Mortgages and Making Informed Choices
Buying your first property can be a daunting experience. It’s a big decision, so it’s important to get it right. We take you through all the steps involved.
- Mortgages and Property Purchase: If you lack the funds to buy a property outright, you’ll need a mortgage. A mortgage is a long-term loan used to purchase a property, typically repayable over 25 years. The property secures the loan, meaning the lender can repossess your home if you miss payments. To avoid financial strain, only buy what you can realistically afford.
- Getting a Mortgage: Before you start, find out how much you can borrow. A mortgage adviser will assess your income, expenses, savings, and credit history, providing an ‘agreement in principle.’ This document gives you an estimate of your borrowing capacity.
- Deposits and Mortgage Rates: To secure a mortgage, you’ll need a deposit, typically at least 10% of the property price. The larger your deposit, the better the mortgage rate you’ll receive. Each mortgage product has a maximum loan-to-value (LTV) ratio.
Mortgage Brokers vs. Banks
- Choosing a Mortgage Source: You can apply for a mortgage through a mortgage broker or directly from a lender. Brokers can guide you toward the best deals for your situation. Some mortgage products are exclusively available through brokers.
- Broker or Bank Mortgage Advisers: Banks offer limited options, so it’s advisable to shop around. Compare mortgage deals using online resources like moneysupermarket.com or moneynet.co.uk. Seek transparency about fees and commissions before committing.
Fixed-Rates and Variable-Rate Mortgages
- Fixed-Rates: Fixed-rate mortgages offer stability, with constant interest rates during a specified period. Protection from rate increases is a benefit, but you may not benefit from rate decreases. After the fixed period, you may switch to the lender’s standard variable rate (SVR) or remortgage (fees apply).
- Variable-Rate Mortgages: These mortgages fluctuate based on the lender’s SVR or the Bank of England base rate. Prepare for potential rate changes and ensure you can handle higher payments if rates rise.
Repayment or Interest-Only Mortgages
- Repayment vs. Interest-Only: Choose between a repayment mortgage, which reduces both interest and principal, and an interest-only mortgage with lower monthly payments but a remaining principal balance. With the latter, plan for how you’ll pay off the principal.