To help calculate your affordability, make a list of your monthly outgoings. Knowing what you can afford will help you find a mortgage that suits you and will assist the lender to conduct Mortgage Affordability Checks. This is something that all lenders must do to ensure that everyone they lend money to can afford their mortgage – now and into the future.
When you apply for your mortgage, the lender will conduct an affordability interview (either in person or over the telephone). They will ask what you spend your money on and whether you could still afford the mortgage if the interest rates were to rise, or your earnings were to change.
Remember – lenders also base their decisions on your credit score. So, the better your score, the more chance you will have of being offered the right mortgage and the best interest rates.
Independent Financial Advisors (IFAs)
A great way to make things easier for you and help you find the right mortgage product, is to recruit an Independent Financial Advisor (IFA). They will discuss your circumstances with you so that they can understand your affordability. This will allow them to search mortgage products and interest rates to find you the best deal.
Many IFAs are free, some charge a small fee for their advice. If you need help in choosing an IFA, our Sales Representatives will be pleased to give you some contact details.
In the current mortgage market you’ll need a deposit of at least 5% of a property’s value to get a mortgage. A lender would then lend you 95% of the property’s value. So, if you wanted to buy a £130,000 property you will need at least £6,500 deposit and borrow £123,500.
Help to Buy
You may qualify for a Government Help to Buy Scheme. With Help to Buy the Government will lend you up to 20% of the cost of a newly built home. This means that you will only need a 5% deposit and a 75% mortgage to make up the rest of the funds. So, if you wanted to buy a £130,000 property, you would need £6,500 and the Government will fund an additional £26,000. Then, you will only need to borrow £97,500. This means that you will be able to get a mortgage product at a lower interest rate. Plus, you won’t be charged any interest on the 20% Government loan for the first five years of owning your home.
Types of mortgages
There are many mortgage products on offer. So whatever you situation may be, we’re confident that there will be a mortgage that suits you. The two main types are:
This is the most common product on today’s market. Your monthly repayment figure will be made-up of some of the loan repayable and some of the interest on the loan.
Interest only mortgage
An interest-only mortgage gives you much cheaper monthly payments but remember that you are not actually paying back any of the loan. So, you will need to put plans in place to pay off the amount that you borrowed at the end of the mortgage term.
The interest rate you are paying will have an impact on the cost of your monthly repayments. Here is a short guide to the different types of interest rates.
Regardless of what happens to the economy’s interest rates, the interest rate you will pay will remain the same for a fixed period of time. Once your fixed rate term has expired, your interest rate will automatically be set at your lender’s Standard Variable Rate (SVR).
This is based on the lenders standard variable rate and will go up and down, based on the Bank of England’s base rate.
These are set at a certain amount above the Bank of England’s base rate. So, if the base rate changes, your mortgage will change. For example; if the base rate was 0.50% and you took a tracker mortgage with a rate of 2% above the base rate, you would pay an interest rate of 2.50% on your mortgage.
Many lenders offer discounted mortgages, which can be particularly helpful if you’re a first time buyer.
A discount mortgage is a type of variable-rate mortgage. The term ‘discount’ is used because the interest rate is set at a certain ‘discount’ below the lender’s standard variable rate (SVR) for a set period of time. For example, if your discount is 1% and the lender’s SVR is 5%, then you will pay 4% interest on your mortgage.
A mortgage in principle
Once you’re satisfied that you have the right mortgage for your affordability, you can apply for a Mortgage in Principle. This is an ‘agreement’ from the lender that they will lend you a certain amount of money for the purchase of a property, based on some basic information. This is usually valid for 3 months.
This means that you can enjoy viewing our showhomes, knowing that you already have a mortgage in place.