Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
Quickfire Roundup:
Is property ownership simply a dream, or are there mortgage deals out there for everyone?
While securing a mortgage isn’t always easy, it’s by no means impossible. A mortgage is loan given to you to purchase a property which you pay back over an agreed period of time.
By working on your credit rating, and by boosting the deposit that you have access to, there’s likely to be a mortgage that’s right for you.
Just how much deposit you’ll need, and how much you can borrow, will depend on a host of factors. Some of these are within your control.
If you’re looking to buy your own home, there’s a good chance that you’re going to need a mortgage. Unless you’re lucky enough to have hundreds of thousands stashed away then a mortgage is the only way to go.
What is a mortgage though, and just how do you get one?
As you read on, I’m going to demystify all things mortgage related.
I want you to be able to identify what makes a great mortgage deal, how to get monthly payments that you can afford, and understand the various types of mortgage products that exist.
Do you want a variable mortgage or is a fixed-rate deal right for you? Maybe a tracker mortgage is the perfect option for your financial circumstances.
While I’m not here to offer outright mortgage advice, I hope I can help you understand that much more.
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
- Whole of market access
- Free online consultations
- Directly authorised by the FCA
- No in person meet ups
Table of Contents
What is a mortgage and how can I get one?
Quite simply, a mortgage is a loan that is used to buy a property.
The property’s purchase price will dictate the deposit amount you’ll need to put down. Currently, you’ll need a deposit that’s at least 5% of the property value.
That means that your mortgage would have a loan-to-value (LTV) of 95%. You will have to pay interest on the amount that you borrow.
The steps taken to secure a mortgage are:
- Do all that you can to save money so that you have the biggest deposit possible
- Use one of the many online mortgage calculators to get an idea of what you may be able to borrow
- Consider using a mortgage broker so that you can get access to the best mortgage deals (an independent mortgage advisor is best as they have access to the whole of the market)
- Compare deals available on the mortgage market
- Be sure that you understand any arrangement fee or other mortgage fees
- Apply and receive a decision in principle. This isn’t a mortgage offer but it shows what a lender may be prepared to offer
- The official mortgage application is now completed, and your credit report will be checked
- The property will then need to be valued (a valuation fee will be payable) to ensure that it’s worth what you’ve agreed to pay
- Assuming all goes well, you receive your official mortgage offer and can then move forward with your property purchase
What type of mortgage do I need?
When you start to compare mortgages, the type that you need will depend on your current circumstances. Here’s a look at those circumstances and the mortgages that fit:
First-time buyers
As a first-time buyer, you’ll find that mortgage providers are signed up for government schemes. These schemes are there to lower the deposit amount you need and also lower the purchase price in some scenarios.
You’ll also find that there are schemes like Help To Buy (although this is ending) and lifetime ISAs to assist you with government bonuses.
Remortgage
This applies when you have a current mortgage, and you want to switch products. This is something that I’ve taken advantage of in the past to secure a better product and to bring mortgage repayments down.
You can also remortgage to add value to your house so this could be a remortgage to build an extension or loft coversion.
Just be sure that you check out the early repayment charges of your current mortgage.
Home mover
If you already have a house, you may be looking to move. High street banks and other lenders have numerous mortgage types that can assist.
If you’ve managed to build up the equity in your current home, you will be able to use this towards your house deposit. The more of a deposit you have the more mortgage deals you’ll have access to.
Buy to let
A buy-to-let mortgage is there for people who are looking to buy property as an investment or purchase their second home. They use the property to rent out to tenants rather than live there themselves.
From experience, lenders here will pay extra attention to the market price, and if it’s justified, and a bigger deposit will be needed.
Generally, these are interest-only mortgages, and the borrowed amount isn’t fully repayable until the end of the term.
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
- Whole of market access
- Free online consultations
- Directly authorised by the FCA
- No in person meet ups
The various mortgage products
When it comes to securing a mortgage, there are different products to consider. The interest rates and the monthly payments will vary from one product to another, and it’s not always easy to know which option is the best.
It’s not just the initial interest rate that you need to consider when choosing a product. You also need to be aware of the overall cost for comparison.
This serves to show the total yearly cost of a mortgage and it’s displayed as a percentage of the loan. Considerations include:
- The initial interest rate payable
- The interest rates that apply after the initial period
- Product fees
- Valuation fees
The overall cost for comparison allows you to compare the best mortgage deals.
With that in mind, here’s a look at the mortgage products out there:
Repayment Mortgage
A repayment mortgage is a type of mortgage where you make monthly payments that cover both the interest on the loan and a portion of the capital.
This means you’re gradually paying off the total amount borrowed over the term of the loan, usually 25 to 30 years.
By the end of the term, assuming all payments have been made on time, you will have fully repaid the loan and own your home outright.
It’s the most common type of mortgage and provides the reassurance that your debt will be fully cleared at the end of the term, barring any payment difficulties along the way.
Tracker mortgage
Tracker mortgages set monthly payments and interest rates based on the Bank of England base rate. The rate currently is set at 4% following a series of increases.
A tracker mortgage will be set above this rate but will change simultaneously. A rise in the Bank of England base will see payments increase, while a fall will lead to lower monthly repayments.
