What are mortgages?
Mortgages are loans taken out by a buyer, for the purpose of purchasing a property or an area of land. Since their introduction in 1775, mortgages have become notorious for helping buyers secure a home. It is estimated there are just under 11 million mortgages currently taken out in the UK, with an average lifespan of around 25 years.
How do mortgages work?
When you are ready to take out a mortgage, we recommend working with a mortgage advisor. At Bespoke Home Finance, our experienced mortgage advisors can assist you with all your financial decisions, offering expert advice and helping you down the right path.
The money you borrow is referred to as the “capital”, and you will be given a set amount to pay back each month until the mortgage is paid off. You will also be charged interest on your loan by the lender, meaning you will ultimately pay more than you initially owed. If you are unable to meet the monthly mortgage payments, this could affect your credit score and might lead to a repossession of the property. You must be aware of what you are capable of paying back.
Which mortgage is right for me?
You might not realise that there are a vast array of mortgages available to you as a property buyer, ranging from tracker to capped rate mortgages. Each type has their own benefits and drawbacks, so discuss with your mortgage advisor which choice would perfect suit you and your financial situation.
The two main types you will come across are:
- Fixed Rate
- Variable Rate
Easy to understand, the interest on fixed rate mortgages remains the same for a period of time, usually between two and five years. Whereas with variable rate mortgages, the interest can change over time depending on the state of the economy.
Your other options include:
- Standard Variable Rate
- Tracker
- Discount
- Capped Rate
- Offset
Fixed-rate mortgages are the most popular choice for homeowners across the UK, with 6 in 10 stating they own one. They provide you with a peace of mind, knowing your interest rates won’t increase for a set period of time. This type of mortgage is perfect suited for buyers who need or prefer to budget their payments, with the reassurance your monthly expenses will remain the same.
How much can I get?
The amount you are able to borrow from a lender depends mostly on your income, with the majority of mortgage calculators using your income as the only factor to consider. However, the process can actually be much more complicated.
When you apply for a mortgage, a lender will calculate not only your income but also your monthly expenses. If your outgoings are high, then your mortgage allowance will be less. A lender wants to guarantee you’ll be able to meet the necessary payments, and so will only lend you what they believe you can afford.
A lender will also take into account the joint income of a household. If you are applying for a mortgage with someone else, their income will be added to the mortgage allowance, meaning you are entitled to a larger loan than if you were a single-person household.
If you had an income of £30,000 a year, with an average UK debt of £9000 (not including student loans), you would be able to afford an absolute maximum of £123,000 for a property. This is not taking into consideration monthly spending, which could impact your overall loan allowance.
To speak to one of our mortgage advisors, contact us today and we will get in touch as soon as we can.
