Everything you need to know about Islamic mortgages

Islamic mortgages are a type of mortgage based on Islamic principles, and therefore has some unique conditions and a slightly different process. 

Islamic mortgages have been growing in popularity in the past few years for people who want to be good to their bank account and religious beliefs. However, Islamic mortgages are not suitable for everyone. Read on to find out if Islamic loans are suitable for you.

Islamic mortgages will typically require a down payment of at least 20% of the purchase price. And lenders will carry out the same affordability checks as any other mortgage provider.

This initial down payment must come from an individual's savings, funds from family members or friends, profit from selling other assets such as stocks or bonds, gifts given by relatives living abroad, or business income.

What is an Islamic mortgage?

Islamic mortgages are a type of mortgage that is based on Islamic principles. Islamic mortgages follow Islamic law or Sharia. For example, Islamic principles state that money should only be used for productive purposes; therefore, Islamic loans cannot be spent on frivolous gambling or buying alcohol.

Islamic loans may not charge interest either but can charge higher administration costs. In general, a sharia mortgage will be more expensive than a traditional mortgage. 

There are different types of Islamic mortgages that can help you to get on the property ladder while remaining compliant with your principles.

A key thing to note about Islamic banking is that risk is shared between the lender and the borrower. This is why an Islamic mortgage will typically require a higher deposit of at least 20% of the property value. 

Instead of charging interest on the loan amount, the lender will work with you to complete payments over a fixed period. In addition, the lender will usually fully or part-own the house until you have completed your payments.

Ijara: With this type of mortgage, the bank purchases the property and then leases it to you for a fixed term. Once the term is over, ownership of the property is transferred to you.

Musharaka: This is a co-ownership agreement where you split the property with the bank. You pay mortgage payments and rent on the remaining property share. Over time, as your principal amount increases, your rental payments increase. At the end of the payment period, you own the whole property.

Murabaha: In this situation, the bank purchases the property on your behalf. They will then sell the property to you at a higher rate. For example, if a property is worth £150,000, the bank may sell it to you for £200,000. You make equal instalments over the lifetime of the mortgage.

Interesting facts about Islamic mortgages

  • Around 2,500-3,000 residential and buy-to-let mortgages are issued in the UK every year.
  • There are currently 6 HPP providers operating in the UK, with more expected to announce products in the next few years.

How common are Islamic mortgages?

There are only a small number of providers offering Islamic mortgages in the UK. However, it's worth noting that you don't have to follow the Muslim faith to take advantage of this mortgage type. This type of mortgage is available to anyone interested in it.

Every Muslim in the UK who requires a loan to purchase property will have a sharia-compliant mortgage. There are currently a limited number of lenders in the UK who offer Halal mortgages. 

Halal simply means that it is permitted in sharia law. The opposite of this is Haram, which means it is not allowed. For example, a traditional mortgage that charges interest on the loan is not permitted under Sharia law.

You might also see Islamic mortgages referred to as an HPP or home purchase plan. These are increasing in popularity with individuals who are concerned about the ways banks invest their money. 

If you have concerns about the ethics of a bank's investments, you likely won't want to pay them interest. By choosing an HPP instead, you can avoid the interest and instead pay administrative fees.

How does an Islamic mortgage work?

Islamic mortgages require a down payment of at least 20% of the purchase price or appraised value. This initial down payment must come from an individual's savings, funds from family members or friends, profit from selling other assets such as stocks or bonds, gifts given by relatives living abroad, or business income. 

This sum must not be subject to interest to remain compliant, so it isn't possible to take out a traditional loan for your deposit. Of course, if you are not Muslim, then this doesn’t apply to you.

Depending on the type of mortgage you choose, you will have to pay mortgage payments and rental payments on the property or fixed rental payments.

With a traditional mortgage, the buyer is listed as the owner, but the bank is the one that really has rights to the property. The buyer agrees to make mortgage payments, and if they fail, the lender has the right to sell the property to recoup their investment. Once the mortgage payments are completed, ownership is passed from the bank to the homeowner.

With an Islamic mortgage, you share the risk and benefits with the bank. This means that you might rent your home from the bank for the duration of your repayment period. If you cannot keep up with your payments, the bank may offer a grace period to allow you to bring your account back into good standing.

Another key benefit of an Islamic mortgage, or a home purchase plan, is that there are no fees for early repayment. So if your circumstances change and you can pay off your mortgage earlier, you won’t have to pay a penalty for this. 

With a traditional lender, they will miss out on interest if you finish repayments early. To cover this shortfall, they will charge a fee if you pay off your mortgage early.

Who can access an Islamic mortgage?

Islamic mortgages are not suitable for everyone, but they are accessible to everyone. Since the lender does not charge interest on the mortgage, they have to make up the difference elsewhere. 

This typically means more expensive arrangement fees, and a larger deposit is required. In addition, you will also be subject to other standard costs such as stamp duty, conveyancing fees and surveyor fees.

You do not have to be a Muslim to access an Islamic mortgage. Anyone can access this type of lending by approaching a lender that offers home purchase plans. 

This type of lending is ideal if you are looking for a more ethical way to purchase a home. Since you don’t pay interest, you can be assured that the bank cannot use your money for unethical investments. 

Sharia law prohibits lenders from investing in organisations involved with alcohol, tobacco, gambling or pornography. If you have strong beliefs about these sectors, an Islamic mortgage could be right for you.

There are currently a few lenders in the UK offering this type of mortgage. These are: 

  • Al Rayan Bank
  • Gatehouse
  • Al Ahli
  • Heylo Housing

A few lenders are also expected to offer HPP within the next few years:

  • Strideup
  • Wayhome
  • Primary Finance
  • UBL
  • Habib Bank

Not all of these banks will advertise their products as Islamic mortgages. Some simply refer to them as home purchase plans. This demonstrates how this type of mortgage could soon have much wider appeal than just the Muslim community.

What are the requirements for an Islamic mortgage?

Lenders offering Islamic mortgages may be accepting a higher level of risk than with a traditional mortgage. This means that affordability checks will be just as important for this type of lending. Your credit score, deposit and income will all play a role in determining if you are suitable for this type of lending.

Islamic mortgage deposits

Since the lender does not charge interest, the lender must make money from the product in other ways. This can be through higher arrangement fees or by selling the property for more than the original purchase price. 

