Getting a mortgage can be a difficult process. But in the current market, with rates changing quickly, it can be even harder to find a deal that meets your needs. Let our Mojo experts help find a mortgage that works for you and your circumstances.
Mojo can check through 1000s of mortgage deals to help find the one that's best for you
How do mortgages work?
Mortgages are a type of loan that you use to buy a property. The mortgage is secured against the value of the property itself.
You need to repay the loan plus interest to the bank or building society. Once you've fully repaid the loan, you own the property outright.
With a mortgage, you normally repay a specific amount on a monthly basis. Monthly mortgage payments are worked out using the following information:
- Type of mortgage
- Loan amount
- Initial interest rate
- Mortgage term
The type of mortgage determines how much you need to pay every month. Most residential mortgages are taken out on a capital repayment basis which means you pay off a bit of the loan each month and the interest payment. But you can get interest-only mortgages (normally for buy-to-let purposes) which mean you only pay off the interest each month, and the full loan is repaid at the end of the term.
The loan amount determines how much you need to pay back to your bank or building society. The more you borrow, the more you need to pay back. The loan amount is a percentage of the property value (this is known as loan-to-value or LTV) - you can usually borrow a maximum of 95% so you need at least a 5% deposit. But the less you borrow in relation to the property value, the better rates you normally have access to.
The initial interest rate is the rate that applies for the specified length of your deal period. The lower the rate, the lower your monthly repayments. But look out for deals that have low interest rates but high fees, which can sometimes make them pricier overall. Fees can be added to your total mortgage debt if you prefer - this means they would impact monthly mortgage payments. But if you do this, you have to pay interest on them.
The mortgage term is the full length of time you choose to hold or repay the mortgage. They usually last for around 25 or 30 years, but they can be shorter or longer (up to 40 years), depending on the lender. The longer the term, the lower the repayments but the more it costs you in interest over the lifetime of the mortgage.
What mortgage do I need?
There are several different mortgages types out there, each suited to people at different stages of home ownership:
- First-time buyer
- Home mover
A first-time buyer mortgage is for those looking to buy their first property in the UK. Some lenders have products specifically for first-time buyers which may have certain incentives. But the vast majority of deals available to you are also available to current homeowners.
A remortgage is when you change from your existing deal to another one. When your initial deal period comes to an end, you're moved to your lender's standard variable rate (SVR) which is normally more expensive. At this point, many people choose to remortgage, either to a new lender or to a different deal with their existing one (known as a product transfer).
A buy-to-let mortgage is suitable if you’re looking to invest in a property to rent out to tenants rather than live in it yourself. Most buy-to-let mortgages aren't regulated by the FCA as they are seen as products for businesses.
If you're a home mover, you need to either port your current mortgage to your new property. Or you can remortgage to a new deal, but you may have to pay exit fees for leaving your existing mortgage early.
Types of mortgage rates
Choosing the right mortgage rate is an important step in getting a good deal. Some mortgages have fixed interest rates, and some have variable, so might change regularly.
It’s important you understand the different types so you can choose one suited to your financial situation.
- Fixed-rate mortgage
- Variable-rate mortgage
- Tracker mortgage rate
- Discount mortgage rate
- Standard variable rate mortgage
- Offset mortgage
A fixed rate mortgage has an interest rate that’s fixed for an agreed term. If you want to stick to a budget, a fixed-rate mortgage could work for you as you don't have to worry about your rate (and repayments) rising. But you won't benefit from lower repayments if rates fall.
A variable rate mortgage is different to a fixed rate deal as the interest rate can change during the deal period. It can go either up or down meaning your repayments are subject to change. The 3 main types of variable rate deals are standard variable rate (SVR) mortgages, discount mortgages and tracker mortgages.
A standard variable rate mortgage (SVR) is what your lender switches you to when your introductory period ends. Each bank or building society sets their own SVR and it tends to be a higher interest rate compared to other types of mortgages, so many people remortgage to another deal at this point.
A discount mortgage rate is set at a fixed amount below the lender's SVR and rises and falls alongside it. With discount and tracker mortgages, you may also get floors (the rate can't fall below a certain amount) or, more rarely, caps (the rate can't rise above a certain amount).
Tracker mortgage rates are tied directly to an external financial indicator, normally the Bank of England base rate. Your rate is normally set at a fixed amount above the base rate and changes alongside it.
An offset mortgage links your savings to your mortgage deal. You pay less interest on the debt as your savings amount offsets the mortgage loan, meaning you only pay interest on the difference. An offset mortgage is available on fixed or variable rates.
How to get the best mortgage rate for you
The best mortgage rate for you depends on a number of things, including the LTV ratio and your financial circumstances.
Remember not to look at the initial rate only - a mortgage deal might have a cheaper rate, but higher fees make it more expensive overall. So, consider all the fees involved with each deal when comparing them.
An independent mortgage broker can look across the market to find the best mortgage rate for you.
We've partnered with Mojo Mortgages whose experts can help you find a deal that suits your circumstances.
Who is Mojo Mortgages?
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With access to lenders across the whole of the market, Mojo advisors strive to save you money and find your best mortgage rate.
