Looking to get on the property ladder? Find all the jargon a bit confusing? You’re not alone. It can all be a bit overwhelming for people setting their sights on their first property purchase. Read on for our guide on mortgages.
The housing market is in a strange place at the minute. You’ll likely have seen headlines dominated by mentions of staggering interest rates, house price fluctuations and buyer/seller uncertainty. Even experienced property owners find it a bit confusing, so don’t worry if you’re not clued up yet.
For now, we’ll focus on our guide for mortgages which underpin many of these issues.
What is a Mortgage?
A mortgage is a type of long-term loan that you can use to buy a property. In most cases, you’ll have to put down a deposit (money provided up front) to be allowed to take out the loan to cover the rest of the property’s value.
As mortgages are often substantial amounts, you’ll pay them back every month for the duration of the mortgage term. Most people have a mortgage term of between 10 and 30 years, depending on the situation.
What Are Interest Rates?
Every mortgage taken out will be subject to an interest rate. This is what your lender charges you for borrowing the money for your purchase. It’s displayed as a percentage, so a 6% interest means that you will have to pay 6% of the amount you borrowed every year for the specified period.
The news around sky-high interest rates at the minute is important because it makes the cost of buying a home (paying a mortgage) more expensive and increases the cost of home ownership.
What Types of Mortgages Are Available?
There are a few different types available to buyers. Fixed-rate mortgages charge a certain amount of interest for a specified period and the rate can’t change during that period.
Variable rate (or tracker) mortgages are subject to changing interest levels, leaving buyers susceptible to rising rates and potentially paying more every month.
Buy-to-let mortgages are designed for people who want to buy a property to rent out for profit. These often come with different criteria and are usually not available to first-time buyers.
Discount mortgages and 5% mortgages are less common but can be useful for people who can’t afford the cost of borrowing and ownership normally.
How Do I Apply For a Mortgage?
To apply, you’ll need a steady credit score and house deposit ready to go. You can save this amount in a regular cash ISA or make use of a lifetime ISA to get a government bonus to help towards your first purchase.
You can compare different mortgage providers online or visit your local branch to discuss the process. Different lenders will offer a variety of criteria, rates and terms, so it’s crucial that you find the best fit for you.
You’ll first get a mortgage in principle, which is an offer at a certain rate and loan amount. Then you’ll be asked to go through a more formal application process to see if you’ll be approved.