Another key difference for an Islamic mortgage is the higher deposit required. Since the lender and borrower are sharing the risk, the required deposit may be much higher than an interest-charging mortgage. While a traditional interest-charging mortgage may be possible with a deposit as low as 5%, an Islamic mortgage will require a deposit closer to 20%.

Some Islamic lenders will allow you to secure a mortgage with a smaller deposit, but the increased arrangement fees for this type of lending might make it more expensive in the long term.

Credit score and history

Your credit rating will also play a role in whether or not you are accepted for an Islamic mortgage. Lenders want to know that you are responsible with money and capable of meeting your monthly commitments.

Lenders will look at your credit score and history of borrowing to determine if you are likely to keep up with your payments. Very poor credit history might make it more difficult to find a suitable lender, but again, every lender is different. If you have a stable income and a healthy deposit, you might find it easier to find a lender willing to overlook your credit history.

Employment history

Lenders will typically want to see that you have a fixed and steady source of income. For the self-employed, this can mean you need to disclose three years of accounts. For the newly self-employed, this can be a serious hurdle. However, working with the right lender may help you to overcome these issues.

If you have been employed by a company for less than 6-months, lenders may consider you to still be within your probationary period. This can also be an obstacle to securing a mortgage. However, lenders may be more inclined to accept your application once you have been in your role for more than six months.

LTV and affordability

The final factor to consider is the amount you want to borrow and the monthly repayments. No lender will consider lending to someone who would be financially stretched by their mortgage repayments.

Most Islamic mortgage providers will offer up to 4 times your annual salary. This could be extended to 4.5 times your annual salary in some cases. Your deposit would then need to make up the remainder of the property value.

If you have a smaller deposit, you will need to borrow more money. Even if this is within your salary multiple, a lender will still turn down the application if the monthly repayments would be too high. In this instance, you may need to wait a little longer and save a bigger deposit.

Are Islamic mortgages regulated?

Yes, all lenders are regulated by the Financial Conduct Authority (FCA), so you will have the same protection as with any other lender. 

The process of purchasing a property will be the same as any other type of mortgage. You will need to pay for conveyancing, stamp duty, insurance and other fees. For the term of your payment plan, the lender will be the legal owner of the property. However, you will still be liable for buildings insurance.

Where can I find an Islamic mortgage broker?

To start your search for the right Sharia lender, we recommend working with our whole-of-market brokers. We can help you to understand your position and approach the lender most likely to accept your application.

If you are looking for a home purchase plan or want to understand your options, we recommend contacting our team today. We can help connect you with a broker to demystify the process and get you the answers you need.

How to clear your mortgage in 5 years

Living mortgage-free is a dream that many people have. Once you get on the property ladder, your mortgage product may give you the option to pay it off faster than the agreed schedule. This can allow you to rid yourself of monthly mortgage payments and free up more of your income.

Once you are free from your mortgage, you’ll be entitled to 100% of the proceeds if you sell your home. If you decide to relocate or downsize, you won’t have to pay back the remaining portion of your mortgage when you sell. If your property has increased in value since purchasing it, you could be sitting on a healthy investment.

If you are on a fixed-price mortgage for 5 years, you might want to use this time to aggressively pay down the mortgage to help save money on interest. At the end of the fixed price period, you would have to remortgage the property or take your chances with the lender’s standard variable rate.

With a £150,000 mortgage at 5% over 25 years, paying off a lump sum of £5,000 will reduce your interest payments by £11,500 and allow you to finish paying your mortgage 18 months earlier.

There are clearly savings to be found with paying off your mortgage early, but this needs to be weighed up against the loss. Aggressively paying back your mortgage could mean you are paying less into investments or a pension scheme.

In this blog, we will look at some of the advantages and disadvantages of paying off your mortgage early. We’ll also look at practical steps you can take to repay your mortgage in just 5 years.

How long does the average person take to pay off their mortgage?

There is no average mortgage repayment term. Some people will take on a 15-year mortgage while others take on a 30-year mortgage. Many people will aim to have their mortgage paid off before retirement. If you remortgage at any point, you can expect this to extend the length of time it takes to repay your mortgage.

Paying off your mortgage in 5 years is not unusual, particularly for high earners. Some people make early repayments every month while others make additional payments when they have a lump sum to spare. Early repayment isn’t necessary and doesn’t always make sense. Some people like the predictability of their monthly repayments and knowing exactly how long it will take them to be debt-free.

Is there a disadvantage to paying off your mortgage early?

Paying off your mortgage in five years will help you to be free from mortgage debt forever. But at what cost? If you are putting all of your spare income towards paying off your mortgage, you might be unable to save, invest or put the money towards your pension.

The returns you could see from your property might not be as large as the returns you could see from investments. So before deciding if paying back your mortgage in 5 years is a good idea, think about what you will need to sacrifice to make this happen.

This is a simple cost-benefit analysis. Every choice you make about your money comes with a cost, and hopefully a benefit. Keeping it in a low-interest savings account will mean that you always have access to the money, but it won’t be working as hard as it could in a less accessible investment form. Likewise, paying off your mortgage early will give you some freedom in the future, but you have to think about what you are giving up when you focus on paying back your mortgage.

Paying back your mortgage in 5 years

If you decide that paying back your mortgage is a priority, these are the steps you will need to take. Always seek professional financial advice before making any big decisions. It might be popular at the moment to aggressively pay down debts, but it isn’t always the right option.

Pay down expensive debts first

There’s little sense in putting money towards mortgage repayments if you have more expensive debts to consider. Credit cards can have eye-watering interest rates that will be much higher than your mortgage. When it comes to paying back debts, it always makes sense to pay down the most expensive debts first.

While £2,500 in credit card debt at 18.9% APR might not seem like much, it would take 13 years and 10 months to clear the debt making payments of £40 per month. You would also pay £4,120.64 in interest. So before you put all extra money towards your mortgage, make sure you have paid back everything else with a higher interest rate.

Find out if early repayment is an option

The first step is to find out if your mortgage company will allow early repayment. Some will only allow you to repay a certain amount each year, and any additional early repayments will be subject to a fee. This is to cover any loss of interest the lender expected to receive. If the fee is higher than you stand to save in interest payments, it might not be worth overpaying above the allowed amount.

