WHAT IS A MORTGAGE?

Put simply, a mortgage is a loan from a lender which is secured on a property.

A typical mortgage loan term is 25 years although there is no real reason for this as you can actually have a mortgage between 1 and 40 years, some Mortgage lenders don’t actually have any minimum term at all. Each month payments will be paid to the lender but it’s important to remember that because the loan is secured on your property, the mortgage lender will have the right to take possession of the property if the commitment is not met.

What is a remortgage?

A remortgage is changing the loan that’s secured on a property, either by taking out a new mortgage or product with a different lender or remaining with your current lender, known as a product switch or product transfer. There are many different reasons you might remortgage, your current deal may be coming to an end, you may wish to increase your borrowing amount or you be eligible for a better or cheaper product. 

How does a mortgage work?

It’s likely that you will have some of your owns funds when buying a property, whether this be savings, a gift or even a personal bank loan, this would be known as your deposit. Unless you are very fortunate to have a 100% deposit, a mortgage is likely to be required to make up the difference of the purchase price. For example if you have 10% of your own funds, a mortgage loan of 90% will be required for you to buy a property.

You will have a monthly commitment in order to maintain the terms of this mortgage and this would either be a repayment mortgage, where you repay the whole capital borrowed during the mortgage term or an interest only mortgage where you would need an additional repayment strategy in order to repay the capital of the loan at the end of the mortgage term. 

There are many different reasons you may need a mortgages, these would include:

  • First Time Buyer mortgages
  • Home mover mortgages
  • Buy to let mortgages
  • Remortgages

The choice of mortgage type above will be based on what the property will be used for, who will live there and the position you are currently in as a borrower.

What are the different types of mortgage product?

Fixed rate mortgages – A mortgage where the interest rate remains the same for an agreed period of time, such as 2, 3, 5 or 10 years.

Standard variable rate mortgage – A variable rate mortgage that you are normally moved onto if not or any other type of product.

Tracker mortgages – A variable rate mortgage where the interest rate payable is directly linked to the Bank of England’s base rate

Discount mortgages – A variable rate mortgage with an agreed discount below the lenders Standard Variable rate

Capped rate mortgages – A variable rate mortgage that will not rise above a certain rate.

Offset mortgages – A mortgage product that allows you to utilise savings or investments in order to lower the interest payable.

What is the minimum deposit needed to get a mortgage?

The short answer, there is no minimum deposit requirement to buy a property as in certain scenarios such as shared ownership, you can obtain a 100% mortgage. Although if you are not using a scheme such as shared ownership, it is likely that a minimum of 5% deposit will be required to purchase a property. Mortgage lenders will decide the maximum LTV they feel comfortable lending to you which ultimately comes down to how much of a risk they consider you to be. Other factors will also be considered such as:

  • Lender criteria – Some lenders will simply have policy restricting the maximum they are willing to lend, for example a maximum of 85% LTV. An example of this would be when buying a leasehold property as there are fewer options to purchase a leasehold property, such as a flat with only a 5 or 10% deposit.
  • Income and expenditure, like anything mortgage related, affordability will need to be assed to determine the maximum mortgage you can borrow.
  • Credit report. There may be something showing on your credit report or credit score that is considered a higher risk and therefore requires a higher deposit.

The more deposit you have availbile, the lower the mortgage interest rate and monthly payment you are likely to get, with mortgage deals in brackets of 5%, and the best products being offered are with a 40% deposit, or 60% LTV.

How can I improve my chances of getting approved for a mortgage?

There are several ways you can boost your chances of securing a mortgage such as:

  • Maintaining a good credit score by making sure all financial commitments on paid time and also ensuring you are registered on the electoral role[LINK TO GOV SITE] at your current address. 
  • Save more deposit. The higher the loan to value of your proposed mortgage, the higher risk your application will be considered.
  • Speak to a professional mortgage broker that can help assess your situation well in advance of you needing a mortgage offer. This way if any credit improvements or suggestions are required, a personalised plan can be discussed to give you a highest chance of approval when the time comes.

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