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Independent Mortgage Advice |
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The links below will take you to the appropriate mortgage page.
Frequently asked Questions about mortgages
and UK mortgage information:
What is a Mortgage?The purpose of a mortgage is, quite simply, to enable a person or organisation to borrow money using the property as security. As the prices of houses are beyond the immediate personal resources of most purchasers, it is necessary to enter into a borrowing agreement with a lender. The vast majority of UK owner-occupiers fund their house purchases by way of a mortgage.A mortgage is therefore a form of a secured loan, whereby the lender agrees to lend a person the money to enable them to purchase a property. This loan is secured against the property by a legal charge and is subject to the purchaser and the property being able to meet the lender's criteria. This loan is then paid back over a period of time along with the interest charged by the lender.
Each lender has different criteria, but there are common threads throughout, such as the ability to repay the loan and the value of the property the mortgage is secured on.
The most common mortgage is the "Mortgage by way of legal charge".
The legal charge is a deed, which states that the property has been charged with the debt (the mortgage loan), as security for the lender. The lender nonetheless acquires certain rights which leaves them in a very strong position should the borrower default.
The UK appetite for mortgage loans is substantial: at the end of 2000, gross mortgage loans of the order of £120billion were outstanding, and there were in that year some 1.4 million mortgage or remortgage transactions.
What is a mortgage?
A mortgage is a loan you take out from a mortgage lender to pay for a property.
If you don't pay back the loan, as per the agreement you make, then the mortgage lender can take possession of the property and sell it to repay the loan.
The loan is divided into the capital (i.e. the amount of money you borrowed to buy your property) and the interest (i.e. the amount the mortgage lender charges for lending you the money).
How much can I borrow?
This depends on how much you earn and how much the property you want to buy is worth.
Depending on the property's value
Most lenders will loan up to 75% of the property's value and many will go to 90 or 95%. Some will even let you have up to 100% - but you'll pay over the odds for this and will probably be forced to buy mortgage indemnity insurance.
A few will even lend more than that but special rules will apply.
Depending on how much you earn.
The amount you can borrow will vary between lenders but the rule of thumb is three times your annual earnings. However typical variations would include:
Couple 1: two and a half times both annual incomes
Couple 2; three to three and a half times the greater income plus one year of the second income.
Some lenders now use more sophisticated credit rating methods, where they examine your income and your outgoings. The idea is that every borrower has unique circumstances.
Someone with teenage children and high outgoings can't afford to borrow as much as a singleton earning the same salary.
Some lenders have lent five times the income.
Here's a secret: Assuming you have a regular income and clean credit history you are likely to be offered a loan fairly easily.
Despite the impression you may be given that you've got to jump through the hoops, the competition between lenders is fierce and they want your business. To secure the loan though you'll still be best off playing the game by acting duly grateful though.Perhaps the more important question is more how much can you afford. Some lenders will want to estimate this by checking your average outgoings e.g. your household bills, any debts etc. Some will get you to fill in a detailed questionnaire either by hand or on the phone or online etc.
If you're a first time buyer it will always help if you can show you've been paying regular rent for a similar amount to what your intended mortgage payments will be.
Depending on the area you want to buy in, sometimes lenders' may refuse a loan if they feel the property isn't expensive enough for the area. This is more likely to be the opposite - where a property is seen as too expensive.
What is remortgaging?
Remortgaging is not about buying a new home but switching your mortgage to another deal to lower your repayment amounts and save money. It is of particular relevance if the value of your home has risen.
What is conveyancing?
Conveyancing is the legal work involved in buying and selling a house. It would normally be done either by a solicitor or a licensed conveyancer. As a buyer you need to have one or the other for the sellers/vendors Estate Agent to contact immediately your offer is accepted so try to have one lined up before you get to this stage.
What is an agreement in principle?
This is a conditional offer made by a mortgage lender that - provided the information you give them is correct - they will "in principle" give you the loan you have discussed with them.
It's very useful to have one before you even start looking for a house to give you the edge over any competition. Having one means you should be able get the actual mortgage quicker when the race to buy your chosen home begins.
Knowing what you can afford will help you narrow your search. You can get this offer in writing to show to Estate Agents and sellers who will see you as a serious prospect and not a timewaster who's interested, for example, in looking around peoples' homes for a laugh.
To get a mortgage in principle you have to go through the same motions as an actual mortgage, ie consider what type of mortgage you want and then find a mortgage lender you feel can offer you the best deal. You should be able to get a mortgage in principle offered over the phone. It's only when applying for the actual mortgage that the mortgage lender will want to see the proof of your pay etc.
If you're employed: The lender will ask for written evidence e.g. payslips and/or your P60 for the past two years.
They'll also probably write to your employer asking for confirmation. Some lenders may accept income that's not guaranteed e.g. commission, bonuses etc., though this would be exceptional.
If you're self-employed: Traditionally this was more difficult and as a result there are lenders who specialise in the self-employed.
However nowadays any lender should be interested in you. You would need to show three years audited accounts. If you haven't been in business long enough then the lender should accept a letter of confirmation from your accountant.
How long is a mortgage usually for?
The answer is usually 25 years. But this is only because that was the traditional length.
You can get a mortgage for any length. 15 or 20 year mortgages are fairly common.
The reason why people would want a shorter mortgage term is that - despite seeming to be more expensive, i.e. the monthly payments are higher - at the end of the day you'd be paying a lot less interest over the length of the mortgage.
How can I check my credit rating?
For £2 you can get details of the credit files held on you by either of the two credit reference agencies, Experian and Equifax.
If the information on your file is wrong, or if you would like to add a note of explanation, either of them will add an agreed statement to your file.
Apply online for a mortgage or speak to a Financial Advisor
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