Find out when the interest is calculated

You need to make overpayments at the right time to increase the benefit. If your interest is calculated daily, then making a lump payment as soon as possible is better. But if the interest is calculated annually, then you need to time your overpayments so that it reduces the interest due. Speak to a mortgage broker if you aren’t sure how your interest is calculated. They can help you switch to a better lending product if yours isn’t working for you.

Determine what is left to pay

Before you work out your monthly repayments, you need to know how much is left to repay. Your mortgage provider should be able to tell you the sum to be repaid. Remember that early repayment should reduce the total amount you pay because you will pay less in interest. But this isn’t always the case if you have to pay early repayment penalties.

If the fees you will have to pay are higher than the interest you are saving, then it isn’t worth repaying your mortgage early. In this instance, you should look to refinance your mortgage with another lender. Look for a lender that doesn’t charge early repayment fees to get your plans back on track.

Work out what you can afford to pay each month

Budgeting is the best way to maximise your mortgage payments. You don’t want to stretch yourself so thin that you are unable to keep up with unexpected costs. If this happens, you could run into trouble if your circumstances change.

Look at your monthly income and outgoings and determine where you can boost your earnings and trim your expenses. Reducing your monthly food budget, getting rid of TV subscriptions and saying goodbye to your gym membership could fee up a lot of room in your budget.

At £40 a month, getting rid of an unused gym membership could allow you to put an extra £480 towards your mortgage per year. As a couple, this could increase to £960. Repeat this over a few monthly expenses and you could soon see the extra monthly income add up.

Alternate months

Plunging all of your money into repaying your mortgage isn’t always a clever move. While it might save you money on interest payments, you might be sacrificing your financial stability. If you run into trouble, plunging all of your income into a home means that the only way to access these funds is to sell.

A better alternative would be to split your extra money between savings and mortgage overpayments. This will help to bolster your emergency fund so that you aren’t left out in the cold if your situation changes.

Stay accountable

Tracking where every penny goes will help you to remain accountable. Using budgeting software or spreadsheets will allow you to keep on track with your savings and repayments. You’ll also be able to see the impact your overpayments have on your mortgage equity and the amount of interest you will pay over the lifetime of the mortgage.

When you know where every penny of your income goes, it’s easier to identify areas of waste and how you can direct more of your income towards paying off your mortgage.

Maximise your pension payments first

Paying additional income into your pension isn’t just great for your retirement plans, it also allows you to make the most of government and employer contributions. You can also get tax relief on your pension contributions, so you could save money on your tax bill.

Overpaying your mortgage isn’t always the best option, as you could be missing out on tax relief and employer contributions to your pension. Even something as simple as a LISA could be more beneficial in the long-term, as you will earn a maximum of £1,000 per year on £4,000 of savings.

Refinance if you aren’t disciplined

If you worry that you won’t be able to stick to your repayment plan, you could refinance your mortgage to a shorter term. This will increase your monthly payments and allow you to pay off your mortgage faster, without paying early repayment fees. You will need to meet the lender’s affordability checks and show that you can make the higher monthly repayments.

If you secured your mortgage with a low deposit, you might be in a better position once you have paid down the principal and increased your equity. This could allow you to secure a better interest rate with a shorter repayment term. Instead of repaying your mortgage over 30 years, you could reduce it to a 15-year mortgage and secure a lower interest rate.

Is there a better way to do this?

Making your usual monthly repayments and making smart investments could help you to pay back the mortgage sooner and without feeling the pinch. If your money could earn a higher rate of interest than you are paying on your mortgage, it might make more sense to save the money and then pay back your mortgage in a lump sum when you are ready.

Think about an offset or flexible mortgage

With an offset or flexible mortgage, you will have the option to draw back the money you have overpaid in the event you need it again. This is an excellent way to safeguard your finances, pay back your mortgage faster, but still access the money if you need it.

You don’t have to sell your home and you won’t be charged a fee. An offset mortgage is like an optional savings account. If you leave the money there, it’s paying off your mortgage, but you can always withdraw it if you need to.

What to do once your mortgage is repaid

If you are going to pay off your mortgage in one lump sum, you will need to request a mortgage satisfaction document from your lender. This will confirm that you have paid the remaining balance, any interest charges due and any early repayment fees.

You don’t have to do anything once your mortgage payments are complete. You can request a copy of your title deeds that will demonstrate you are the owner of the property and there is no mortgage on the property. If your home isn’t registered with the Land Registry, you will need to get it added. If you purchased your home after 1990, you shouldn’t need to worry about this.

It’s important to make sure you have good property insurance in place, as you will now be solely responsible for the property.

Once your mortgage payments are complete and you are free from debt, you might start to think about retirement or investing. Make sure you allocate your extra monthly income towards smart investments to make the most of your mortgage-free position.

If you need help understanding early repayment and how it can impact your finances, get in touch with Niche Mortgage Info today, we can help you to secure the right lending products that will enable you to realise your dream of living debt-free.

How & Can I Get a Mortgage for a Barn Conversion?

If you've been dreaming of purchasing a run-down property and converting it into a stunning residential home, you're in the right place. Mortgage customers looking to explore their mortgage options should consider a barn conversion mortgage. 

This type of mortgage can be used to finance the purchase of land and the construction of buildings on that property. However, it is available only to those with sufficient liquidity and good credit, so it is not something everyone will qualify for right away.

The blog post will provide more detailed steps about how mortgage customers can get this type of mortgage from their bank or lending institution.

For more advice and support on building your dream property, Niche Mortgage Info can help. We're experts in non-standard mortgage applications, so you know you're in good hands.

Mortgage for a barn conversion: What you need to think about

There's no denying the charm of a barn conversion. High ceilings, original features and plenty of space for a growing family are often top of the list for many house hunters. But this isn’t the only thing you need to consider.

You'll need to think about the following factors before you can move forward with your plans:

  • Planning permission. Do you need it, and how can you go about getting it?
  • Surveys. What do you need for the project, how do you get them?
  • Access and right of way. If your barn is located on farmland, can you secure access?
  • Is the property a listed building? Can you renovate it within the requirements?
  • Where do you plan to live while work is taking place? Can you afford a second home or will you live on-site?
  • What is your budget, and can it cover all of your costs, even with some unexpected expenses along the way?

