UK Mortgages FAQ - How To Get A Mortgage

1.       What is a mortgage? 

A mortgage is a loan - usually from a bank or building society - to buy a home.  You borrow money and pay it back to the lender with interest over a set period of time known as the 'term'.  This loan is secured against the home you buy - if for any reason you cannot repay your mortgage, the bank or building society can re-possess your property and sell it to recoup their loan.

 

2.       How much can I borrow?

The amount you can borrow depends on your circumstances, and you need consider carefully how much you can afford to repay each month.  Traditionally, mortgage providers will lend up to 3 ½ times your salary (before tax) - some may lend you more.  If you're buying as a couple, they may multiply your joint income by 2.5, or multiply the highest income by 3.5 and add the second person's salary.  Many lenders will make an affordability assessment of your income and expenses in order to decide on amount they'll lend you.

 

3. What do lenders want to

 know?

Each lender considers mortgage applications differently.  You should keep full details of your employment, salary and history to hand, plus a record of previous, regular mortgage or rental payments. Some may overlook minor credit problems from the past if your application is strong in other ways, but never lie on an application or you may end up with a mortgage you can't afford.

 

4.       Do I need a deposit?

Traditionally, lenders expected buyers to save a cash deposit of between 5 and 10% of the property's value, to be paid up-front.  This is still a sensible thing to do if you can, as it reduces the total amount you need to borrow, and the amount of interest you will have to pay over the term of your mortgage.  There are providers, however, that are willing to provide 100% mortgages to students and first-time buyers (where they lend you the full amount needed to buy your property), but you will still need to save cash for fees and any home improvement costs.

 5.       What other costs are involved?

When you apply for a mortgage, all UK mortgage providers should give you a Key Facts document about their company's services, and a KFI (Key Facts Illustration) about the particular mortgage you want.  These outline the fees they charge for their service (ie: adviser fees, arrangement fees etc), so read them carefully and use them to help you shop around.  These fees vary depending on your provider.  Some lenders allow you to bundle their admin fees in with your mortgage - but it can end up costing you more in the long run.  You may also have to find cash up front to pay for the estate agent's fee, stamp duty, legal fees and the survey fee. 

 

6.       How do I pay off my mortgage?

There are several repayment options available, so you should always consult with a mortgage advisor to find the best one for you.  A 'repayment' mortgage reduces the total amount you owe each month by an agreed amount and pays off a portion of the interest on your loan on top of that. An 'interest only' mortgage pays off only the monthly interest charges on your loan - so the original amount you borrowed remains unpaid.  This is a more affordable option to begin with, but you must be able to pay back your mortgage amount at the end of the term through other means, like savings.

 

7.       What's on offer?

Some plans offset your mortgage costs against your existing current account and savings (usually only if your mortgage provider and bank are the same company), some treat it like a giant overdraft on your current account (as before) and some offer flexibility allowing you to change your payment amounts to suit your circumstances.  Each option has pros and cons, and conditions vary from provider to provider, so it's important to talk to an advisor to find the best option for you.

 

8.       How much interest will I pay?

Mortgage rates tend to increase and decrease in line with the Bank Of England's base rates, but mortgage providers constantly come up with new deals to attract new customers, and your initial interest rate will depend on the deal you choose. Most cheap interest rates will be for a fixed period only (2 years, 5 years and so on), so be aware.  Tracker mortgage have rates which track the Bank of England base rate, or you can safeguard against fluctuations for a set period with a fixed rate deal.  You can also put a monthly maximum (a 'capped' rate) or minimum (a 'collared' rate) on how much you pay.  Some lenders even offer discounts within a set period, so shop around.

 

9.       How can I get a better interest deal?

If you already have a mortgage, check your annual statement to see what you're paying each month and when any special interest deals run out. Once your minimum period with your current lender has expired you can shop around for a newer, cheaper deal - it's not illegal to switch mortgage providers, but there may be fees involved depending on your provider. 

 

10.   Can I pay my mortgage off early?

Some mortgages allow you to do this for free while others charge a fee depending on the arrangement you've taken out, especially if you've taken advantage of a special deal for a fixed period that has not yet ended.  Speak to an advisor and find out what the situation is with the mortgage you are applying for before you sign up - otherwise you might regret it later.  You should always plan to pay off the mortgage on your home before you retire unless you're certain you can keep up payments on your pension or savings.