A mortgage is a loan that you can take out to fund the cost of buying your home. A mortgage is secured against the property itself.
The best mortgage deals are usually available to buyers who put in at least 15% of the property's value. If you put in less than 10% you may need to pay a 'Higher Lending Fee' (sometimes called a Mortgage Indemnity or a Mortgage Guarantee Charge) which will add to the total cost of your mortgage.
Finding a mortgage
Some banks offer preferential rates to buyers who already bank with them. Contact your bank to find out if they offer any deals like this.
You may also want to consider working with a mortgage broker or financial advisor. They generally have access to better rates than customers approaching lenders directly. However they will usually charge a fee for their services. Some brokers only search specific parts of the market so make sure you know what you're getting for your money.
What mortgage can you get?
Lenders will primarily look at your credit history and your income. If you're applying with another person the lender will look at both of your circumstances. They will want to know if you have defaulted on any other payments, your current credit agreements (including credit cards), if you've ever been made bankrupt or if you've had any County Court Judgments.
You can check your credit history yourself by enquiring with one of the main credit reference agencies like Experian or Equifax. If anything on your report looks incorrect you can challenge it and possibly get it removed.
You also need to be comfortable with the mortgage that you are offered. You should consider:
- can you afford to keep your current lifestyle with your new mortgage payments?
- what will happen if your circumstances change? For example, if you have a child or lose your job?
- can you absorb an increase in your mortgage rate if it’s tied to the Bank of England base rate?
Getting a Mortgage in Principle
You should get a Mortgage in Principle so that it will be quicker to secure a mortgage when you find a property that you want to buy. Some Mortgages in Principle will require lenders to do a full credit check on you which will affect your credit file so don’t do too many. Bear in mind that some lenders will do what’s called a 'soft' credit check which is not visible to other lenders looking at your credit file.
Having a Mortgage in Principle in place shows that you are a serious buyer and it will put you a step ahead of other buyers.
Your lender will give you a summary of the mortgage agreement called the Key Facts Illustration. This shows the total cost of the mortgage, the interest rate, penalties and any other conditions.