Let's dig a little deeper and look at each of these factors in turn.

Do you need planning permission before you can secure a mortgage?

The short answer is no. Changes in the guidelines mean that you no longer need full planning permission to secure a mortgage for a barn conversion. In 2014, the government relaxed the rules to allow interested parties to purchase agricultural buildings with the intention of converting them into residential dwellings.

We know many customers are in a hurry to secure their mortgage and start work on their barn conversion project as soon as possible, so this distinction may come as good news.

You will need to give the local authority something called "prior notification" before any work can get started. This is typically accepted but could be rejected if any requirements are not met. Your solicitor can verify this during the conveyancing stage if you have your doubts.

When do I need planning permission?

Planning permission is required if you are converting a barn or other agricultural building into an individual dwelling if the conversion is classed as a re-build. There are many different rules to follow with regards to a conversion versus a rebuild. (Source)

The best way to work around these rules is to consult with an architect who specialises in barn conversions. They will guide you on the specifics that need to be met to avoid the need for planning permission.

For example, if you are planning to extend the building significantly, this would need planning permission. There could also be differences in local authority rules about what constitutes a rebuild and a conversion. This is why local support is essential.

What surveys are required for a barn conversion?

Before undertaking any barn conversion project, a structural and full building survey would be required. Structural surveys can determine the properties of how well the structure is holding up in addition to its overall condition.

If you have doubts about this step, it's always best to consult with a chartered surveyor before moving forward.

Are there any agricultural restrictions?

Before buying a barn to convert, it's important to know whether there are any agricultural constraints on the land that would prevent you from getting standard mortgage approval. If such restrictions are in place, this could reduce the number of lenders you can approach and make it more challenging to secure a mortgage.

Do you have access and right of way?

Before making an offer on any property, always check the property boundaries and ensure you have access and the right of way. If you do need to arrange access, this is another step that needs to be approved by the local authority. Again, your architect should be able to help confirm this.

What if the barn is a listed building?

If the barn is protected by the national heritage authority, there will be special rules you need to follow when renovating. Before you apply for a mortgage to fund your barn conversion, consider getting professional advice on the proposed plans. You may need to apply for something known as "Listed Building Consent".

Listed building consent is applied for at the same time as planning permission or prior notification. It should include detailed plans and drawings outlining the proposed work. There may be restrictions on materials you can use or requirements for hiring specialist labour.

The good news is that buildings that retain their listed status will maintain a higher value than non listed buildings.

Where will you live while work is ongoing?

An extensive renovation can take months, if not years, so you'll need somewhere to live in the meantime. Make sure you include this in your budget, as most mortgage providers will want to see that you have budgeted for living costs during the renovation.

Will your budget cover the renovation and unexpected surprises?

The last thing a lender wants to see is a mortgage applicant running out of money part-way through a renovation and being unable to repay the mortgage. This will leave the lender with a partially finished project, which will make it harder to recoup their costs.

Lenders will typically ask to see a detailed budget with quotes from suppliers and professionals. You should also include provisions in your budget to ensure unexpected expenses don't push you off course.

If any of the above sounds too daunting, don't worry. It isn't as complicated as it seems once you get the ball rolling on your project. Our team can help put you in touch with a broker who can help guide your project into the arms of the right lender.

Is it possible to secure a mortgage for a barn conversion?

Absolutely! It is possible to secure a mortgage for a barn conversion, but the path may be quite different to that of someone buying a ready-built residential property. It might take a little more time and research to find the right lender for your needs.

Typically, lenders will only provide a mortgage for a property that is ready to be lived in. So a run-down barn with plenty of potential might not make the cut with most lenders. However, there is lending available that would release the mortgage in stages.

This type of mortgage is called a self-build mortgage, and it is ideal for this purpose. As you can probably guess from the name, self-build mortgages are aimed at anyone building a property from scratch or converting a property into a residential property. This includes barn conversions.

Unlike a traditional mortgage that will release the funds all at once, a self-build mortgage releases the funds in stages to allow work to continue moving forward without putting the lender at higher risk. For a barn conversion, the stages typically include:

  • Purchase of the land and barn
  • Foundations and structural renovation
  • Eaves height completion
  • Watertight roofing
  • Internal fixtures

To make the most of this mortgage type, you would need to plan your renovation carefully to manage your budget and make sure you can progress to the next stage.

How do I get a self-build mortgage for a barn conversion?

If you are considering a mortgage for your self-build project, we can help. Call us today on 0330 880 0147 or use our enquiry form to contact our mortgage consultants and get the ball rolling.

We offer mortgage advice and guidance from expert advisers who know all about what it takes to finance property development projects, including barn conversions and self-build mortgages.

Is there another way to get a barn conversion mortgage?

Self-build mortgages are the most common route for anyone looking for a band conversion mortgage, but they are certainly not the only option. There are some circumstances where a self-build mortgage would not be appropriate.

  • If you are purchasing a barn at auction, you would need the total sum within 28 days, so a self-build mortgage would not work in this instance. You might not have enough time to complete your mortgage application.
  • If you are planning to renovate and sell the barn, short-term financing might e more useful.
  • If the level of work required to renovate the barn is extensive, you might struggle to secure a self-build mortgage.
  • Short-term funding would be more appropriate if you have the financing to purchase the barn and land but simply need money for the renovation.

In all of these situations, a bridging loan would be advisable. A bridging loan is a loan with a very short term, typically of one year or less. However, some lenders will stretch this to 36 months in exceptional circumstances.

The mortgage lender may charge an interest rate that is higher than for the mortgage you are applying for, but this can still be very beneficial if it means getting your project off to a good start and giving you time to find more permanent funding, either through another mortgage or by selling the property.

You need to have a clear exit strategy for a bridging loan. This would either include selling the property once it is completed or switching to a standard residential mortgage.

Get in touch with our team for more help and advice on your barn conversion mortgage options. In addition, we can help connect you with a mortgage broker who understands your unique needs.

Should I use a barn conversion mortgage calculator?

Standard mortgage affordability calculators will only give you the core details of a mortgage, and this type may not be suitable for barn conversions. If a lender offers a barn conversion mortgage, there is a good chance they understand the unique situation, but this isn't always enough to guarantee success.

