AdvertisementA mortgage is a loan from a bank or building society for the purpose of purchasing a property. You are required to pay back the loan with interest over an agreed period of time (the mortgage term). The loan is secured against the property so if you are unable to repay it your lender can sell the property in order to recoup its money.
Unless you know exactly what mortgage product you want, you should seek professional mortgage advice. Advice from a mortgage lender differs from independent advice from brokers or Independent Financial Advisors. Mortgage lenders only offer information on their own products.
Mortgage brokers can offer advice on a range of products from a variety of lenders, however it should be noted that some brokers will cover the whole of the market, others will only advise on products from a limited number of lenders.
Many mortgage brokers have relationships with lenders and are able to access competitive exclusive products that aren't available directly from the lender.
When looking for mortgage advice you should consider whether you are willing to pay an advice fee. Some brokers are paid commission by a lender for selling their products, others will charge an advice fee.
The loan is secured against the property you purchase, so if you are unable to repay it your lender can sell the property in order to recoup its money.
Most buyers purchase a property using a combination of their own money (the deposit) and borrowed funds (the mortgage).
To calculate how much money you can comfortably borrow a professional mortgage adviser will assess your individual circumstances, provide guidance on how much you can borrow, and the products available.
There are several other costs that need to be accounted for, read our property buying guide for further information.
Repayment in this instance you actively pay back the loan over the mortgage term. Your monthly repayments consist of repaying the capital along with the interest accrued.
Interest only in this instance you do not pay back the loan over the mortgage term. Your monthly payments consist only of the interest charges. Your monthly payments will be lower, however, you must arrange an alternative way to repay the loan.
Mainstream owner-occupier mortgages are for those who are buying property to live in and have a good credit rating and no specialist requirements.
Sub-prime mortgages are for individuals who have a poor credit rating. If you have defaulted on loan, credit card or utility bill payments then you may be classified as "sub-prime".
Self-certified mortgages are for individuals who have irregular or unusual income. If you are self-employed or rely on bonus payments for income a self-certified loan will allow you to declare your own income.
Buy-to-let mortgages are for those who are purchasing a property to let. The lender will often base a lending decision on the estimated rental income rather than the borrower's occupational income.
Flexible mortgages let you make extra repayments, and reduce or even skip payments when necessary. Borrowers will normally have to build up a reserve before being allowed to underpay. Flexible mortgages can allow you to reduce your mortgage term by years.
In this instance the interest rate, and therefore the monthly payment, remains fixed for a specific period of time. You will generally be required to pay the lender's standard variable rate at the end of the fixed period.
In this instance the interest rate changes in line with the Bank of England Base Rate (BBR) or some other rate specified when the loan is agreed.
In this instance the lender offers a discount on the Standard Variable Rate (SVR) for a specific period of time. The borrower's payments could go up and down in line with the SVR.
The lender's Standard Variable Rate (SVR) usually forms the basis from which many of the lender's other products are calculated. The lender's SVR usually kicks in at the end of a discount or fixed deal period.
With a variable-rate loan, the interest rate is a set amount above or below BBR or, some other base rate, and always 'tracks' changes in that rate.
The mortgage interest rate and monthly payments are variable, however they are guaranteed not to go above a set level (the ‘cap') during the deal period.
Payments are variable but will not fall below a set level (the 'collar').
Cashback is an incentive that offers a cash sum once the mortgage has been taken out.
Free legal costs or contribution towards conveyancing costs are product enhancements that usually require the borrower to use a firm of conveyancers nominated by the lender.
Free valuation or refund of valuation either requires no up-front fee from the borrower or provides a refund of the valuation fee when the mortgage application completes.
No early repayment charge means that the mortgage scheme will allow you to repay the loan in full, at any time, without having to pay a penalty.
No overhang means that the mortgage scheme will allow you to repay the loan without penalty once the benefit period has ended.
When organising a mortgage you must also bear in mind the additional fees and charges that will also be associated with arranging the loan:
Valuation fee is the amount charged to carry out a valuation of the property on behalf of the lender. Valuations should not be confused with homebuyer's reports or surveys as these are much more detailed and are carried out on behalf of the borrower rather than the lender.
Booking fee and arrangement fee these are up-front fees charged at the outset of the mortgage. The booking fee is paid to reserve funds on a mortgage product and is often non-refundable. The arrangement fee is typically charged on completion and can often be added to the overall mortgage sum.
Legal fees are payable to the solicitor acting on behalf of the borrower and the lender. The cost is greater for purchase than remortgage.
Early repayment charges only become payable if an applicant makes an overpayment or pays off the mortgage early.
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