17 Jul Helpful Hardisty – Beginners guide to Mortgages
Buying a home is probably the largest purchase you’re ever likely to make. Before arranging a mortgage, it is best to make sure you know exactly what you can afford to borrow. Our Helpful Hardisty guide helps you find out where to get a mortgage, the different types and how the process works.
What is a mortgage?
A mortgage is a loan taken out to buy property or land. Most run for around 25 years but term can be longer or shorter. This ‘loan’ is secured against the value of your home until it’s paid off in full and if you cannot keep up with the repayments the lender can repossess your home so that they can sell it to get their money back. Sounds scary, right? The world of mortgages is nothing to be feared, in fact, being open and honest with a reputable financial advisor is something we, as a nation, should be doing more of!
Where can I get a mortgage?
There are two main ways of organising a mortgage to buy your home. The first is applying for a mortgage directly from a bank or building society, choosing a product from their range.
The second way is to use a broker or an independent financial advisor who can do some shopping around for you and compare different mortgages on the market. They often have access to mortgages and offers that are not available direct from the bank and are usually regarded to be able to access the best rates in the business for you.
Some brokers are able to find you a mortgage from select number of lenders, others have access to the ‘whole market’ and have access to hundreds of mortgage providers. It’s always recommended to seek advice from a financial advisor who is whole of market as they will be able to ‘shop around’ for you and find the best product and mortgage to suit your personal circumstances.
How can I work out what I can afford?
If you think you may struggle to keep up with repayments, then do not stretch yourself. The consequences of not making your repayments could result your home being taken back by the mortgage provider and you being evicted from your home. Nobody wants that!
It’s also not only worth thinking about the mortgage repayments themselves but also about the running costs that come with owning a home such as household bills, council tax, insurance for the building, your contents and life cover. And don’t forget about the other costs involved in buying – stamp duty, legal fees for conveyancing, moving costs, furnishing the house etc.
Lenders will want to see proof of your income and certain expenditure, and will need to know if you have any debts. They may also ask for more information on your current spend on household bills, child maintenance and personal expenses.
Your deposit – Size definitely matters!
When you’re looking to buy your first home, you will need to pay a deposit and this will go towards the cost of the property you want to buy. The bigger your deposit, the lower your interest rate could be.
When you put in an offer for house you’d like to buy, you might be asked what your ‘Loan to Value’ will be. This sounds really complicated but simply put, it is the amount of the home that you own outright, compared to the amount that is secured against a mortgage.
So, for instance, with a deposit of £10,000 on a property worth £100,000, the deposit is 10% of the property price and the Loan to Value (LTV) is 90%.
The lower the LTV, the lower your interest rate is likely to be. This is because the lender will have less risk with a smaller loan. If you were to fail to make payments, they won’t lose as much money if the money they lent to you was smaller in the first place.
The cheapest rates are typically available for people who have a 40-50% deposit. If you’re a first time buyer however, the likelihood these days of being able to save such a large amount of money can be difficult.
Need an idea of what you can afford?
Try our handy mortgage calculator here to work out the mortgage cost, you can even send it on to one of our advisors with your details and they’ll find you the best deal!