Every lender will have different criteria to meet before you are accepted for a barn conversion mortgage. This is why we recommend shopping around. Working with a whole-of-market mortgage broker will help you navigate the sector and find a lender who understands the situation.

A mortgage broker will also help you to understand your options, potential repayment terms and how to make the most of the opportunities available.

Working with a barn conversion mortgage specialist

Securing a barn conversion mortgage is more complex than a simple residential mortgage. This is why we recommend working with a specialist. Finding the best lender for your needs on your own is far more work, and we can help make this task easier.

If you need advice and support on making your dreams of converting a barn into a reality, we can help. Get in touch with our team today to discover how we can help guide your non-standard mortgage application.

Would you consider a 10-year fixed-rate mortgage?

The vast majority of homeowners aren’t aware that they can fix their mortgage payment for longer than five years. And more than one-third of homeowners would consider fixing their mortgage for ten years, given the option. The majority of homeowners confirmed that a 10-year fixed-rate mortgage would give them stability and peace of mind.

Recent consumer research has revealed changing attitudes towards borrowing. Flexibility is no longer a priority and borrowers would rather enjoy long-term financial stability. This could mean a rise in 10-year fixed-rate mortgages.

The poll revealed that over a third of homeowners would be happy to fix their mortgage for a decade. With interest rates currently at an all-time low, this is great news for borrowers. Fixing their rates for as long as possible could allow them to pay off their mortgage faster and with lower interest and fees.

Another common reason for wanting to fix their mortgage for a decade is to ensure they know what their monthly expenditure will be. This was one of the most common reasons for wanting a long mortgage term. Another reason is the belief that mortgage rates are set to increase.

Where can I find a long fixed-term mortgage?

If you are due to remortgage, or you’re thinking about getting on the property ladder, you might be curious about the option to fix your mortgage payments for a long period. As more and more lenders start to offer this type of product, working with a mortgage broker is the best way to find them.

Lenders are keen to offer this type of lending product, as it demonstrates an ability to plan ahead effectively, and shows that the borrower is planning for the long-term. Not everyone will be eligible for this type of lending, and it’s important to consider the implications of fixing your rate for such a long time.

Benefits of a 10-year fixed-rate mortgage

The 10-year fixed-rate mortgage is ideal for those looking for some financial stability. If you expect your life circumstances to change and want some stability during this time, this type of long-term mortgage can help.

Borrowers with children who are heading to university might benefit from the stability offered by a fixed-rate mortgage. Those approaching retirement age can also benefit from fixed rates. And when you consider that you might avoid paying to remortgage 2-3 times during the fixed period, there are considerable savings to be found.

Who shouldn’t consider a 10-year fixed-rate mortgage?

The financial stability that comes with a long mortgage term has an obvious trade-off. You won’t enjoy the same flexibility that comes from being able to remortgage and switch to a better deal. If interest rates fall again, you could miss out on significant savings.

You also need to consider if you plan to move home in the next decade. If you’re planning to move house, this isn’t the right option for you, so think carefully about your future plans. Exiting a fixed-term deal part way through the term can be very costly, as lenders will charge early repayment fees to make up for their loss.

If you’re interested in finding a decade fixed-term mortgage, get in touch with Niche Mortgage Info today, we can help you to navigate the best deals.

Do Teachers in the UK Get Special Mortgages or Better Mortgage Rates?

Becoming a teacher offers many perks. To start with, you get the highly rewarding feeling of knowing that you’ve had a huge impact on young people’s lives. And not to mention all the school holidays! But is cheap mortgages one of the perks of becoming a teacher?

Teachers are often looked upon favourably by mortgage providers. They have stable careers and steady income. From month to month, their earnings will usually be the same. Some people believe that teachers have access to special mortgages that the rest of us can only dream of. In some ways, this is the case, but is there really such a thing as a “teacher’s mortgage"?

Do teachers get special mortgages?

In some ways, teachers do have access to specialist mortgages. For example, The Teacher’s Building Society only lends to teachers, so they are more familiar with the professional. This allows them to offer specialist advice to teachers. However, just because they are only lending to teachers, it doesn’t necessarily mean that you will get the best rates.

As with any big life decision, it’s important to consider all of your options. While it can be tempting to go with a provider who knows your profession, this doesn’t guarantee the best deal. By shopping around, you might find another provider who will look on your application just as favourably.

Do all teachers have the same deals?

While some teachers will have no trouble securing a mortgage as a result of their steady work and income, others might not have such an easy journey. For teachers on temporary contracts or even fixed term contracts, they might have a harder time proving their income. If you’re not on a permanent contract, discover what steps you can take to help improve your chances of securing a mortgage if you are a teacher.

What about key worker mortgages?

Key worker mortgages was a scheme intended to help certain professions to find affordable accommodation close to their place of work. Key workers are people like police officers and teachers who are considered to be vital to the infrastructure of the country. While this has now been phased out, there are other options available to help get teachers on the property ladder.

Low income is a common problem across the teaching profession. Teachers can expect to earn around £25,000 on qualifying, increasing to around £35,000 with more experience. This level of income can make it difficult to save for a significant deposit. The Help to Buy Equity Loan Scheme can help teachers on low income to provide a larger deposit and access better loan rates as a result.

What can I do to increase my chances of getting accepted?

If you are concerned that your credit history might hold you back, the first step is to clean up your credit score. Some lenders won’t let this hold you back, so it’s always worth speaking to specialist mortgage brokers about your situation. We can help advise you on the brokers most likely to be able to offer you advice.

As with all mortgage applications, if you want to secure the best rates, you ideally need to provide a large deposit. While you might be accepted for a mortgage with a 5% deposit, you are unlikely to be offered the best deals. Instead, you should aim to save for a 15-20% deposit. If you income as a teacher won’t allow for this, you could also look at a Help to Buy Equity Loan to increase your deposit.

And finally, make sure you are speaking to the right people. While you might not be able to find lenders who specialise in mortgages for teachers, they don’t always offer the best rates. Shop around and make sure you know what is available before you make a final decision. 

How does maternity leave impact mortgage applications?

Switching mortgage products or remortgaging while on maternity leave can be very daunting for applicants. Fear of rejection and the stress of managing the process while taking care of a newborn is enough to lead many parents to avoid it entirely. If you have a mortgage, maternity leave may limit your options for remortgaging, but it doesn't make it impossible. In this guide, we will look at the process of remortgaging while on maternity leave and what you need to know.

