If you’re buying a home, you’re more than likely going to need to apply for a mortgage. If you aren’t already in the know about mortgages, here’s what you can expect…
Unless you’re fortunate enough to be able to meet the exact asking price for a property (which, let’s face it, is probably unlikely) you’ll need to apply for a mortgage.
Mortgages are secure loans from a bank or building society which allow us to buy properties that would otherwise be out of budget. While that explanation may make mortgages seem deceptively simple, there are plenty of extra steps to take and hidden details which can make them a daunting prospect, particularly for first-time buyers.
So, if you’re already searching for a conveyancing service to help you with a mortgage application, this post will give you all the information you need. This way, you can be sure that you’re fully informed before getting on the property ladder. Take a look…
How Do Mortgages Work?
When you’re accepted for a mortgage, you’ll be required to pay back the amount that you have borrowed, as well as any additional interest over a period of around 25 years. The mortgage itself is secured against your property until you’ve paid it off in full. This means the lender (likely to be a bank or building society) could repossess your home if you fail to repay.
In the UK, you can get a mortgage on your own or, if you’re buying a home with someone else, you can take out a joint mortgage – whichever is more convenient!
What is a Mortgage Deposit?
When you take out a substantial loan, you’ll usually have to put down a deposit – mortgages are no different. Deposits are down payments which you use to pay for part of the property yourself.
The larger a deposit you put down, the less you’ll have to pay back through your mortgage and vice versa. Simple, right?
How Big is a Mortgage Deposit?
The deposit will work as a specific percentage of the property’s value. The majority of lenders will ask for at least five percent of the property’s asking price, but, according to the Money Advice Service, the national UK average deposit for first time buyers is around 20 percent.
Using this as an example, if you want to buy a house that’s worth £250,000, a 20 percent deposit would be £50,000.
Your mortgage provider will lend you the remaining 80 percent of the purchase price, which is known as the Loan-to-Value (LTV). It measures the percentage of the property price that you will need to borrow to make the purchase.
Are There Different Types of Mortgages?
Yes, there are a number of different types of mortgages which you can use to purchase a home. These include:
A fixed-rate mortgage sees your monthly payments remain the same until an agreed date. This is irrespective of whether there are any changes to interest rates in the mortgage market.
Fixed-rate periods come in various different lengths and can be arranged when you’re applying for your mortgage.
Tracker mortgages follow the Bank of England’s Base Rate, which means that they rise or fall along with it. The interest rate charged is the Bank of England’s Base Rate plus an agreed margin.
Standard Variable Rate (SVR) Mortgages
The SVR is the rate of interest that’s charged once a fixed term tracker period comes to an end. It’s usually possible to move to another fixed or tracker product instead of shifting to a SVR if that’s more convenient.
Some lenders may also let you take out a mortgage on their SVR. The lender will decide the rate and may decide to either increase or decrease it over the period of your mortgage.
Are Mortgages Different for First Time Buyers?
First time buyers will understandably find it more difficult to find the money for a deposit. It’s not as if everyone simply has £50,000 lying about, is it?
Thankfully, there are a number of mortgages available for first-time buyers, which can help to make everything much more accessible and affordable. These include:
Help to Buy Mortgages
The Help to Buy scheme is run by the government to help first time buyers get themselves on to the property ladder, even if they do not have a large enough deposit saved.
The scheme offers buyers the chance to purchase a new-build property with as little as a five percent deposit. The buyer then arranges a repayment mortgage of at least 25 percent of the property purchase price.
It’s then possible for the buyer to borrow an equity loan to cover from as little as five percent and up to 20 percent of the property purchase price for the new build home.
Right to Buy Mortgages
The Right to Buy mortgage scheme offers public tenant tenants up to £112,300 off the market price of their council home. The discount can then be used as a part of a deposit.
Guarantor mortgages allow you to buy a property with a small deposit if a relative or friend is willing to be named on the mortgage with you and make any payments you are unable to make.
A 95 percent mortgage enables you to borrow up to 95 percent of the purchase price of the property you want to buy, with the remaining five percent made up of a deposit. In the Spring Budget 2021 the government announced a new 95 percent mortgage guarantee scheme.
How Do You Apply for a Mortgage?
To apply for a mortgage, you need to take a number of steps:
- You first need to decide on the type of mortgage you want to take out.
- Save the relevant amount of money for the deposit.
- Apply for a mortgage in principle with a lender to see if you can afford the mortgage you choose.
- Put in an offer on a property.
- If the property is accepted, take out the mortgage.
Are You Ready to Apply for a Mortgage?
So, there you have it! Admittedly, there’s a lot to take in when it comes to mortgages, so feel free to come back to this post whenever you need to refresh yourself on what you need to know.
It’s always worth taking your time to make sure that you’re making the right decision with regards to the type of mortgage you want to take out – it’s a life-changing decision after all! What’s more, if there’s anything else you think is important to know about mortgages, feel free to leave them in the comments down below!
Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained financial professional. Be sure to consult a professional if you’re seeking financial advice. We are not liable for risks or issues associated with using or acting upon the information on this site.
- Photo 1 – Tierra Mallorca via Unsplash
- Photo 2 – Scott Graham via Unsplash
- Photo 3 – Medienstürmer via Unsplash