self-employed, contractors, or who are directors of their own small limited company are common, and lenders usually have set criteria to describe how they can be accommodated.

These borrowers usually have access to the same schemes and interest rates as PAYE borrowers, so should not be disadvantaged in any way.

However, like a PAYE borrower having to provide payslips or a P60 to show evidence of their income, these borrowers will usually be expected to provide two to three years accounts or self-assessment tax returns (SA302).

For the self employed or those in a partnership, lenders will usually make their lending decision based on the applicants' net profit.

For consultants and directors of limited companies, it will vary depending on the lender, but lenders will often take various combinations of drawings, dividends, net profit, and contract pay into account.

Given the more complicated nature of the income and the differences in lenders criteria, employing a whole of market, no-fee mortgage broker, should ensure you get the best deal from the market.

Q4. My partner and I are looking to buy a flat for around £200,000 in south east London. We have saved up a 10% deposit and have enough to cover fees etc. on top. Currently the best deal looks to be from HSBC (5.99% fixed for two years) and we have an agreement in principle for this however not sure what it is worth. Our estate agent has advised that HSBC are dishing out agreements in principle but only approving three of out ten when it gets to the end of the mortgage application process - should I be worried about this?Ben Simpson, London.

Do not be bullied by an estate agent into arranging a mortgage through them

While an agreement in principle (AIP) does not guarantee the lender will provide the funds you need, most now include a check against your credit file, and verbal confirmation of your income and expenditure, so it will provide some certainty, and give the buyer some confidence.

However, before making a decision, and providing a mortgage offer, a lender will usually require documentary evidence of your income, a survey of the property you wish to buy.

It will also have to comply with UK money laundering regulations, so there are further hurdles to negotiate.

HSBC have some very competitive mortgage deals, and will be among the market leaders for lending at 90% of the property's value, so it would be foolish be swayed by the agent's comments, even if they are accurate.

HSBC do not accept applications which have been introduced by mortgage brokers, so it will be difficult for anyone other than the lender to comment on the number which are approved.

You may wish to seek some reassurance from the lender themselves, before switching to another lender, with possibly the same outcome.

Q5. As a first-time buyer I am increasingly frustrated by estate agents effectively forcing you use their "independent" mortgage adviser. This has happened on a number of offers I have made with a number of big estate agents. They refuse to put an offer forward until you have had your finances "reviewed and assured" by their mortgage adviser, before an offer is submitted, or brazenly state that "if there are two offers on a property we will only push the offer that has arranged their mortgage through us". Quite clearly this sort of behaviour is unfair and results in offers not being communicated or you having to accept their mortgage which is not as competitive as they like you to believe. Anon.

This is an issue that often arises, over which I feel there is some confusion.

Firstly, any estate agent that is a member of the National Association of Estate Agents (this will include the big chains), is duty bound to put all offers forward to the vendor, and must confirm the offer in writing to both vendor, and the prospective buyer.

This is the case, regardless of whether you have spoken to their mortgage adviser.

When it comes to being vetted by the agent's mortgage adviser, this can have advantages for all parties.

The agent can confirm to the vendor that you have spoken to their adviser, and that you are a credible buyer, regardless of whether you arrange your mortgage through them.

This puts your offer in a very positive light, which is of obvious benefit to you.

If you have your mortgage agreed in principle elsewhere, then explain this to the agent, and be prepared to show them or their adviser evidence of this, along with any deposit, as this will send the same positive message.

However, you should not be bullied into arranging your mortgage through the agent just to secure the property so be firm, but be open with them.

Q6. My daughter and I are trying to find a mortgage, but I am 71 years old and she has a three year old county court judgement. Is there anyone who will grant us a mortgage? Jacqueline Sparkes, Tiverton, Devon.

I am a retired person, age 69 years, have about 60,000 deposit, and need a mortgage of about £100,000. Will I get one and who is the best lender?B. Ghosh, Croydon, Surrey.

I am a retired professor of 70. I have an investment portfolio of £650,000 that generates a good income so I do not want to put more than a small proportion of this into bricks and mortar. I currently service a rent of £1,450 a month to the University of Oxford, but would like to use this for a mortgage. Do you know of a mortgage provider to the over 70s as most will not consider me?Professor John Howe, Oxford.

Most mortgage lenders have a maximum age for applicants, either at the time of application, or the age the applicant will have reached when the mortgage is scheduled to end.

Lenders such as Abbey and Nationwide will lend provided the mortgage term does not go beyond the applicant's 75th birthday, whereas the Coventry and Leeds Building Societies will lend up to the applicant's 85th birthday.

Halifax has their Retirement Home Plan which is an interest-only mortgage with a maximum term of 40 years.

It is available to borrowers over the age of 65, and the applicant is able to borrow a maximum of 75% of the purchase price.

When lending into retirement, a lender will apply their standard checks on issues such as credit-worthiness and income, with the latter being particularly appropriate if the borrower is due to retire during the mortgage term.

Lenders have a responsibility to check that the mortgage is affordable at outset, and will continue to be affordable should retirement mean a reduction in income.

Where a borrower has had credit problems such as county court judgements (CCJs), lenders may decline to lend, especially if the debt remains outstanding.