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First-time buyer schemes
There are several home ownership schemes to help first-time buyers, including
- Lifetime individual savings account (LISA)
- Shared ownership
- Help to Buy - Wales
- Right to buy
- Mortgage guarantee scheme
A Lifetime Individual Savings Account (LISA) gives you a 25% bonus on top of your savings. You must be aged between 18 and 39, and you can add up to £4,000 into the account each year. The money must be used for your first home or retirement, otherwise you lose the bonus money and may face penalties on your withdrawn savings.
Shared ownership allows you to buy a percentage share of a home and pay rent on the remaining amount. You can increase your share over time until you own the property fully.
Help to Buy equity loans are only available in Wales, and let you borrow up to 20% of the purchase price of a new-build property. You need at least a 5% deposit to take advantage of this scheme.
Right to Buy may help you to buy your council home. Right to Acquire is a similar scheme for housing association tenants.
The mortgage guarantee scheme is an initiative by the government to increase the number of 95% LTV mortgages in the market. They provide a guarantee to participating lenders to encourage them to offer these high LTV deals.
Need more help?
According to HomeOwners Alliance, you can expect to wait around 2 to 4 weeks between applying for a mortgage and it getting approved.
But this might not be the case for you – it could take longer. It depends on your individual circumstances and a mortgage broker can keep you updated on your application.
Mortgage interest rates are affected by:
- LTV ratio
- Individual financial circumstances
- Bank of England base rate
The lower the LTV ratio, typically the better mortgage deals you get access to. So it can be worth trying to save up a larger deposit in order to get a lower rate.
Lenders also look at your individual financial circumstances when determining what they are willing to lend you. If you have a poor credit history, they might see you as more of a risk and charge higher interest rates as a result.
The Bank of England base rate, which changes based on wider economic issues and inflation, directly influences tracker mortgage rates. But it also influences SVRs and discount mortgage rates.
Fluctuations in the base rate normally also mean the fixed rates available in the market may change (although those already locked into a fixed deal won't see any change in their rate).
There are a few options for your mortgage when you move home. You might be able to port your current mortgage over to the new property. It's worth checking if your bank or building society allows this.
You could also remortgage to a new deal. But you may face early repayment charges (ERCs) for leaving your existing deal, and these can amount to thousands of pounds.
A mortgage broker can help you work out the right option for you, based on your circumstances and your existing deal.
If you’re thinking about paying off your mortgage early, some lenders might let you make increased monthly payments. Or you might be able to put down a lump sum as a single large mortgage overpayment.
Most lenders have limits on how much you can overpay before being charged ERCs, though. Get in touch with your mortgage provider to check what rules they have around overpaying on your mortgage.
If you're currently on the SVR, you won't face any ERCs. This is also the case for certain tracker products.
When you get a mortgage, you may have to pay certain fees and charges, such as an arrangement fee, valuation fees and legal fees.
The amount you pay depends on the deal you choose. It's important to look closely at these fees when comparing mortgages, and a broker can help explain them to you.
LTV is a percentage that shows how much you’ve borrowed based on the value of a property. Let’s take an example.
If your property is worth £300,000 and you put down a deposit of £30,000, then your mortgage is £270,000. As your deposit is 10% of the property’s value, your LTV is 90%.
A repayment mortgage is exactly how it sounds. You repay part of your mortgage every month. Each repayment includes part of the money you borrowed and part of the interest that the provider is charging you.
At the end of the mortgage term, you've paid off the full amount you borrowed. And once it’s all been fully paid off, you own your property outright.
An interest-only mortgage means you only pay the interest each month. So, your payments aren't reducing the total mortgage debt.
At the end of the mortgage term, you still have to pay back the total balance of money you borrowed. Once you’ve done that, you own your property outright.
Interest-only mortgages are very rare for residential properties and are normally used for buy-to-let mortgages.
A first-time buyer is someone who has never owned a property before, either in the UK or abroad.
Yes, you can get a mortgage with bad credit, but you might find your options are a bit more limited.
What you're likely to find is that the pool of lenders willing to let you borrow is smaller than someone who has a good credit rating. And the ones that are available are likely to offer you higher interest rates and fees.
APRC means the Annual Percentage Rate of Change.
Most mortgage deals have 2 different rates when you first apply - an introductory rate and an SVR. They also have different fees. This means it can be difficult to work out which overall deal is better for you.
The APRC takes this into account. It brings together the different rates and fees to show you the annual cost of a mortgage over its full term. This can make it easier to compare mortgage deals.
For example, it could be that one mortgage has a lower introductory rate but a higher SVR. This might make it less of a good deal compared to one with a higher initial rate but a lower SVR.
But bear in mind that most people remortgage after their initial deal period, avoiding the SVR. It can still be worth looking at the initial rate as well for this reason.
An agreement in principle (also known as a decision in principle or mortgage in principle) is an indication from a bank or building society that they could lend you a certain amount towards a property.
This gives you a rough idea of what kind of property you can afford to buy. And estate agents may only take your offers seriously if you have one.
You're not committing to anything with an agreement in principle. But that also means you're not guaranteed to get that amount when it comes to applying for the mortgage.
What our expert says
Tips & guides on mortgages
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YOU SHOULD THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME/PROPERTY. YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
The Financial Conduct Authority does not regulate mortgages for commercial or investment buy-to-let properties.
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