If you’re seeking a mortgage for the first time, you’ll need to figure out how much you can borrow. The good news is that banks are now less concerned about the amount of money you can borrow. They won’t exclusively look at simple income multiples anymore. Affordability is a consideration for most large building societies, which entails considering your numerous sources of revenue and expenses. As a result, lowering monthly expenses may improve your chances of securing a favourable mortgage. Contact our mortgage experts for help with choosing the right mortgage for you. 

What is a mortgage? 

A mortgage is a bank or building society loan that allows you to purchase a home. It’s a secured loan, which means the bank has the legal right to repossess and sell your home if you don’t make your monthly payments. 

How do mortgages work? 

When you take out a mortgage, you pay back the loan amount plus interest in monthly instalments over a fixed length of time, usually 25 years. In the United Kingdom, certain mortgages have longer or shorter durations.  The mortgage is secured against your home until it is fully paid off. If you do not repay the loan, the lender may take possession of your home. In the United Kingdom, you can secure a mortgage on your own or with one or more other people. 

What’s the difference between a loan and a mortgage? 

A mortgage is a secured loan that is secured by your home. A loan is a financial contract between two people. A lender or creditor loans to a borrower, who commits to repaying the loan, plus interest, in monthly instalments over a set period. There are various kinds of loans. Some are secured, like a mortgage, while others are not. This implies you won’t have to put up any collateral. Unsecured loans, on the other hand, typically have smaller loan amounts and higher interest rates. 

What are mortgage deposits? 

A deposit is a percentage of the purchase price that you must provide to the purchase price of the property. The larger your deposit, the less money you’ll need to borrow for a mortgage, and the better the mortgage rate you’ll get. A deposit is a percentage of the property’s worth; for example, a 10% deposit on a £200,000 home would be £20,000. The remaining 90% of the purchase price will be financed by your mortgage company. This is referred to as the Loan-to-Value ratio (LTV). It calculates the amount of money you’ll need to borrow to cover the cost of the property. A 90 percent LTV mortgage would cover the remaining £180,000, which is the amount you owe your lender in the case above. In the preceding scenario, a 95 percent mortgage would require a 5% deposit of £10,000, resulting in a £190,000 mortgage. 

Where can you find a mortgage? 

Banks and building societies lend most mortgages in the United Kingdom. You can get a mortgage using one of two methods. You can either get a mortgage directly from the lender or locate a mortgage and seek help from a mortgage broker or an independent financial expert. 

Remortgaging: 

When securing a mortgage, keep in mind that it’s probably worth remortgaging after a few years to get the most out of your loan. Typically, banks give a low introductory rate before switching you to a conventional variable rate. It’s crucial to understand whether moving your mortgage may incur any exit fees. The mortgage may be tied for a set period, such as two years. This means that leaving before the deadline incurs additional charges. It’s important to keep track of when your introductory rate expires so you can consider remortgaging to keep your mortgage rates as low as possible for the remainder of the loan. If you are thinking of remortgaging and need help, speak to one of our mortgage experts. 

The different types of mortgages: 

Repayment mortgage: 

You will pay both the loan and the interest on this form of mortgage on a monthly basis. You will have paid off your mortgage by the end of your mortgage term if you make all of your payments on time. This is the most prevalent mortgage type. 

Interest-only mortgage: 

You will only be paying interest on this form of mortgage on a monthly basis. When you need to pay off your loan in full at the conclusion of your mortgage term, it becomes due (often, at this stage, people may re-mortgage it). This form of mortgage is hazardous because if you don’t have enough money to pay it off, you could lose your home. 

Fixed-rate mortgage: 

As your interest rate is fixed, your monthly payments will remain the same throughout the duration of the loan. Depending on your mortgage contract, this term is normally two to five years, but it can be up to ten years or even longer. Your mortgage will become variable after this period. Due to various circumstances being able to affect your monthly payments, there is no guarantee that they will always remain the same. They are usually determined by the terms of your mortgage. 