Variable rate mortgage
A variable-rate mortgage has interest rates set by mortgage lenders. These will generally be a good few points above the Bank of England base.
When you compare mortgage rates, these are the least competitive and you can lower mortgage payments by moving away from the lender’s standard variable rate.
Offset mortgage
Offset mortgages are a great option when it comes to reducing the interest that you pay. You can use your savings against the amount that you owe. The total value of your savings is deducted from your mortgage balance and interest is only charged on what remains.
Fixed-rate mortgages
With a fixed-rate mortgage, interest rates remain the same for a set period. This means that you’re protected when it comes to mortgage rates for several years. If interest rates go up, your monthly payments stay the same.
If the Bank of England base rate falls, the downside is that you don’t benefit from this. However, the way I see this is that knowing that your mortgage rates won’t change means that it’s far easier to budget.
Guarantor mortgage
Guarantor mortgages are also known as family-assisted mortgages. When taking out this type of mortgage, your guarantor becomes responsible for your monthly payment if you can’t make it yourself.
Guarantor mortgages work well for people who don’t have a big enough deposit and when the loan to value doesn’t meet the lender’s requirements.
They also work well for those who have a poor credit history. Your credit rating will still matter though and it will impact the mortgage rate that you’re offered.
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
- Whole of market access
- Free online consultations
- Directly authorised by the FCA
- No in person meet ups
Land Mortgage
A land mortgage, also known as a land loan or plot loan, is a type of mortgage that is specifically designed for the purchase of land or a plot of land.
This type of mortgage is different from a traditional mortgage, which is used to purchase a property that already has a building on it.
When you take out a land mortgage, the lender will use the land you are purchasing as security for the loan. This means that if you are unable to repay the loan, the lender may be able to seize the land to recoup their losses.
In the UK, there are two main types of land mortgages:
Self-build mortgages: These are mortgages that are specifically designed for people who want to build their own home on the land they are purchasing. With a self-build mortgage, the lender will release funds to you in stages as you complete different stages of the building process.
Land purchase mortgages: These are mortgages that are designed for people who want to purchase land for a variety of purposes, including investment or development. With a land purchase mortgage, the lender will typically release the entire loan amount upfront, and you will be responsible for repaying the loan according to the agreed-upon terms.
What makes the best mortgage deal?
No one thing makes the best mortgage deal. It’s worth talking to a mortgage broker to get mortgage advice about which product is best for your circumstances.
However, some of the points to consider are:
- Mortgage rates – variable mortgages can lead to uncertainty while fixed mortgage rates offer peace of mind. That being said, tracker rates may lead to your mortgage being cheaper overall
- Fees – you need to be clear on these as they can add a considerable amount to your mortgage and monthly payments. There may be an arrangement fee, an advice fee to pay to a broker as well as early repayment charges to be aware of
- Your credit rating – a good credit report gives you access to the best mortgage rates. Doing all that you can to improve this will open up the best deals
- Compare mortgages – take your time to shop around and compare mortgages out there. As well as high street banks, there are other mortgage lenders to consider
FAQs
Can you buy a house without a mortgage?
Yes, if you have access to the funds, you can purchase a property using cash. This means that you’re classed as a cash buyer and mortgage rates are something that you don’t need to be concerned with. A first-time buyer would be fortunate to be in this position but it does happen.
How much income do I need for a mortgage?
The income you have will dictate the amount that you can borrow for a mortgage. Generally speaking, you’ll be able to borrow up to 4.5 x your annual income, but this will vary from lender to lender.
Does a mortgage mean you own the house?
Yes, you own the property when you have a mortgage. You have essentially loaned the money to buy the home so the deeds and legal documents will be in your name.
The only time you would lose your home is if you do not keep up with your mortgage payments.
Who decides if you get a mortgage?
The lender will decide whether or not you can afford a mortgage. They assess you for a number of things which include your income, credit history, any debt you may have and the size of your family.
Lenders can be banks or building societies and essentially their mortgage underwriters will make the final decision.
A lot of this is now done online and mortgages in principle can be made on the same day in same cases.
What makes you not qualify for a mortgage?
A mortgage can be denied for a number of reasons but the most common are poor credit or affordability. Credit is something that you will need to improve if you have a bad history and the easiest way to understand if you can afford a mortgage is to times your income by x5.
How long does a mortgage take to be approved?
This varies by the lender but most lenders will approve your mortgage offer after two to six weeks. In some cases it may take longer if there are issues with your application that required further investigation.
Can I get a mortgage if self-employed?
Yes, you can get a mortgage if self-employed. It usually requires at least 2 years of accounts in profit but some lenders will allow you to have 1 year.
It will depend on a number of factors such as your debt levels, dependants and credit score but it certainly is possible even if it’s a touch harder.
Final thoughts
When looking at a mortgage, it’s important to remember that this is a long-term commitment. Typically, a mortgage term will be around the 25-year mark, but it could be longer.
To ensure that your monthly payments remain competitive, you must shop around and check out the best mortgage deals.
Now that you know how to answer the question “What is a mortgage?”, and more about mortgage rates and types, you have the opportunity to secure the best deal for you.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
