A guide to mortgages

News at Townends | 19/06/2019

A guide to mortgages

If you’re looking to buy a property, it’s very likely you’ll need a mortgage. Purchasing a house will probably be the biggest investment you’ll ever make, so the amount you borrow could be substantial.

There are literally thousands of mortgage plans available through hundreds of lenders, so where should you start?

Owning a home is one of the most exciting opportunities life can bring. We unravel the mortgage process to help get you started...  

What is a mortgage?

A mortgage is a long-term loan that allows you to buy a house. It is secured against the property and provided by a bank or building society. The loan will usually be for a period of around 25 years and you’ll repay this each month, plus interest, over the mortgage term.

You can apply for a mortgage as a single person, or with one or more people. If you fail to keep up with repayments on your mortgage, your home may be repossessed.

How much will I have to pay?

As a first-step, it’s important to work out the best mortgage for your individual circumstances. Work out how much you can afford to put down as a deposit as this will count towards the cost of the property you’re buying. In general, the more money you have for a deposit, the lower the interest rate could be. This is called Loan-to-Value (LTV). 

For example, if you’re buying a house for £250,000 and have a £25,000 deposit, this equates to 10% of the total price of the property. This means the LTV is the remaining 90% and the property is secured against this portion.

What are the options?

There are many different types of mortgage available. If you’re a first-time buyer, you might be eligible for a mortgage with a smaller deposit. Help to Buy mortgages also allow those with less in the bank to get on the housing ladder.

If a friend or relative is willing to be named on the mortgage and settle any missed payments, you might be eligible for a guarantor mortgage. If you’re a landlord and are looking to let out the property, you’ll need to ask about buy-to-let mortgages.

What kind of plan do I need?

There are two ways you can repay the amount you owe on the mortgage:

  • Repayment mortgage – you pay the interest owed and part of the capital every month.
  • Interest-only mortgage – this allows you to only pay off the interest you owe, although these products are becoming rarer. You will also need to have a separate plan for how to reply the original loan at the end of the term. Your mortgage advisor will be able to explain more about the kind of plans available.  

You will also need to decide on the type of mortgage you need, there are two options:

  • Fixed rate mortgage – you will repay the same amount each month for a fixed period of time, usually two to five years.
  • Variable mortgage – this option is linked to the Bank of England base rate of interest, which means the rate you pay could move up or down.

Where can I apply for a mortgage?

You can either source a mortgage through a broker or directly from the lender. Some brokers will only look at a limited number of mortgages, so make sure your broker has good access to the market. We work with dot financial services, one of the UK’s largest award-winning group of advisers, Mortgage Advice Bureau (MAB). Click here to find out more.

A mortgage advisor will talk you through the products so you can decide which is best for your circumstances. At this stage, you’ll need to have decided which mortgage you need, found a property to buy, understand how much you want to borrow and decided on the interest agreement / rate.

How long will it take?

Applying for a mortgage can take some time as you’ll need to provide various documentation to prove you are able to keep-up with the repayments. The lender will ask a lot of questions about your finances during the application process. 

Mortgage lenders all have different standards and requirements. There are a number of factors that will affect whether lenders will offer you a mortgage and how much they will be willing to lend to you, such as the property’s value, the deposit, your age, the length of mortgage, your credit score and income.

Once the lender has presented the options, they will then give you some time to think in order to compare other products and decide what is right for you. It’s important to think very carefully about your financial situation and any future plans before making a decision about your mortgage.

Where do I go from here?

Townends offers a wide range of mortgage products through dot financial services, part of one of the UK’s largest award-winning group of advisers, Mortgage Advice Bureau (MAB). Our aim is to provide a mortgage and protection plan that is suited to an individual’s requirements.

Find out more about out Mortgages and Protection services today.