Variable mortgage: 

Since the interest rate on this sort of mortgage fluctuates, your monthly payments will alter. Depending on how the interest rate is altered, there are various types of variable mortgages. The lender makes this decision. They usually follow the Bank of England base rate, which means that rates may rise or fall in response to economic fluctuations. Tracker mortgages are those that are linked to the Bank of England. This form of mortgage is also known as a discount mortgage because it begins with a lower interest rate. You might be able to receive a capped rate mortgage, which puts a limitation on how high your interest rate can grow. The Standard Variable Rate (SVR) mortgage is the most prevalent type of variable mortgage. The lender has the flexibility to adjust the rates up or down as they see fit with this kind of mortgage. Although you can’t predict how much the interest rate will fluctuate, lenders will notify you of any adjustments ahead of time. 

Flexible mortgage: 

If you have a flexible mortgage, you may be able to take payment holidays if you are unable to make your monthly payment for any reason. To pay off your mortgage faster, you could be able to make early payments without penalty. This form of loan usually has a higher interest rate. 

Offset mortgage: 

You can link a savings account to this sort of mortgage to lower your mortgage payments. You must have a savings account with the same financial institution. If you have a £100,000 mortgage but only £10,000 in your savings account, your lender will only charge interest on the £90,000. You can withdraw funds from your savings account at any moment, but you won’t be able to utilise them to make your mortgage “cheaper.” 

You won’t be able to earn interest on your savings with an offset mortgage, but you will be able to save interest on your mortgage debt. You will be able to lower your monthly payments or pay off your home debt sooner with this sort of mortgage. You could also borrow money from someone to pay off your mortgage. 

95% mortgage: 

Some financial institutions offer a 95 percent mortgage, which requires only a 5% down payment on the property’s worth, with the remaining 95 percent borrowed. This is not your ordinary mortgage. In most cases, a mortgage deposit of at least 10% to 20% is required. 

Guarantor mortgage: 

If you don’t have enough money for a down payment, you may need to apply for a 100 percent mortgage, commonly known as a guarantor mortgage. You won’t have to pay a deposit for this form of mortgage, but you will need someone to legally back you up financially if you default on your payments. Lenders are picky about who they allow to act as guarantors. They usually need to own a home, have a high income, and have a good credit score. If you default on your mortgage, your guarantor may be required to put up personal savings or perhaps their properties as collateral. 

It’s vital to remember that a mortgage agreement will mix more than one of these sorts of mortgage while making your decision. You must choose between a repayment or interest-only mortgage, as well as a variable or fixed-rate mortgage, while choosing a mortgage. Your mortgage contract can be flexible and offset at the same time, for example.  To get the best mortgage deal for your needs, you must first decide what features your mortgage agreement must have. Contact our mortgage experts for guidance on what the best agreement would be for you. 

In addition to the mortgage types specified above, there are a few other mortgage packages that are tailored to more specific requirements.  

Buy-to-let mortgage: 

You can apply for a buy-to-let mortgage if you are purchasing a property to rent rather than live in. This form of mortgage is for individuals who currently own a home and are looking to buy another as an investment. It typically has higher interest rates and demands a deposit of 20% to 40% of the loan amount. 

Let to buy mortgage: 

This form of loan is for homeowners who wish to rent out their home so they can buy a new one. As Let to Buy mortgages are so precise and sophisticated, it’s best to get professional help. 

Bad credit mortgage: 

Even if your credit score is poor, you may be able to obtain a mortgage. Some lenders specialise in lending to those with bad credit. This form of loan typically has a higher interest rate. 

Self-build mortgage: 

This is a form of mortgage available to individuals who want to build their own property. This sort of mortgage is paid in instalments after each stage of construction to ensure that the builder completes the project. As this is also a complicated kind of mortgage, you should seek professional help from our mortgage experts .