A guide to mortgages
If you’re looking to buy a property, you’ll probably need a mortgage. Purchasing a house will be one of the biggest investments you’ll ever make and you could end-up needing to borrow a large chunk of money.
There are literally thousands of mortgage plans on the market via hundreds of lenders, so where should you start?
Buying a home is one of the most exciting moments of anyone’s life. We unravel the mortgage process to help get you off the ground…
What is a mortgage?
A mortgage is a long-term loan that allows you to purchase a home. It’s provided by a bank or building society and is secured against the property. The loan will usually go on for around 25 years. You’ll repay this every month (plus interest) over the mortgage term.
You can apply for a mortgage on your own, or with other people. If you don’t keep up with repayments on your mortgage, your home may be repossessed by the bank.
How much will I have to pay?
Firstly, work out the best mortgage for your individual circumstances. Look at how much of a deposit you can afford to put down as this will count towards the cost of the property you’re buying. In general, the more money you have for a deposit, the lower the interest rate might be – this is called Loan-to-Value (LTV).
For example, if you’re buying a house for £250,000 and have a £25,000 deposit, this is 10% of the total price of the property. This means the LTV is the remaining 90% and the property is secured against this amount.
What are the options?
There are many different types of mortgage on the market. If you’re a first-time buyer, you might be able to look at a mortgage with a smaller deposit. Help to Buy mortgages also allow those with less in the bank to buy a home.
If a friend or relative is willing to be named on the mortgage and settle any missed payments, you might be eligible for a guarantor mortgage. If you’re looking to let out the property and become a landlord, you’ll need to ask about buy-to-let mortgages.
What kind of plan do I need?
There are two ways you can repay the amount you owe on the mortgage:
- Repayment mortgage – you pay the interest owed and part of the capital every month.
- Interest-only mortgage – this allows you to only pay off the interest you owe, although these products are generally becoming rarer. You will also need to have a separate plan for how to reply the original loan at the end of the term. Your mortgage advisor will be able to explain more about the kind of plans available.
You will also need to decide on the type of mortgage, there are two options:
- Fixed rate mortgage – you will repay the same amount each month for a fixed period of time, usually two to five years.
- Variable mortgage – this option is linked to the Bank of England base rate of interest, which means the rate you pay could move up or down.
Where can I apply for a mortgage?
You can either find a mortgage through a broker or directly from the lender. Some brokers will only look at a certain number of mortgages, so make sure your broker has a good view of the market. We work with dot financial services, one of the UK’s largest award-winning group of advisers, Mortgage Advice Bureau (MAB).
A mortgage advisor will explain the products so you can decide which is best for your needs. At this stage, you’ll need to have decided which mortgage fits your circumstances, found a property to buy, understand how much you want to borrow and decided on the interest agreement / rate.
How long will it take?
Applying for a mortgage can take a few weeks as you’ll need to provide various documentation to prove you can keep-up with the repayments. The lender will ask a lot of questions about your finances during the application process.
Mortgage lenders all have different standards and requirements. There are a number of factors that will affect whether lenders will offer you a mortgage and how much they will be willing to lend, such as the property’s value, the deposit, your age, the length of mortgage, your credit score and income.
Once the lender has shown you some options, they will then give you some time to think in order to compare other products and decide what’s right for you. It’s important to think very carefully about your financial situation and any future plans before making a decision.
Where do I go from here?
We offer a wider range of mortgage products through dot financial services, part of one of the UK’s largest award-winning group of advisers, Mortgage Advice Bureau (MAB). Our aim is to provide a mortgage and protection product that is tailored to your needs and peace of mind that you’ve chosen the right plan.