The money questions everyone’s asking

Written by: Brendan Gilligan
Yorkshire Building Society answers the most common personal finance questions asked by their customers.

1) How much money can I borrow for a mortgage?

All lenders are different, but the general rule of thumb is about 4.5 times your annual income. If you’re buying the property with another person, their income will also be factored into this. For a more accurate estimate, many lenders have mortgage borrowing calculators.

2) Can I make overpayments on my mortgage?

Many people choose to pay more than their normal monthly payments to reduce the amount of interest they pay on the mortgage and potentially knock years off the lifetime of their loan. Lenders typically allow you to overpay by up to 10% of what you owe each year, but it’s worth checking with your lender first before overpaying to make sure you are aware any potential charges or limitations involved. However offset mortgages allow you to make overpayments of up to 99% of your loan, giving you the opportunity to pay off your mortgage far quicker.

3) Can I let out my property?

Some lenders include a clause that does not allow you to rent out your home if you have a residential mortgage rather than a buy-to-let mortgage (which tend to come with higher interest rates in comparison to residential mortgages). Others may agree but this is often conditional, for example, you may only be able to rent it out for a limited period of time.

Yorkshire Building Society does let you rent out your home subject to our terms and conditions, but your mortgage interest rate may be increased by up to 1% to reflect the higher rates which apply to buy-to-let loans. This is provided that you have informed us and we have agreed the terms of an authorised let. If the Society has not agreed to the letting, it will be treated as unauthorised and your mortgage interest rate will increase by 1.15%.

4) Do you have to use a solicitor/conveyancer when you are buying or selling a house?

It is, in some cases, possible to do the conveyancing yourself. However, you can usually only do it yourself for simple transactions, and typically not when you’re taking out a mortgage to buy the property. This is because all mortgage lenders will require a legal adviser to act on their behalf and some lenders require you to use one of their recognised solicitors. Even if you choose to do your own legal work, you have to pay the fees and charges of the legal adviser acting for your mortgage lender. Conveyancing can be very complex, time consuming and risky, so it is advisable not do it yourself, unless you are experienced. If you go through the process incorrectly, it could be costly and you may end up spending significantly more on legal fees putting things right than you would have done if you had used a qualified conveyancer instead.

5) Can I have a mortgage payment holiday?

Lenders differ on whether they will allow you to take a mortgage payment holiday. Some may allow you to only pay the mortgage interest for a certain amount of time, reducing the amount you pay each month, and others may allow you to take a break from paying altogether. You will normally need to have previously overpaid on your mortgage in order to be able to do this, and your lender will need to agree it in advance, so you should check with them first to see if you’re eligible. If this is something you are looking to do, it is important to note that interest continues to be charged during payment holidays, and taking a payment holiday may increase the amount of interest you are charged.

6) When buying a house, what is the difference between ‘exchange’ and ‘completion’?

‘Exchange’ refers to when the contracts have been exchanged and there is a legally binding contract between seller and buyer for the sale and purchase of the property. Once this point has been reached, the buyer or seller of the property can’t pull out of the deal, or at least not without incurring significant costs.

‘Completion’ usually comes after this (although it is possible to exchange and complete on the same day), and refers to the day when the buyer  is able to collect the keys to their new home, most likely from the estate agent, and move in to the property. This is the date when the title of the property is transferred to the buyer and the buyer takes possession of the property.

7) If I close/withdraw money from my ISA can I put it back in again?

All money paid into your ISA count towards your ISA allowance, which is currently £15,240 for the 2016/2017 tax year. In April 2016 an optional flexibility feature was introduced to ISA accounts, which a number of providers now offer, allowing savers to withdraw money and then redeposit funds later in the same tax year, without losing any tax-free entitlement.Therefore, if you withdraw money or close your account, you can put it back in again provided the amount does not exceed the allowance you have available.

It is possible to transfer the balance of your ISA from one provider to another or from one ISA to another ISA with the same provider, without it affecting your allowance. To do this, you need to will need to use the new provider’s transferring service.

8) My parents are getting older and infirm – can I add my name onto their accounts so that I can manage their money?

If you need to temporarily operate a bank account for someone else, you can usually ask your bank for a ‘third party mandate’, which they will ask you to complete and return to them. However, if you need to operate more than one account, or need to manage your parents’ financial affairs on a more long-term basis, it is typically best for them to give power of attorney in your favour, which would provide you the legal authority to deal with third parties such as banks or the local council on someone else’s behalf. Citizens Advice has more details here on how to manage affairs for someone else.

9) What tax will I pay on my interest?

If you’re taxable income is less than £17,000 per year, you won’t pay any tax on savings income. Additionally, if you have an ISA account, you will not pay any tax on interest earned from that ISA, regardless of your income.

For those who have a taxable income above £17,000 per year, the government recently introduced the Personal Savings Allowance, which allows individuals to earn up to £1,000 in savings income before paying any tax (interest earnt from an ISA would not count towards the personal savings allowance, so you can use the two alongside each other).

The size of your allowance depends on your adjusted net income, where those earning up to £43,000 a year have an allowance of £1,000, but those earning between £43,001 and £150,000 have an allowance of £500. Those with an adjusted net income over £150,000 are not eligible to the Personal Savings Allowance. More details about the Personal Savings Allowance can be found here.

10) What does APR stand for?

APR stands for Annual Percentage Rate and describes the actual yearly costs of your loan over the term of the mortgage, and takes into account the fees and costs you’ll have to pay as well as the interest rate itself.

Also AER, or Annual Equivalent Rate, is the official rate for savings accounts, and is designed to show what you’d get over a year if you put money in the account and left it there. The alternative is the gross rate, which is the flat rate of interest that’s actually paid.

Brendan Gilligan is mortgage product manager for Yorkshire Building Society

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