Feb 24, 2021
7 min read
Buying a property is a big deal. In fact, for many of us, it is the largest financial investment we’ll ever make. And, unless you’re sitting on a sweet pile of cash, you’ll probably need a mortgage to purchase your home.
Getting a mortgage can be daunting at first, and you may not know where to start. If you’re someone who hates talking transactions, you’ve come to the right place. We’ve put together this handy guide, giving you an overview of mortgages so that you are prepared for all the ins and outs of borrowing to buy your home.
Firstly, what is it and how does a mortgage work? A mortgage is essentially a (large) loan that you take out to help you buy a home. Because most of us will never have the means to buy a property outright, lenders agree to give us a loan to pay back, with interest. The loan is secured against the value of your home until it’s paid off. Even though you typically borrow this money from a bank or building society (‘the lender’), they are not the owner of the property – you are.
In order to secure a mortgage, you’ll need a deposit. This is subtracted from the overall purchase price of the house to calculate the size of the mortgage you need. For example, if you want to buy a £200,000 house and have a £20,000 deposit (10%), you will need to borrow £180,000 from the lender. And what deposit do you need for a house? That depends. Generally, you need at least 5% of the purchase price, but deposits can go as high as 40%.
Most mortgages have a repayment term of 25 years, but they can be longer or shorter depending on your circumstances and personal preferences. The shorter the mortgage term, the higher the repayments. However, this means you pay off the debt in a shorter amount of time.
When you’re looking to buy a home, you’ll need to apply for a mortgage – but there are many different types.
There are two main types to choose from – a fixed or variable mortgage:
Next, consider your repayment structure within the mortgage you choose.
If you’re getting a mortgage for an investment property, rather than to live in the house, your available mortgages will look slightly different:
Hoping to buy your first property? While there are no specific first-time buyer mortgages, you can get government support to help you secure a property, especially if you have a tight budget or a small deposit.
‘Getting a mortgage’ is a neatly packaged phrase, but when it comes to the requirements, there’s a lot to unpack. Firstly, you need to be preapproved for a mortgage. The lender will look at your credit score, debts, deposit size, typical expenditures, income and income history.
And if you’re asking yourself ‘How much mortgage can I afford?', that depends on your financial landscape. There’s no doubt that your income (or combined salaries if you’re buying with someone else) is the single biggest factor when getting approved for a mortgage. Most lenders will loan you around 3.5 to 4 times your income.
The history of your employment and income will be looked at, too. If you’re self-employed, you may be wondering how to get approved for a mortgage. You’ll need at least three years of books. There is no specific self-employed mortgage, which means you will need to prove to the lender you have a solid financial history.
There are so many different mortgages out there, so it’s worth shopping around for the right one. If you like your bank or building society, enquire about their mortgages to see if they offer a good deal to existing customers.
You may also consider using a mortgage broker. This is a person (or company) that has an in-depth knowledge of the market. They seek out the best deals for you (so you don’t have to trawl through comparison figures) and help arrange a mortgage between you and the lender. If you find the many types of mortgages difficult to understand or are self-employed with more hoops to jump through, a broker may offer peace of mind.
Arranging a mortgage is a large milestone in the house-buying process. Take a moment to celebrate and breathe a sigh of relief, but don’t forget to pay it on time every month.
If you can’t keep up with your payments, the lender can repossess the property and sell it to get their money back. Your credit rating will also nosedive, making it harder to take out a mortgage again.
In some instances, you may choose to use your bonus or a windfall to pay towards your mortgage. However, most banks only allow you to overpay your mortgage slightly – usually around 10% a year. Any more and you may face early repayment fees. Before you decide on a mortgage overpayment, read the fine print and talk to your lender or broker first.
Once you’ve tackled getting a mortgage, start your search for properties for sale at Boomin. Whether you’re a first-time home buyer or a seasoned homeowner who knows what to expect, our nifty tools help to refine your search so you can find properties that tick all your boxes.
See something you like? Book viewings 24/7 and receive instant confirmation. Start your search today.