1.) I have worked abroad for the last six years and expect to continue doing this for some time. I am thinking about buying a house in the UK and letting it out until I return home. Will I be able to obtain a mortgage as I do not pay UK tax at present?
There is a good chance that you could apply for a normal residential mortgage, as eventually the property will become your main home. Provided you have approximately a 20% deposit, there are some lenders such as Cheltenham and Gloucester and Halifax, who may lend to you on this basis. However, they would normally only lend if you work for a major multinational company or a Government.
If you have difficulty fitting this criteria, you could apply for a Buy to Let mortgage. In this case, you would need a 25% deposit and the payrates are likely to be higher.
For the first option, the lender will base the amount you could borrow on your earned income. But for a Buy to Let mortgage it will be based on rental yield. The fact that you do not pay UK tax, or indeed which currency your salary is paid in, will not normally be an issue.
2.) I am coming to the end of mortgage term so there is only a few thousand pounds left to pay. I would like to add an extension on to my home and convert the loft space. Is it possible to raise the money by increasing my mortgage or do I have to take out a more costly personal loan?
It would certainly be cheaper to finance the improvements by increasing your mortgage. You also have the option of a longer term to pay back the money with a mortgage, although obviously the quicker you repay it, the less it will cost.
You need to consider whether to stick with your current lender or go elsewhere. This will depend upon any redemption penalties and what current deals that your lender has. If you do remortgage, look for a lender who will pay most of your costs for you (legal fees, valuation etc) and who has lower arrangement fees. What you shouldn't do is take out a second charge mortgage. These are much more expensive, with interest rates normally at least double what you would pay on an ordinary mortgage, and often also with nasty redemption penalties known as Rule of 78.
3.) My wife and I are considering buying a second property in Spain. We could cover the cost by extending the mortgage on our domestic property but have been given unclear advice as to the pros and cons getting a euro mortgage rather than extending our current mortgage.
The property would be rented out for most of the year although we would want to use it for holidays as well. I am a lower rate taxpayer and my wife is higher rate. We have also had unclear advice on the tax position of offsetting property and set-up costs.
A mortgage on a foreign property ideally needs to be in the currency of the country in which the property is situated so in this case a Euro mortgage would make sense. This is to minimise the currency risk as the value of your property and your mortgage, when translated back into sterling, will both increase or decrease together, whichever way the local currency moves against sterling. In most cases reducing the foreign exchange risk in this way is likely to be more important than modest differences in interest rates. Having said that there are very few UK lenders who offer mortgages on foreign properties (quite a few English lenders don't even lend in N Ireland or Scotland). In addition to this you need a minimum deposit of typically 25% and the purchase expenses are significantly higher than in the UK. It is for these reasons that many people buying abroad prefer to release equity on a UK property if they can and purchase the foreign property in cash.
As UK residents you would be liable for tax if you made a profit from renting out the property but you can still offset the mortgage coasts with other costs. If you use the property for your own purposes for part of the year the tax relief on the outgoings would normally be restricted on a pro rate basis.
If you jointly own the property and make a profit on the rent it is probably sensible for your wife to own the majority of the property but you would need specific tax advice on this. The key reason for owning the property jointly is because your tax positions may change in the future and you can both claim individual Capital Gains Tax allowances.
4.) I am a first time buyer, looking for the best mortgage deal on a mortgage of approximately £95,000. My income is £34,000. I have sufficient savings to provide a 5 per cent deposit. I don't want an endowment, I want the cheapest and best deal I can get, taking advantage of low interest rates. I might want to start a family in the next 3 years, and some mortgages give "mortgage holidays" for a fixed period. Is this worthwhile, or is it just hype?
There are so many mortgages available, I'm baffled over which would suit me best. Are there any benefits for first time buyers that I should know about?
Income wise you should have no problem getting the mortgage you require, as long as you can prove your income, your credit status is good and you do not have any other outstanding debt, such as personal loans or credit cards, as that could affect the amount you can borrow.
Although you state you have enough savings to provide a 5% deposit you have not said if you have any other funds to cover the purchase costs such as the valuation fee, legal fees and stamp duty. If these need to be covered by your deposit money, you will probably have to apply for a 100% mortgage.
There are mortgage deals available that will cover some of these costs for you although they will not cover your Stamp Duty charge unless you went for a deal that offered a sufficient cashback. Stamp duty will cost 1% of the purchase price but in some areas there is no stamp duty payable on properties valued up to £150,000. You may want to investigate these areas in order to reduce your purchase costs. Details can be found on the Inland Revenue website, www.inlandrevenue.gov.uk.
Regardless of whether you apply for a 95% or 100% mortgage, you should try and avoid lenders who charge a Mortgage Indemnity Premium (MIG). This is typically charged on loans over 90% of the property value and can equate to an extra cost of approx. 1.6% on a 95% mortgage or 3% on a 100% mortgage.
Payment holidays are available on most flexible mortgages and many lenders now offer flexible features on their deals. These features can be useful as long as they are used correctly. Payment holidays are typically dependent on overpayments made and limited to a maximum of 6 per year but this can vary. My advice to you would be to make as many overpayments as you can between now and when the time comes to start a family to ensure you have saved up enough of a cushion for your payment holidays.