Does maternity leave impact my mortgage?

Lenders are primarily concerned with affordability, so changes to your income will impact their assessment of your situation. Maternity leave will reduce your earnings, so it’s important to consider this if you are planning to remortgage. You may need to approach a lender with a more generous view of maternity leave to secure the best deal.

While your earnings might be reduced while on maternity leave, this doesn't mean you are unable to remortgage. Lenders recognise that maternity leave is a temporary change to your finances. And your expenses may change while on maternity leave, as you won’t be commuting or spending as much on entertainment. Lenders won’t ask if you are on maternity leave, or if you plan to take it in the future. But it’s helpful to be upfront about your plans from the start.

As always with a lending application, evidence is required. You can provide evidence of your maternity income through payslips, and you can also provide evidence that you have a job waiting for you at the end of your maternity leave. This could include confirmation of your return date and return salary from your employer. Sharing this information with the lender will help to avoid your income being classed as “non-disclosure”.

Can you get a mortgage on maternity leave?

The short answer is Yes, banks are not allowed to discernment.

Do I need to tell a lender if I am pregnant?

It’s helpful to let your lender know if you are expecting a child. This can help them to work with you to create a plan. For example, you might remortgage to an interest-only mortgage for a year while you are on maternity leave.

Lenders don’t penalise women for being pregnant, and they will work in your best interests. They simply don’t want you to take on a mortgage that will be unaffordable once you are on maternity leave and maternity pay.

Can I wait to remortgage?

If you would rather wait until you have returned to work before remortgaging, this is also an option. This will mean you will move from a fixed rate to your lender’s standard variable rate. This could increase your mortgage payments and make them less affordable, so always consider your options and the financial impact before making this kind of financial decision.

How can a mortgage broker help?

Working with a mortgage broker will enable you to get the best deal available. A mortgage broker can also lighten the load by taking care of the paperwork and ensuring everything is in order. Minor mistakes on your application can lead to rejection and this could mean you are switched to a standard variable rate mortgage.

Every lender will have their own approach to remortgaging while on maternity leave, but a mortgage broker will help you to handle this process with ease.

Working with a maternity leave mortgage broker gives you access to more lenders and insider insight into which lenders are most likely to accept your application. Brokers can also make it easier to secure a better deal as they will have up-to-date knowledge of the rates and fees offered by all mortgage providers, not just the popular high street lenders.

What happens to your mortgage when you move house?

What happens to your mortgage when you move house?

There are several things that can happen to your mortgage. And it depends on a few factors.

Moving home is said to be one of the most stressful life events, followed closely by divorce. If you’re planning a move in the future, you will need to decide what to do with your mortgage.

Moving your mortgage to a new property is simple and allows you to keep your existing mortgage rate while remortgaging will allow you to shop around for a better rate. There are benefits to both, so you will need to think carefully about the best option for your needs.

What are your options when moving house?

When you move house, you have two options available to you:

  • Moving house mortgage to a new property
  • Remortgaging and securing a better deal

The options available to you will depend on the type of mortgage you currently have, your mortgage rates and if you have early repayment charges due. If you aren’t sure of your options when moving house, speak to our mortgage brokers to find out if you are eligible to port your mortgage or if you will need to remortgage.

Benefits of a portable mortgage

The easiest option when moving house is to take your mortgage with you. This will minimise the paperwork and allow you to keep your current mortgage rate, monthly repayments and mortgage term. If your new property is close in value to your existing property, this could be the simplest option, particularly if you have an excellent mortgage rate.

If you’re coming to the end of a fixed-term period, a better option might be to remortgage. This will allow you to lock in your mortgage interest at a fixed rate and avoid your lender’s standard variable rate.

Benefits of remortgaging

Another option is to remortgage and choose a new lending product for your new property. Remortgaging works by taking out a new mortgage and using this to pay off your existing mortgage. Always check if you are subject to early repayment charges, as this could make remortgaging in the middle of a fixed-term more expensive.

If your new property is more expensive than your current property, you may need to increase your borrowing, while a cheaper property would allow you to release equity or take out a lower LTV. This may allow you to lower your monthly payments or shorten your mortgage term.

One of the biggest benefits of remortgaging is that you can shop around for the best possible deal. Working with a mortgage broker who understands your situation is one of the best ways to secure a good deal. They can also help you make sense of things like early repayment fees and arrangement fees, which can change the affordability of a remortgage product significantly. Get in touch with Niche Mortgage Info for expert advice on the remortgage process.

Common questions about mortgage holidays

Homeowners rarely expect help from the government with their mortgage payments, but unprecedented times call for unprecedented measures. In March 2020, the Chancellor of the Exchequer, Rishi Sunack, announced that UK lenders would be offering mortgage holidays to help those unable to work due to the Coronavirus pandemic.

Payment holidays may sometimes be requested as part of your mortgage deal, but they are rarely offered on this scale. Households struggling with meeting their mortgage payments are able to apply for a three-month pause on their mortgage payments.

This is on top of other generous support schemes, including the furlough scheme and Self Employed Income Support Scheme. Under the furlough scheme, the government will pay 80% of wages for individuals unable to continue doing their job. And the Self Employed Income Support Scheme gives grants to the self-employed to help replace lost income.

What is a payment/mortgage holiday?

A mortgage holiday does not mean that the government will pay your mortgage for you, it simply means that lenders won’t ask for payments for a few months.

Will I still pay interest if I choose to use the mortgage holiday scheme?

You won’t pay anything during the mortgage holiday, but the missing payments will need to be taken into account when calculating the remaining mortgage. If you have 10 years and 3 months left on your mortgage and you take a payment holiday for three months, your remaining payments will need to increase, unless you also increase the mortgage term.

Increasing the mortgage term will mean higher interest payments in the long term. If taking a mortgage holiday would make your new monthly payments unaffordable, you will have to speak to your lender about increasing the term.

Does this impact my credit score?

Under normal circumstances, a mortgage holiday would impact your credit score as the payments will not appear on your payment history. However, lenders have confirmed that taking this payment holiday will not impact your credit score.

If I have had a payment holiday in the past, can I have another one?

