UK Mortgage - key information

Do you want to take out a mortgage in the UK? In this post you will find the key information on this subject. You will learn about the different types of mortgages and what conditions you need to meet to get financing for a house. If you are planning to buy a property, be sure to read this post to the end.

What is a mortgage?

A mortgage is a loan granted by banks and building societies for the purchase of a house or apartment. It is characterised by a very long repayment period (often several decades) and a relatively low interest rate. The loan is secured on the property you buy, which means the lender has the right to enforce its claim by repossessing the property if the loan is not repaid.

Mortgage in the UK - types

The mortgage market in the UK is highly developed and you will find several different types of mortgages targeting different audiences who buy different types of property. It is important that the mortgage is tailored to your requirements and the situation you are currently in.

Mortgage for first property

People buying their first property are classed as first-time buyers. In England and Northern Ireland, first-time buyers can claim Stamp Duty Land Tax relief on homes costing up to £500,000. Scotland and Wales have their own property taxes with different rules. Some lenders offer 100% mortgages (with no deposit) to eligible first-time buyers, subject to their criteria.

Buy to let mortgage

Buy to let mortgages are designed for investors who buy a property and then rent it out. These products usually have higher interest rates than a residential mortgage and usually require a bigger deposit. However, when lending you money, the bank will take into account the income coming from the rental of the property.

Interest only mortgage

When you use an interest-only mortgage, you do not repay the debt (principal) you have taken out, but only the cost of borrowing that the debt generates. When the mortgage expires, your debt is exactly the same as it was at the outset and you have to pay it back in cash or take out a new debt.

With an interest-only mortgage, lenders require a clear and credible plan to repay the loan at the end of the term, and you cannot rely on your property rising in value to do this. Availability and criteria for interest-only mortgages vary by lender.

Mortgage with capital repayment

This is basically a typical UK mortgage. The monthly instalment of this obligation includes both principal and interest. As time passes and more instalments are paid, the interest generated decreases and the debt decreases faster and faster.

Conditions to get a mortgage in the UK

We already know the different types of mortgages in the UK. Let’s take a moment to talk about the conditions that need to be met in order to borrow money from a bank. Let’s remember that a mortgage is a financial product and for the institution lending the money, i.e. the bank, so it is a kind of risk. Of course, the debt is secured by a mortgaged property, but the process of selling an indebted property is time-consuming and expensive, so banks try to provide additional security.

In other words, in order to get the money, you need to show the bank that you are a reliable and responsible person who will make your repayments on time. Much depends on your individual situation, but in practice this usually means:

• Having a good credit rating (the first thing a bank will do is check the creditworthiness (credit score) of the borrower). People who have already had problems with timely payments are not in a comfortable situation - they may be offered worse terms, such as higher interest rates, or in some cases have their application refused. You can check your credit score and work to improve it before applying for a mortgage. More on this topic: How to increase your chances of getting mortgage in UK;

• Meeting the age requirements (lenders set age limits, including a maximum age at the end of the mortgage term. These limits vary by lender and can affect the term you are offered);

• Having a documented, steady income (when applying for a mortgage, you will have to prove your income, including with payslips);

• The ability to repay the mortgage (affordability), or rather, the ability to take on additional debt. Lenders check affordability by comparing your income with your committed and essential spending, and by testing whether the repayments would still be affordable if interest rates rose.

How to find the right mortgage in the UK?

A mortgage adviser can help you find a suitable UK mortgage and support you through the application process.

Technically, you can look for a mortgage on your own, for example, by contacting the bank of your choice directly. However, this is not optimal, as the differences in mortgage rates can be huge. Even a small difference in interest rate matters: on a £200,000 mortgage, a rate 0.2 percentage points lower means roughly £400 less interest in the first year. The solution to your problem is to contact a mortgage broker.

Mortgage advisers may charge a fee, receive commission from the lender, or both, so ask how an adviser is paid before you go ahead. Working with an adviser can save you time and effort and can reduce the risk of an error that could result in the rejection of your application. A mortgage adviser must recommend a mortgage that is suitable for your needs and circumstances. If a cheaper suitable mortgage is available from the range they consider, they must explain why they recommended a different one.

We are here to help you. A UK mortgage is likely to be the most serious financial commitment you will ever make. Buying a property involves completing a number of formalities that are not easy. You will usually need a solicitor or licensed conveyancer to handle the legal work (conveyancing), and if you are buying with a mortgage, your lender will usually require buildings insurance to be in place. Working with us will make a lot of things easier for you, as we will help you choose the right companies and answer any questions you may have along the way.