Looking for a mortgage can be a stressful business. In order to get the best deal for yourself there is a necessity to shop around between providers and the multitude of different products on offer. This guide will break down the main considerations of mortgages, into broad understandable language, to help you get your head around the situation.
There are many different products available, and each has it's own individual quirks. However, all mortgages generally fall into one of two varieties:
There are many different products available within these two types. We detailed them for easy understanding in our 'Beginners Guide to Mortgage Products'
When you apply for a mortgage, there are a number of factors lenders will consider before they can approve your application.
As of April 2014, the Financial Conduct Authority has strengthened legislation, meaning that the checks in place for applicants are now more rigorous. As a result, you'll need to satisfy the lender that you can make the repayments based on various sets of data you provide. Your credit history will be taken into consideration, along with your current financial standing (salary, savings, existing debts et al). The rate of interest and amount you can borrow will also be influenced by the amount of deposit you can lay down, which is also known as the 'loan-to-value' ratio.
Mortgages are available to some, with as little as 5% deposit of the property value. The percentage of money you can put down as a deposit, will determine (to an extent) the 'risk' factor attached to loaning you the money. It goes without saying that the higher percentage you can stump up front, the less money you're borrowing overall, and therefore the risk of lending is reduced proportionately. Effectively, the more money you have for your deposit, the lower your loan-to-value ratio will be, and those with a low loan-to-value ratio experience the best deals in terms of interest rates.Image: © David Watmough | Dreamstime.com