Yes, if you have taken a mortgage holiday in the past, you will still be eligible for this one.

What should I do if I’m not struggling at the moment, but I could be in the future?

You should continue to make your mortgage payments for as long as possible. If you suspect you might run into trouble in the future, speak to your lender to find out the next steps. Taking a mortgage holiday should be used as a last resort, as it will increase the total amount you have to repay over the lifetime of the mortgage.

Is the mortgage holiday scheme open to everyone?

You have to be struggling financially to take advantage of the scheme. You also need to be up to date with your mortgage payments. If you have fallen behind before the scheme opened, speak to your lender.

Can I apply for a mortgage holiday on multiple properties?

Yes, provided you are struggling financially. You can apply for a mortgage holiday on all of your properties if they are with different lenders. If your mortgages are with the same lender, you will need to speak to them about this arrangement.

Can I apply for a mortgage holiday with a joint mortgage?

This will all depend on your individual circumstances. If only one partner has lost their job or is unable to work, your lender might determine that the remaining income is sufficient to make the payments. You may need to provide more information for the affordability checks.

Can I apply for a mortgage holiday when in arrears?

This will depend on your lender. Lenders will take each application on a case-by-case basis, so you may be able to apply to give you some breathing room.

Can I take a payment holiday on my Help To Buy Equity Loan?

If you took out your Help to Buy Equity Loan before 31st March 2015, then you will be able to apply for a payment holiday. There is a range of options to help you defer payments available, so speak to your lender to find out more.

When can I apply for the payment holiday?

You can apply for a payment holiday as soon as you start to struggle financially. The sooner you speak to your lender, the sooner they will be able to help you.

How do I apply for a payment holiday?

Applications go through your lender, so you will need to refer to their website to find out more. Many lenders have created fast-track application links to help make the process easier.

When does the mortgage holiday start?

This depends on your circumstances and your lender. If you leave it too late, you may need to wait another month to start your holiday. Speak to your lender as soon as you feel you might struggle so they can arrange a date that works for you.

Can I choose when my mortgage holiday starts?

Yes, most lenders are happy to accommodate these requests. Remember that any payment holiday will increase your total repayments, or increase your repayment term, so think carefully before choosing to start a payment holiday.

Will there be affordability checks?

If you are planning to increase your mortgage payments or make changes to your repayment term, this will require affordability checks. Lenders will also want to know about changes to your household income that will impact your ability to make mortgage payments.

Lenders will want to see bank statements that confirm you are unable to make repayments. You may also need a doctor’s note to prove you have had coronavirus or a redundancy letter from your employer. If you are self-employed, you may need to confirm cancelled contracts.

Is there an alternative to a payment holiday?

Some lenders are offering the option to switch your mortgage to interest-only for 12 months. This will greatly reduce your mortgage payments while still allowing you to keep up with your interest payments.

What happens at the end of the mortgage period?

At the end of the mortgage holiday, your payments will continue, but they may increase slightly to make up for the payment holiday. Speak to your lender to make sure you know what you need to do at the end of the repayment period. Every lender will have its own procedures.

If payment holidays are extended by the Government, will my payment holiday be extended?

This all depends on your lender. Some will extend them automatically while others will require you to opt-in or opt-out of an extension. Lenders may want to review your circumstances before granting an extension.

What if my circumstances change while between a mortgage offer and completion?

Every lender will look at each application in turn, so there is no way to know if your mortgage offer will still stand. A lot can change between securing a mortgage offer and signing on the dotted line, and it’s important to keep your lender in the loop with any changes to your circumstances.

Can renters apply for a payment holiday?

There is no equivalent scheme in place for renters and you will still be liable for rental arrears. You should speak to your landlord to arrange a payment plan that works for both of you.

What can landlords do if their tenants cannot afford rent?

Buy-to-let mortgages are also eligible for a payment holiday, so you may be able to get a three-month payment holiday to ease the financial strain. Speak to your lender for more information.

My lodger can’t afford to pay rent, but I don’t qualify for a mortgage holiday, what can I do?

If you are in a situation where your rental income is not factored into your mortgage repayments, there isn’t much you can do in this situation. You could ask your lender to switch your mortgage to an interest-only repayment model to make it easier to make repayments.

What happens if I can’t pay my protection policy?

Speak to your lender as soon as you feel you are unable to keep up with your payments. They will be able to advise you on the next steps.

Next steps for borrowers

If you are struggling financially, always get in touch with your lender as soon as possible. Remember that payment holidays are a short-term solution, so only use this option if you expect your financial situation will improve during the term of the holiday.

How to get out of 5 year fixed mortgage

Leaving a fixed term mortgage early is certainly possible, but not always advisable. When you sign up for a fixed rate mortgage, you’re agreeing to the term, and exiting early can lead to some hefty fines. If the cost outweighs the potential savings, you could be better waiting out the end of your agreement.

These fines are simply early repayment charges, and they are likely to be payable on any mortgage, but always check the fine print. If you think you can get a better deal elsewhere, or if you want to repay your mortgage early, read on to learn how to get out of a 5-year fixed mortgage.

What is a fixed rate mortgage?

A fixed rate mortgage gives you some stability for the agreed term. A standard variable mortgage will mean that the interest rate is set by your bank, and heavily influenced by the Bank of England Base Rate. With a fixed rate mortgage, you’ll know exactly what your mortgage interest rate will be for the lifetime of the mortgage agreement.

This can work to your advantage, particularly if interest rates rise. When interest rates increase, those on variable rate mortgages will see their monthly repayments go up. A fixed rate mortgage protects you from price increases. However, if interest rates fall, you won’t be able to take advantage of lower monthly repayments.

Some people prefer fixed rate mortgages because it gives them some stability. They know exactly what they will pay every month. But with a fixed rate mortgage comes a fixed term. This means that you agree to keep the mortgage product for an agreed term. 2-year and 5-year fixed term mortgages are the most common.

Can you break a fixed term mortgage contract?

You can get out of a fixed term mortgage contract, but this will come with a fee attached. If you want to sell your home or remortgage to get a better rate, you will essentially be paying back your mortgage early.

Nearly all mortgages will have an early repayment fee attached. The early repayment fee covers the lost interest payments that banks suffer when borrowers repay their mortgage early. So you can get out of a fixed term mortgage, but you can expect to pay an early repayment fee so it’s important to understand the costs.

