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Mortgages made easy - check out our guide
Check out Changing Home’s guide to all things mortgages
A mortgage is a long-term loan (usually from 5 to 40 years) to buy property. The loan is 'secured' against the value of the property until it's paid off. If you can't keep up repayments the lender can repossess (take back) your home and sell it to get their money back.
Mortgages can be a daunting subject and for most of us, the biggest purchase we’ll ever make.
Before you arrange your mortgage, you’ll need to know what you can afford to borrow. It’s important to not stretch yourself if you think you’ll struggle to keep up repayments, and you’ll need to think about the running costs of owning a home such as household bills, council tax, insurance and maintenance.
Lenders will want to see proof of your income and certain expenditure, and if you have any debts. They’ll also want to know about household bills, things like child maintenance and personal expenses. They’ll want proof that you’ll be able to keep up repayments if interest rates rise and could refuse you a mortgage if they don’t think you’ll be able to afford it.
How much could you borrow?
There are a number of ways this can be calculated and a range of mortgage types available. This basic model will give you a rough idea. As a rule of thumb, assume the amount you may be able to borrow as your annual income less outgoings times four. Here’s a couple of scenarios:
Example 1
|
Annual pre-tax salary or joint salary for couples buying together |
= |
£55,000 |
|
Annual financial commitments (credit/store cards, finance agreements, etc.) |
– |
£5,000 |
|
Annual income minus other annual financial commitments |
= |
£50,000 |
|
Potential mortgage borrowings |
x4 |
£200,000 |
Example 2
|
Annual pre-tax salary or joint salary for couples buying together |
= |
£30,000 |
|
Annual financial commitments (credit/store cards, finance agreements, etc.) |
– |
£1,000 |
|
Annual income minus other annual financial commitments |
= |
£29,000 |
|
Potential mortgage borrowings |
x4 |
£116,000 |
This is for guidance only. You should consult a Mortgage Adviser to see exactly how much you could borrow.
Here’s a guide to some of the terminology around mortgages and some of the types of mortgage available:
|
Bank of England Base Rate |
Controlled by the Bank of England and reviewed on a monthly basis, this sets the benchmark of interest for banks to work out how much to charge borrowers. Repayment levels for many mortgage products are linked to this rate. |
|
Completion |
The date that the property is legally transferred into your name and you can move in. |
|
Deposit |
How much you pay towards the property. This and the value of your mortgage equals the purchase price. Deposits can be referred to in percentages, e.g. a £25,000 deposit for a purchase price of £100,000 is a 25% deposit. |
|
Early repayment charges (ERCs) |
Some mortgage schemes can have penalty charges if you repay the mortgage early. |
|
Loan to value (LTV) |
The mortgage calculated as a percentage of the purchase price e.g. for a purchase price of £100,000 and a mortgage of £75,000,the ltv is 75%. The remaining 25% is be the deposit. |
|
Independent mortgage advice |
Also known as financial advisers. Professionals who source mortgage products. They can search across the mortgage market to find the most appropriate product for you as they are not tied to a specific lender. |
|
Mortgage certificate |
When you apply for a mortgage a lender will carry out a credit check and work out how much they can lend you and what they think you can afford to repay. They’llgive you a mortgage certificate showing this, helping you choose a property in your price range. |
|
Mortgage Illustration |
Details your proposed mortgage including the amount, interest rate and any early repayment charges. Lenders refer to these as ESIS (European Standard Information Sheet) or KFI (Key Facts Illustration). |
|
Mortgage offer |
When you have an offer accepted on a property you’ll need to applyfor your mortgage. Your mortgage adviser will help and the lender will carry out financial checks on your income and arrange a valuation. Once completed and a satisfactory valuation received, they’ll send you and your solicitor a mortgage offer. This confirms they’re happy to lend you the amount required. |
|
Mortgage term
|
The length of your mortgage. In many cases mortgages are set up to be repaid by the time you retire when your income usually stops. Some lenders will allow a mortgage to run past your retirement age, but they’ll want to know about your projected pension. |
|
Mortgage valuation
|
As the mortgage is secured against a property, the lender needs the property to be valued so they can decide if it’s safe to lend money on and how much. It’s effectively a limited property inspection and indication of current value. |
|
Solicitor |
You’ll need a solicitor to help with the legal aspects. They’ll get the sales contract from the seller’s solicitor and make various legal checks. When satisfied, they’ll arrange to exchange contracts and set a date for completion. |
|
Survey |
This is a comprehensive inspection of the property and there is usually a charge for this. |
Mortgage types
|
Fixed rate |
Monthly payments are fixed so you pay the same each month regardless of changes in the Bank of England Base Rate or the lender’s standard variable rate. Rates are fixed for an agreed number of years usually two to five, though ten-year options are also available. |
|
Interest only mortgage |
Monthly repayments only cover interest accrued on the loan. At the end of your mortgage term the original amount borrowed will still be outstanding |
|
Repayment mortgage |
Monthly repayments cover some of the loan alongside the interest on the loan. At the end of your mortgage term you’ll have paid off the full value of the property and the interest accrued. |
|
Variable rate mortgage |
Sometimes known as a ‘tracker’ or ‘discount tracker’. Linked to the Bank of England Base rate or the lenders Standard Variable Rate (SVR). Monthly payments will increase or decrease depending on that rate. |
Changing Home and Cullimore Dutton
Changing Home is proud to work with Cullimore Dutton solicitors, offering independent mortgage advice to help you get the best mortgage to suit your circumstances, whether you’re buying for the first time or moving home.
They’ll guide you through the process from start to finish and be in regular contact with you and your mortgage provider. They’ll also work with your solicitor and estate agent to make sure things run as smoothly as possible while you buy your home.
If you’d like to discuss your mortgage options, please call us on 01244 345664 or email enquiries@changing-home.co.uk and we’ll put you in touch with Cullimore Dutton’s independent financial services team.
