The Different Types of Mortgages Explained in Bristol

Mortgage Advice in Bristol for Different Situations

When you start out looking for a mortgage first time buyers in Bristol and home movers will soon realise that there are lots of different options available. Below you will see a list of the most popular types of mortgages available on the market and hopefully.  If you have any questions regarding any of the below mortgage options, then please do not hesitate to contact us.

What is a fixed rate mortgage?

A fixed-rate mortgage means that your mortgage payments are going to stay the same for a set period of time. You can set the length of which you want to fix your payments for, typically this being 2, 3 or 5 years or longer. No matter what happens to inflation, interest rates or the economy you know that your mortgage payment, usually your biggest outgoing, will not change.

What is a tracker mortgage?

A tracker mortgage means that your interest rate will track the Bank of England’s base rate. So in other words, the lender that you are with does not actually set the rate themselves. You will be paying a percentage above the Bank of England base rate. In an example, if the base rate is 1% and you are tracking at 1% above base rate, that means you will be paying a rate of 2%.

What is a repayment mortgage?

When you take out a repayment mortgage this means that each month you are paying capital and interest combined. So as long as you keep your payments going for the full length of the mortgage term, the mortgage balance is guaranteed to be paid off at the end and the property becomes yours.

This is the most risk-free way to pay your capital back to the lender, in the early years it is mainly the interest that you are paying and your balance will reduce very slowly especially if you have taken out a 25, 30 or 35-year term. This situation switches in the last ten years or so of your mortgage, where your payments are paying off more capital than interest and the balance will come down much faster.

What is an interest only mortgage?

Whilst many buy to let mortgages in Bristol are set up on an interest-only basis, it is much more difficult to get a residential property on an interest-only basis.

It is much less likely for lenders to offer an interest-only product now.  However, there are certain circumstances where this can be an option. These include downsizing when you are older or have other investments that you will use to pay the capital back. Lenders are very strict when it comes to offering these products now and the loan to values is a lot lower than back in the day.

What is an offset mortgage?

With an offset mortgage, the lender will set you up a savings account to go alongside your mortgage account. How this works is that let’s say you have a mortgage balance of £100,000 and £20,000 is deposited into your savings account, you only pay interest on the difference, so in this case, £80,000. This can be a very efficient way of managing your money, especially if you are a higher rate taxpayer.

How to Improve your Credit Score in Bristol

Especially for first time buyers in Bristol the higher your credit score, the more chance you have of your mortgage application will be accepted. No one is guaranteed to get a mortgage though, and Lenders have their internal scoring systems. 

Each Lender has developed its system of scoring over the years. Do not worry if you fail with one Lender. Other mortgage lenders may be more forgiving. It is your Mortgage Advisor’s job to match you to the right Lender, hopefully, the first time, but this is not an exact science. Both you and your Mortgage Advisor want the same thing, which is that you end up with the best deal available to you. 

There are several different credit reference agencies in the UK, including Experian and Equifax. It is a good idea to check as many of these agencies as possible to get a rounded picture of your credit score. Also, one of the agencies may be holding incorrect data. Checking with several agencies will help you identify any such discrepancies. We personally would recommend the use of Check My File as this brings these varying scores under one platform for you to look at.

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Avoid Unnecessary Credit Searches

Multiple credit searches can harm your score. Be careful when using price comparison websites which are significant culprits of credit searching on individuals. If you know you want to apply for a mortgage soon, it is wise to avoid using for any other credit. While having some confidence and paying it back is a good thing for your score, in the long run, Lenders do not like to see you increasing your borrowings just before making a mortgage application. 

Check You Are on the Voter’s Roll

Being on the electoral roll adds many points onto your score. It indicates stability and Lenders like that. Ensure your name gets spelled correctly and that it’s your current address is registered, not an old one. If not logged, it is easy to do so online. 

Do not Run Close to Your Maximum Limit 

If you max out your card each month that will reduce your score. Using a credit card and paying off the balance in full each month is preferable. However, this indicates that you are good at managing your money. Worst of all would be exceeding an agreed card limit or overdraft. Lenders want to know that you take your finances seriously. 

Check Your Address History

Quite often it can appear that you are living in two places at the same time on your credit report. In any case, this occurs because you may have forgotten to tell one of your credit providers that you have moved to a new house. Check all addresses gets spelt correctly. If you have lived in a flat, this can be tricky as the flat/apartment number can get formatted in different ways. 

Close Any Unused Credit Accounts

You should contact the providers of store/credit cards you no longer use and get the account closed. In the short term, this can harm your score briefly as the credit reference cannot tell if it’s you are closing the account down or the provider. In any case, this is also a good thing to do to reduce your chance of falling victim for fraud should you not notice you have lost a card you do not use regularly. 

Remove Financial Links to others

If you have a family member or ex-partner connected to you, then this could be affecting your score. You will not be able to get the financial association removed if the account is still live though. To remove one of these links, you should contact the credit reference agencies and make a request.

Many consumers feel that credit scoring is an unfair way of Lenders assessing applications. Lenders feel differently as it is much cheaper for them to operate this way.

Send an up to date copy of your credit report to your Mortgage Advisor upfront, and you will increase your chances of being accepted the first time. The more your Advisor knows about your finances, the better. Also, there are still some smaller Lenders out there that do not credit score. These Lenders do it the old-fashioned manual way, although they will always have specific rules about the number of defaults and CCJs they will allow.