To buy a property in UK most people borrow money. The most popular way to do so is by taking out a mortgage. This can be provided by a bank, building society or a special mortgage lender.
You may choose to use a mortgage broker to advise and assist you through the process of getting accepted for a mortgage.
A good broker will be highly experienced in processing your application, thereby helping smooth your application and subsequent house purchase.
Alternately you may wish to purchase your mortgage directly from the bank, building society or lending specialist you choose.
There are two main ways to repay your mortgage…
1) Repayment
This is where you pay back the principal loan and interest on a monthly basis over an agreed period (called the ‘term’ – eg 25 years).
2) Interest Only
Again you make monthly repayments, however with an interest only mortgage, you only pay back the interest portion, and none of the principal loan itself (see also ‘Endowment’ Mortgages).
Therefore in order to pay off the loan at the end of the period (term of 25 years again for example), most people will take out a savings or investment product alongside their mortgage.
This savings or investment plan is most often paid into each month. The aim is to pay back the full principal amount when it becomes due at the end of the term (say 25 years).
If the investments chosen perform well then after the principal loan is paid back there may be extra cash left over in the pot too. However, this is not guaranteed.
NOTE: Warning…
Should the investments or markets perform badly there could be a shortfall in savings accrued, leaving the person unable to pay back the mortgage principal at the end of the term.
If you are unsure as to which type of mortgage would suit your circumstances best, it is best to discuss this with your financial/mortgage advisor.
Depending on the type of mortgage you choose, the interest you pay will vary.
1. Fixed
Does what it says on the tin. Fixed for certain amount of years (25 years for example).
2. Variable
Or ‘tracker’ rates, change in line with Bank of England base rate.
3. Capped
Variable rate but with an upper limit. You can budget knowing payments will not go above a set upper limit. (Most often used for set periods at the start of mortgages, say for the first three years).
Offset/Current Account and Flexible Mortgage products are also available. These provide benefits such as being able to pool your mortgage account with savings or other income (offset), or vary the amount of monthly payments, or even take payment holidays (flexible).
These are powerful benefits and worth exploring with an adviser.
Final notes:
In most cases you will need to take out life insurance to ensure that in the event of your death, the mortgage lender will be able to get back the money they lent you to buy your house.
If you wish to move your mortgage but not your home, perhaps to get a better deal, this is known as a ‘remortgage.’
Update: Help to Buy.
A new government backed initiative called ‘Help to Buy’ is now available to help people find the necessary deposit to buy a home. Through this scheme the Government have agreed to provide up to 20% of the sum required so buyers only need to find 5% deposit, making it easier for many people to buy a new home.
For full details on how Help to Buy works, please click here.
If you have questions concerning how to get a mortgage, please do give me a call. I will be happy to help. It’s free from a landline on 0800 321 3508 or call my mobile on 0757 679 1009.
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