Thinking of buying a new pad but need a mortgage to do it? It’s well worth getting to grips with the process of how to bag a mortgage now.
It could save you time, stress and money in the long run, whether you’re a first-time buyer, homeowner moving up the housing ladder or a property investor.
How much can I borrow?
Generally-speaking, you may be able to borrow between three and four and a half times your salary. So, if you earn £30,000 a year, that means you could borrow between £90,000 and £135,000.
But be aware that lenders decide how much they’ll lend based on your particular circumstances, such as your income and your outgoings.
You'll need to be prepared for lenders to assess your bank statements to work out if you can afford a mortgage. Your credit score can also have a big impact.
What does a decision in principle mean?
A decision in principle shows what a lender could be prepared to lend you. It’s also known as a mortgage in principle or an agreement in principle. It’ll give you an idea of what you can afford – handy for when you start house hunting.
However, you have to complete a mortgage application form to secure a formal mortgage offer. That bit comes once you’ve found the home you want to buy.
What does loan to value mean with a mortgage?
The loan to value – often shortened to LTV – is the size of the mortgage compared to how much your property is worth. It’s usually expressed as a percentage figure.
For example, if a mortgage is offered at 90% LTV, you’ll need to find a deposit of 10%. The lower the LTV, the lower the mortgage interest rate tends to be.
What’s the difference between an interest-only mortgage and a repayment mortgage?
You can repay your mortgage in two ways. You can pay back a chunk of the mortgage along with interest each month so you gradually reduce your balance. This is known as a repayment mortgage.
Or you can pay back just the interest on the mortgage each month. But you need to pay back the full loan at the end of the ‘term’. This is called an interest-only mortgage.
What’s the difference between a fixed-rate mortgage and a variable-rate mortgage?
With a fixed-rate mortgage, the amount you pay stays the same for an agreed term. This gives you peace of mind knowing your monthly repayments won’t change within that term – making budgeting easier.
By contrast, with a variable-rate mortgage, the amount you pay can go up and down with the Bank of England base rate.
Not sure what the base rate is? It influences the interest rates that lenders charge for things, such as mortgages and other loans. So, if the base rate rises, your monthly repayments are likely to go up, and vice versa.
How long should I fix my mortgage for?
There’s a range of factors to consider here, including interest rates, mortgage costs, and also your particular plans.
Within the market, deals typically vary from two-year fixed-rate deals, through to 10-year fixed-rate deals.
You may warm to the idea of your monthly repayments staying the same for a decade. But remember that if your circumstances change and you do need to sell during that time, you could face large early repayment charges.
If you think you might end up moving in a few years, a shorter deal could be more appropriate.
Equally, if you’re going to be staying in your home for a while and are looking for some security should the Bank of England increase the base rate, then a longer term deal could be more suitable.
Want to work out what your mortgage repayments could be? Our mortgage calculator can do the work for you.
Just put in the amount you wish to borrow for the mortgage, your deposit, your repayment term and the interest rate.
How long does a mortgage last for?
Again, there is no definitive answer to this. Generally-speaking though, mortgages can last for up to 35 years.
The longer the mortgage term, the lower your monthly repayments are likely to be. That said, the main sting in the tail to a longer term is a bigger interest bill overall, as you’ll be paying interest on the capital borrowed over a longer period of time.
How can I pay off my mortgage more quickly?
If you want to pay off your mortgage more quickly, you could look at making overpayments.
Paying even an extra £50 per month will reduce the overall interest you pay and can reduce the term of your mortgage.
But check your lender’s terms and conditions, as most lenders will only allow you to overpay by up to 10% a year. Above that, you may face a financial penalty.
What are mortgage costs?
There are various costs you could come across when securing a mortgage.
You’ll typically pay the lender an arrangement fee, also known as a product fee. You can normally either pay it as a one-off cost or add it to your mortgage.
You may also have to fork out for a mortgage booking fee to bag a mortgage deal.
Other potential costs include a valuation fee. Some – but not all – lenders charge this for valuing the property you want to buy.
And you’ll need to factor in paying your mortgage broker, if you use one.
What is a mortgage broker?
A mortgage broker, also known as a mortgage advisor, is a mortgage specialist who can help you plot a path through the maze.
They can help find the best mortgage for you, based on your current situation.
They can be invaluable if your application isn't straightforward, like you're going through a divorce or are self-employed.
What questions should I ask my mortgage broker?
It’s a good idea to speak with different mortgage brokers to see which one can get you the best deal. Here are some questions you may want to ask:
How do you charge for your services? Fees, commission, or a combination of the two?
Can you give me a breakdown of your costs?
Are you independent and able to cover the whole mortgage market?
What qualifications do you have?
How long will it take to arrange my mortgage?
What deposit will I need?
Will you offer guidance throughout the whole mortgage process?
What will they ask me in an interview for a mortgage?
Once you've found the place you want to buy, it's time to complete that mortgage application. Be prepared to answer various questions. That’s because the lender will want to work out if you can afford the loan that's up for grabs.
First things first, you’ll need to be armed with paperwork, such as proof of address, identity and income.
The lender will likely want to drill down into what you earn – and how you spend it. They’ll look at things, such as:
utility bills and other regular costs, such as groceries and travel
discretionary spend, such as eating out and holidays
childcare and school fees
loans, for example, a student loan
And they could ask some personal questions too, including:
Do you have or do you plan to have children?
Do you expect any career or job changes?
What do you earn – and how? For example, do you receive a bonus?
Do you have any debts?