Buying a home is the largest purchase you’re likely to make. Before you arrange your mortgage, we will make sure you know what you
A mortgage is a loan taken out to buy property or land. Most run for 25 years but the term can be shorter or longer. The loan is ‘secured’ against the value of your home until it’s paid off. If you can’t keep up your repayments the lender can repossess (take back) your home and sell it so they get their money back.
Don’t stretch yourself if you think you’ll struggle to keep up repayments. Also, think about the running costs of owning a home such as household bills, council tax, insurance and maintenance. Lenders will want to see proof of your income and certain expenditure, and if you have any debts. They will more than likely ask for information about household bills, child maintenance and personal expenses. Lenders want proof that you will be able to keep up repayments if interest rates rise. They might refuse to offer you a mortgage if they don’t think you’ll be able to afford it. We need to see copies of your latest 3 monthly bank statements and evidence of your income. Usually the last 3 monthly pay slips or evidence of self-employment such as accounts or SA302 figures. We will provide you with a full list of what we will need.
Applying for a mortgage is often a two-stage process.
The first stage involves a basic fact find to help us work out how much you can afford, and which type of mortgage(s) you might need.
The second stage is where we will work with the mortgage lender to conduct a more detailed affordability check, and prove this by using evidence of income and expenditure.
We will ask you a series of questions to work out what kind of mortgage you want, and how long you want it for. We will need to work out, without going into too much detail, your financial situation. This is generally used to provide an indication of how much a lender might be prepared to lend you.
We will also give you key information about the product, the service and any fees or charges if applicable.
This is usually where you begin your application.
We will begin a full ‘fact find’ and a detailed affordability assessment, for which you’ll need to provide evidence of your income and specific expenditure, and ‘stress tests’ of your finances. This will likely involve some detailed questioning of your finances and future plans that could impact your future income. We will also assess the impact on your repayments should interest rates rise in the future.
If your application has been accepted, the lender will provide you with a ‘binding offer’ and a Mortgage illustration document(s) explaining terms of your mortgage.
This will come along with a ‘reflection period’ of at least 7 days, which will give you the opportunity to make comparisons and assess the implications of accepting your lender’s offer. Some lenders might give you more than 7 days to do this. You have the right to waive this reflection period to speed up your home purchase if you need to. During this reflection period, the lender usually can’t change or withdraw their offer except in some limited circumstances. For example if the information you’ve provided was found to be false.
When buying a property, you will need to pay a deposit. This is a chunk of money that goes towards the cost of the property you’re buying. The more deposit you have, the lower your interest rate could be.
When talking about mortgages, you might hear people mentioning “Loan to Value” or LTV. This might sound complicated, but it’s simply the amount of your home you own outright, compared to the amount that is secured against a mortgage.
For example, with a £20,000 deposit on a £200,000 property, the deposit is 10% of the price of the property, and the LTV is the remaining 90%.
The mortgage is secured against this 90% portion.
The lower the LTV, the lower your interest rate is likely to be. This is because the lender takes less risk with a smaller loan. The cheapest rates are typically available for people with a 40% deposit.
The money you borrow is called the capital and the lender then charges you interest on it till it is repaid. The type of mortgage you are able to apply for will depend on whether you want to repay interest only or interest and capital.
With repayment mortgages you pay the interest and part of the capital off every month.
At the end of the term, typically 25 years, you should manage to have paid it all off and own your home.
With interest-only mortgages, you pay only the interest on the loan and nothing off the capital (the amount you borrowed). These mortgages are becoming much harder to come by as lenders and regulators are worried about homeowners being left with a huge debt and no way of repaying it.
You will have to have a separate plan for how you will repay the original loan at the end of the mortgage term.
We can ask a lender if you can combine both options, splitting your mortgage loan between a repayment and interest-only mortgage.
Once you’ve decided how to pay back the capital and interest, you need to think about the mortgage type.
Mortgages come with fixed or variable interest rates.
With a fixed-rate mortgage your repayments will be the same for a certain period of time – typically two to five years. Regardless of what interest rates are doing in the wider market.
If you have a variable rate mortgage, the rate you pay could move up or down, in line with the Bank of England base rate. There are various types of variable rate mortgages.
