A beginner's guide to mortgages

Getting a mortgage is one of those things you hear everyone talking about, but what does it actually involve?

  • What is a mortgage?

    What is a mortgage?

    A mortgage is a large loan used to buy a property, but one which is secured on that property.

    This means that the mortgage provider (a bank or building society) retains an interest in the property until the entirety of the loan is paid back. If you do not keep up repayments on the mortgage they have the right to repossess the property.

  • How much deposit do I need?

    How much deposit do I need?

    Mortgage providers typically need you to provide a deposit of at least 5% of the purchase price of the property.

    The proportion of the amount borrowed versus the purchase price of the house is called the loan-to-value ratio (LTV).

    So if you want to buy a house worth £100,000, you will need to have £5,000 saved, and the provider will lend you up to the other £95,000 if your application is approved.

    A deposit can come in many forms; savings, a gift from family, or shared ownership funding also offers the option of raising up to 50% of the purchase price. If you’re buying through a shared ownership scheme, the deposit takes the form of the share of the property your landlord is buying.

  • What lending criteria do providers consider?

    What lending criteria do providers consider?

    For a start, you must be over 18.

    As a general rule, you’ll need to be in steady employment so the provider knows you can afford the mortgage repayments.

    This means that if you’re on a temporary or fixed-term contract or you’re still working through your probationary period, you may find it more difficult to be approved.

    Mortgage providers will also consider your credit history, including your ability to repay any outstanding debt – they will look to see that repayments have been made on time.

    The less you have accumulated on credit card or loans, the more they’re likely to lend you towards buying your house.

  • How long do I pay my mortgage for?

    How long do I pay my mortgage for?

    The term of a mortgage can usually be anything up to 30 years and will be on a repayment basis, meaning that the balance will be repaid by the end of the term providing all repayments are kept up to date.

    A mortgage will be available at a given interest rate. This interest is calculated and added to your outstanding balance periodically throughout the year. So the longer you take to pay your mortgage off, the more (in total) you will pay in interest.

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