Introduction to Mortgages
Taking out a mortgage is a big financial commitment, so it helps to know a little more about what's on offer, what your options are, and how the process works. A mortgage is a loan made by a bank or building society to enable you to buy a residential or commercial property. The same with a loan taken out by an individual, mortgage lenders charge interest on the amount you are borrowing. A mortgage is referred to as a 'secured' loan, this means that the loan is secured against the value of the property being purchased until the mortgage is paid off.
Basic conditions
To assess how much you can borrow, lenders are now required to scrutinise borrowers' incomes, outgoings and credit history closely and apply strict affordability criteria, ensuring that borrowers can comfortably afford their repayments now, and in the foreseeable future. All mortgage lenders are bound by the same general principles and criteria to assess borrower affordability, but there are slight variations in the way they apply them. We can help you present your application in a positive light, to the right lender, saving you time and stress. Here are some of the factors lenders take into account when making their decision:
Affordability
The lender will want to ensure that the borrower(s) can afford to service the loan — i.e. to make the monthly repayments when they are owed. The borrower's personal financial incomings and outgoings will be used to aid the lender in coming to their decision. Any rent the borrower may be paying will be discounted, but the provider will factor in the potential cost of the monthly mortgage repayment.
Deposit
The deposit is the sum the borrower can subsidise towards the cost of purchasing their. Having a large deposit really matters in the current market. The more you can put down, the lower the interest rate you are likely to be offered. While many lenders are prepared to lend purchasers up to 95% of the property price, with the borrower putting in the remaining 5% as a deposit, better deals and rates are available to those who can put down, say, 20% or even more. If you're thinking of remortgaging, and the equity in your property (the difference between the value of your property and the amount of mortgage you have left to repay) has increased, then you can use it as a larger deposit and secure a lower mortgage rate.
Property type
A range of mortgage providers will not acknowledge a mortgage application for certain types of properties; properties below a certain price, where property is being purchased 'off plan', may not be acceptable to the mortgage provider, property being purchased through an assisted purchase scheme or under a Right to Buy scheme, or leasehold properties.
Value
Mortgage providers lend against the value of the property, not the agreed purchase price. Most lenders will require on having the purchase property valued by a qualified surveyor, so that the property valuation is accurate. Having a survey carried out on a property before you commit to buying it makes good sense. It can save you thousands of pounds in repair bills and a lot of stress in the future. It's important to note that a mortgage valuation isn't the same as a structural survey. A mortgage valuation is undertaken by your lender to assess whether or not the property is sufficient security for the loan. Whilst it will give you a rough idea as to whether the asking price is fair, it won't tell you about the state of the property or show up any underlying faults.
Time frame
A date in which the mortgage must be repaid in full, will be given by lenders. Lenders generally have a maximum amount of years over which they will lend.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
The Financial Conduct Authority does not regulate most forms of buy to let mortgage.