With a £200,000 mortgage remaining, you could face an early repayment charge of up to £10,000. This could wipe out any potential savings, so it’s important to consider the full cost of leaving your agreement early.

How much does it cost to break a fixed mortgage?

The early repayment fee will vary depending on the lender and the type of mortgage. The fee is typically a percentage of the remaining balance of the mortgage, usually around 1-5%.

If this amount of more that you could save by switching to another product, you might be better staying put. If you need to move house, you might have to accept that an early repayment fee is unavoidable. Always check the fine print, as a small number of lenders don’t have early repayment charges, so you would be able to leave your agreement without consequence.

What happens if I leave a fixed rate mortgage early?

The only consequence of leaving a fixed rate mortgage early is that you will need to pay the early repayment charges. You won’t damage your credit score or face any negative consequences from your lender or future lenders.

You must weigh up the full cost of leaving your fixed rate mortgage early, particularly if you are remortgaging. You may face early repayment fees on top of arrangement fees for your new mortgage. Unless you are switching to a much better mortgage deal, you might be better staying put until the end of your agreement.

At the end of your fixed rate mortgage agreement, you will very likely be moved to your lender’s standard variable rate. You will then be free to remortgage, sell the property or increase your monthly payments to pay off the mortgage sooner.

Can you sell a house with a fixed mortgage?

Yes, it is possible to sell a property with a fixed rate mortgage in place, but it will come with a cost. Once the home sells, the early repayment charge will be deducted from the proceeds of the sale.

You don’t need to let the buyer know that you are on a fixed price mortgage, but if you are thinking about purchasing another property, you might need to consider what you can afford once you factor in the cost of paying the ERC.

If you’re shopping around for a better deal, we can put you in contact with the brokers who can help secure the best possible deal. We’ll help you calculate your early repayment charges and determine if getting out of your fixed term mortgage early will be beneficial.

Remortgage to clear a Help to Buy Equity Loan

The Help To Buy Equity Loan scheme launched in April 2013. This Help to Buy scheme was intended to make it easier for those with a smaller deposit to get on the property ladder. For those people who took out this type of loan at the start of the scheme, you may have found that the interest-free period has now come to an end. So what should you do next?

You may find that your financial position is a lot different to when you first took out the loan. This leaves you with a few options to consider as you move forward. In this guide, we will explore the options available to you once your interest-free period comes to an end.

What is the Help to Buy Equity Loan Scheme?

This government-backed scheme was designed to help first-time buyers on the property ladder with a smaller deposit. It was only available on New Build properties in England and Wales worth up to £600,000 in England and £300,000 in Wales. The scheme was supposed to end in April 2021 but has been extended until March 2023.

The new Help to Buy Equity Loan scheme opened to applications in December 2020. Once this scheme took effect, the old scheme was no longer available.

The scheme works by offering borrowers an interest-free loan to help them buy a property. The full property value is secured in three parts:

  1. The borrower contributes a minimum 5% deposit.
  2. The government lends up to 20% of the property value, and 40% when buying a property in London. This loan is interest-free for the first 5 years.
  3. The remaining 75% of the property value is secured through a mortgage, usually on a 2 or 5 year fixed deal.

This is clearly an attractive prospect for borrowers who might struggle to secure a 25% deposit through savings alone. It allows borrowers to shop around for the best mortgage deal and save money on fees and interest rates.

What happens after 5 years?

Once your interest-free repayment period comes to an end, you will have to start paying interest on the remaining loan amount. This is on top of your mortgage repayments, so you could see your monthly repayments increase by quite a bit.

  • From year 6 onwards, you will pay 1.75% on the remaining loan
  • The interest rate will go up every year at the RPI (retail price index) plus 1% until you have repaid the full amount.

How Do You Pay Back Help To Buy Equity Loan?

Clearing the loan in the first five years is obviously the best way to avoid any additional charges, but this isn’t always that simple. Remember that the loan repayment is on top of your mortgage repayments, so you might struggle to clear the full loan amount in 5 years.

You have to pay back the loan in full either when you sell the property, or when your mortgage period comes to an end. If you sell your home, the government simply takes a percentage of the sale price. If your home has increased in value since you purchased it, you could end up paying back a lot more than you borrowed.

Can you remortgage out of an Equity Loan?

If you are in a stable financial position, you could consider remortgaging and clearing the equity loan. There are two options you can consider if you are nearing the end of your fixed term deal.

  1. You could remortgage and keep the equity loan. You will continue making repayments as usual.
  2. You could remortgage to pay off Help to Buy loan. This will incur an admin fee of £115.

The second option will leave you with a larger mortgage, so you need to consider if you can afford the bigger monthly payments. A mortgage broker can help you to determine if this is the right move. Make sure you stress test your finances to determine if you can afford the repayments and avoid defaulting.

Benefits of paying off the equity loan

If you want to keep the same property, you might want to consider raising the funds to pay off the Equity Loan. At the very least, start paying off the interest. Paying it off in full will help you to avoid interest charges, but this isn’t always an option unless you have the funds available.

If you cannot afford to pay off the loan, the government will continue to own a percentage of your property. This means that if you sell your home, the government will not simply repay what is owed, they take a percentage of the property sale. This could mean you lose out if house prices have increased.

Move house to pay off the loan

If you are thinking about moving house, another option would be to move house and pay off the loan in full. If the value of your property has increased, you could move to a less expensive area and have enough for a larger deposit. This would free you from interest charges and allow you to start fresh.

Is it worth paying off the Help to Buy Equity Loan?

This always depends on your personal circumstances and what you can afford. While the 5-year interest-free period might sound tempting, paying back what you can during this time is advisable. This will reduce the amount of interest you pay in the long term. There are a few key benefits to paying back your Equity Loan in full.

  1. If the property increases in value, you get to keep all of the profit. With an Equity Loan, the government owns a percentage of your property, so you might pay back more than you borrowed.
  2. You don’t have to worry about the interest charges piling up when the interest-free period comes to an end.
  3. When you come to remortgage your property, you will own a larger percentage of your home, giving you access to more lenders. This will allow you to shop around for the best possible deal.

If you do decide to remortgage, remember that this may come with additional charges. Lenders will typically have early repayment fees that are applied when you change mortgage products.