If the CCJ has been satisfied for at least three years, then the borrower may have more luck, but if not, it could pay to remove them from the mortgage application, leaving the borrower with a clean credit history, so they can apply in their sole name.

Q7. I have recently approached my bank looking for a 90% mortgage and have been declined. I have then approached an independent mortgage broker who has given me an agreement in principle with the same bank. How can this be? Maciek Starczewski, Manchester.

Overpaying your mortgage is often a good idea

This seems very unusual, but perhaps could be due to one of the applications being submitted with incorrect information, or a change in the lender's criteria between the two applications which now makes you eligible.

Alternatively, if you were declined because of your credit history, or even a lack of any history, it could be that the agreement in principle did not include a credit check, meaning that you may still be declined once you are ready to proceed.

It is also possible that the lender has accepted the case, following a more detailed discussion with the broker.

I suggest you speak to your bank and the broker to clarify your options.

Q8. We want to sell our house and buy another in the country. Shall we just move our mortgage over to the new house, or sell and get the cash out to use as deposit? We are with the Halifax and we are out of our fixed rate now and hoping the interest rates stays low for us. Lorraine, Bucks.

Most mortgage deals are portable, which allows you to move the deal from one property to another and avoid expensive early repayment charges, although any additional lending will usually be granted on one of the lender's current mortgage products.

Whether it is in your interest to port the mortgage and avoid the penalty depends largely on how competitive your existing deal is when compared to those currently available, and the severity of any penalty incurred if you chose not to port.

However, as your fixed rate has ended, I assume you have reverted to the standard variable rate at 3.5%, which the Halifax will not allow to be ported, so you are as well to consider all lenders for your new mortgage.

Q9. My fiancé and I bought a house with a 10% deposit on a 30-year repayment mortgage just over a year ago (we fixed at 6.59% for five years). My aim is to be mortgage-free with 15-20 years. Therefore, I asked my lender to increase my monthly payment to what it would be if I had a 25-year mortgage. However I did not ask to reduce the term as this would cost me - I hope, as time goes by as the amount owed on my mortgage decreases, my wages increase. Is there any financial disadvantage to doing this?D.O'Sullivan, Hull, East Yorkshire.

Overpaying on your mortgage, however you do it is always a good idea.

While you have not asked your lender to shorten the term of the loan, as long as they capitalise the overpayments as soon as they are made, and you do not breach any penalty free overpayment limits, then this is a good idea.

Most mortgage schemes, especially fixed rates, have early repayment charges during the initial rate period, but allow some overpayments to be made penalty free.

The limit is usually set at 10% of the mortgage balance per annum, but it can vary so you should check with your lender.

Making the overpayments on a voluntary basis, allows you the freedom to stop them should you wish in the future, so giving you greater control.

If you would like to reduce the term, if you move to another lender once the fixed rate has ended, then you can choose a different term without being charged a fee.

Q10. Currently I have a mortgage with a high street lender but I am on a standard variable rate (SVR) and they are not offering any fixed deals. Therefore I am considering remortgaging but my issue is that I do not have any proof of income. I have started my own business this financial year and it is not doing very well at the moment. What are the chances I will be able to remortgage? Tanveer Khan, Peterborough.

Standard variable rates vary from 2.5% to more than 6%

It is unlikely that you will have much choice as all lenders will need to see proof of sufficient income to support the mortgage before agreeing to lend.

As you are self-employed, this usually means supplying the lender with three years audited accounts, or SA302 self-assessment tax forms.

The only thing I can suggest is to keep an eye on what your lender has available for existing customers.

While SVRs vary, many are under 4.5% so hopefully your repayments will be manageable while you wait for a fixed rate you are happy with to become available.

Q11. I am presently on a Northern Rock mortgage and have now reverted to the 4.79% SVR. I am worried we will be stuck on it. The mortgage has £113,000 left and the house was purchased for £130,000 in 2007. What are your thoughts on where things may go?Mike, St. Ives, Cambridge.

You need to establish the current value of your property, as lenders are unlikely to lend more than 90% of the property's value to remortgage customers.

Even then, with the rates on offer generally higher than Northern Rock's SVR, and their fees which are still considerable, there may be little to tempt you.

If 90% borrowing seems the likely outcome, you may be better off staying on the SVR, and using any spare cash to reduce your mortgage as quickly as possible.

Once your mortgage represents 80-85% of the property's value, you should have much greater choice and access to more competitive rates.

Q12. I have been on my building society's variable rate for a few months since my last fixed rate ended. Should I be looking to take a new fixed rate now, or waiting a bit longer?Eddy Reynolds, Worthing.

If you are able to withstand the increase in costs should interest rates start to rise, you could remain on the SVR, and gamble that fixed rates will fall further.

Even then, if mortgage availability shrinks then depending on the amount of equity in your property, you could still end up paying a higher rate.

If you have at least 25% equity in your home, then some very attractive fixed rates are available now, and with lenders facing stiffer competition for savers, there is no guarantee they can get any cheaper.

Unusually, many lenders' standard variable rates represent an attractive option for some borrowers, but this is not the case across the board.

SVR's will range from as little as 2.5% to over 6%, so the competitiveness of your own lender's offering should have a bearing on what you do next.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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