Mortgage FAQ’s
The amount you can borrow is based on your income, which is then multiplied by a certain factor. Lenders typically offer an amount between four and five times your annual income, though this can vary.
When borrowing with a partner, lenders may combine your incomes in different ways. They might add them together and apply a lower multiplier, or multiply the higher income and add the smaller one on top.
A Decision in Principle (DIP), also known as an Agreement in Principle (AIP), Mortgage Promise, or Mortgage in Principle, is the first step in the home buying or remortgaging process. It gives an indication of how much you could borrow before applying for a mortgage. Obtaining a DIP is obligation-free and involves only a soft credit check, which means it does not affect your credit score.
Loan to Value (LTV) measures the amount of money you’re borrowing against the total value of the property. It is expressed as a percentage. For instance, if you have a £180,000 mortgage on a £200,000 house, the LTV would be 90%.
An interest-only mortgage offers lower monthly payments because you only pay the interest without reducing the principal until the term ends, which may result in higher overall costs. A repayment mortgage, while typically having higher monthly payments, allows you to pay off the mortgage in full, often costing less over the life of the loan.
There are two main types of mortgage interest rates:
- Fixed rate: The interest you’re charged on stays the same for a set number of years, usually two to five.
- Variable rate: The interest rate you pay can change over time.
Choosing to fix your mortgage for 2 or 5 years depends on your personal circumstances. A 2-year fix might offer short-term stability and is suitable if you plan to stay in your home for a few years. Your specific situation will guide the most appropriate term, and we’re here to help you decide.
In the UK, the standard maximum mortgage term is usually 25 years. Any term longer than this is considered extended. Mortgages can now be obtained for up to 40 years from several lenders.
To pay off your mortgage early if you are financially able, consider:
- Increasing monthly payments, especially if your income increases, known as overpayment.
- Making lump-sum overpayments, though check if there’s a limit on how much you can overpay annually.
- Shortening your mortgage term, which usually leads to higher monthly payments but lower total interest.
Obtaining a mortgage involves various fees, which can significantly affect the total cost:
- Mortgage arrangement fee: Often the largest fee, also called a product or completion fee.
- Mortgage booking fee: A non-refundable fee charged upon application, also known as an application or reservation fee.
- Mortgage valuation fee: Covers the lender’s valuation to confirm the property’s worth.
- Telegraphic transfer fee: For the money transfer from the lender to your solicitor via CHAPS.
- Mortgage account fee: For the lender’s administrative costs. If you pay this, you likely won’t have an exit fee.
- Mortgage broker fee: May apply for mortgage advice; please inquire for specifics.
- Mortgage missed payments charge: Fees for late repayments, which also affect credit ratings.
- Early repayment charge: A fee for repaying all or part of your mortgage early, if applicable.
- Mortgage exit fee: Charged upon full repayment of the borrowed amount, if you haven’t paid an account fee.
A mortgage broker is a professional who arranges a mortgage between you and a lender. They assist in determining the best type of mortgage for your needs and finding a suitable deal, especially beneficial for first-time buyers or those looking to remortgage.
It’s important to have a clear and open dialogue with your mortgage broker. Questions to consider include:
- Which mortgage type is best for me?
- Why is this deal most suitable for my situation?
- What are my chances of approval with bad credit?
- Are there any restrictions with this mortgage?
- How much can I realistically borrow?
- Can you show me all my mortgage options?
- What are your service charges?
- What does your service include?
- When are you available to discuss matters?
For buy-to-let investors, ask if the broker has personal experience in this area.
Never hesitate to ask for clarifications or explanations of any terms or processes you don’t understand.
During a mortgage interview, advisers and lenders will assess your financial position to determine your borrowing capacity. They will inquire about your income, expenses, credit history, existing debts, and personal circumstances to evaluate how much you can comfortably repay.
Some mortgage advice may involve a fee. Please contact us to discuss whether this applies to your situation.
A lower credit score can make obtaining a mortgage and other forms of credit more challenging, potentially resulting in higher interest rates or lower credit limits upon approval.
The Government’s Help to Buy scheme has ended. It has been replaced by the First Homes Scheme in England, which offers homes at a reduced market rate to first-time buyers who meet specific criteria. For more information, visit the Government’s official website.
On average, the house buying process takes around 12 weeks, not including the time spent searching for a property. To account for any unforeseen delays, a six-month timeline is a reasonable expectation.
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