Mortgage FAQs

What is the meaning of mortgage?

How much mortgage can I get on my salary?

How much deposit do I need for a mortgage?

Are there any additional fees when taking out a mortgage?

What is a re-mortgage?

Are there different types of mortgage interest rates?

What is the Government Help to Buy Scheme?

Is there a Help to Buy Scheme available for older homes?

What happens if you’re having difficulty repaying your mortgage?

What is the meaning of mortgage?

A mortgage is a loan you take out that allows you to buy a home. It’s secured against the property, and is generally paid off in monthly installments including interest. When a mortgage loan is taken out, it’s usually stretched out over a period of several years. In the UK, the maximum mortgage term is 40 years. Longer mortgage terms mean lower monthly repayments, however it’s a very long commitment that isn’t suitable for everyone. 

Nonetheless, it’s important to note that every single monthly payment should be made in full and on time. Failure to do so puts your property at risk of repossession. 

How much mortgage can I get on my salary?

The amount you are eligible to borrow is overall determined by the cost of the property, your income, the size of your deposit and affordability. There is no set calculation, as it all depends on the lender and your personal circumstances.

However, most lenders are happy to lend 4.5 times of the borrower’s income, if they fit the criteria. There are even some cases where lenders will lend up to 5 or 6 times of the borrower’s income. In those cases, it’s likely you may need to use a specialist mortgage broker.

How much deposit do I need for a mortgage?

In 2021, an average house price was £250,000 according to HM Land Registry. This means that the minimum deposit you would need to get a mortgage, is roughly £12,500 (this is with a 5% deposit).

The amount of deposit you need to get a mortgage is calculated as a percentage of the value of the house you are buying. The mortgage is based on what’s left, aka the amount that you’re borrowing. So, the bigger your deposit – the smaller the monthly repayments. Although, it is important to note that usually, a longer term means more interest.

Some lenders offer up to a 95% mortgage loan, which means that you only need a 5% deposit of the purchase price of the property. However you will find far better terms and choice if you have a larger deposit. There are, however, some schemes to help borrowers wthl small deposits, especially first time buyers.

How long should I take my mortgage out for?

There is no right answer to this question, because again, it all depends on your affordability and circumstances. The average mortgage term in the UK is 25 years, but some may take it out for longer or shorter. As mentioned previously, keep in mind that the longer the term, the smaller the monthly payments, but you will be paying more in interest.

Are there any additional fees when taking out a mortgage?

Yes. Typically, you may incur some extra fees. These can include:

• Valuation fee – this is usually paid up front when you apply. It’s charged by the lender to value the property.
• Solicitor fees – small part of this is paid up front. It’s charged by the solicitor to complete the conveyancing transactions on your property. The remaining amount is paid once this process has been completed.
• Stamp duty – this is land tax, that must only be paid on property purchase above £500,000 in England or Northern Ireland.
• Broker fees – if you use a broker, there might be additional fees. Usually, paid up front but can be paid upon completion. 
• Lender arrangement fees – this is charged by the lender for arranging the loan. The fees are typically added to the loan itself, but this does mean you will be paying more.
• Booking fee – charged up front with your application. It’s charged by the lender for booking the funds for your mortgage.

Not all of these fees apply and can vary by product. Fee are not necessarily a bad thing as they may allow you to access cheaper or better products and services. Get quotations and then compare.

What is a re-mortgage?

A re-mortgage, is basically swapping the mortgage plan you have currently for another one, but keeping your house. This can be done with a different lender, or your current one. You can re-mortgage at any time, however if you decide to re-mortgage before the end of your current fixed term, there may be charges. This is usually called the early repayment charge.

Most people re-mortgage at the end of their fixed rate term, to see if a better deal is available. You can also re-mortgage if you want to borrow more. Ideally compare your existing lender with everything else on the market. Don’t assume your existing lender will give you the best deal. Ask a broker to help you.

How much is mortgage interest in the UK?

It depends on a number of factors, including but not limited to: how much you’re borrowing, your circumstances, your lender, affordability and The Bank of England interest rates. It’s not possible to give a definite calculation without consulting with a lender first.

What is an early repayment charge?

When you take out a mortgage, you typically repay it in full by the end of the agreed term. If you do decide to remortgage with a different lender, you may face an early repayment charge. This would have been explained when you took the mortgage out and normally applies when you have a fixed or discounted rate and want to remortgage during that initial period. It’s usually charged as a percentage of the loan. 

What is an interest rate?

An interest rate is what you pay back to the lender for borrowing money. They are shown as a percentage of the amount of the money you borrow. Following that, you pay it back in monthly installments, which are added to your mortgage plan.

The rates you pay are normally linked in some way to the Bank of England base rate but can vary by lender or product type

In the early 90’s we saw base rates around 15% so mortgage rates were even higher. In 2017 they dropped to 0.25% and are climbing again. With such variation it pays to get advice on both fixed rate and variable rate options from a wide number of lenders.

What else affects mortgage interest rates?

Mortgage rates are the interest you will be paying along with your mortgage repayments. All in all, it is essentially paying your lender in return for borrowing money from them. There are a few factors which affect which mortgage rate the lender will offer you. They usually depend on:

• Your circumstances
• The type of mortgage you are looking for
• The bank base rate 

Are there different types of mortgage interest rates?

There are three main types of mortgage interest rates; fixed rate, variable rate and tracker rate.

• Fixed rate mortgages – the interest rate stays the same for an agreed number of years, usually around 2 to 5. This basically means that the base interest rate does not affect your payments, and they will stay the same. 
• Variable rate mortgages (standard variable rate mortgage) – the interest rate can change and your monthly payments can go up or down. The lender will set the variable interest rate that you will be paying, and has several paths to go down on the occasion of the base rate changing. 
• Tracker rate – just like the variable rate, tracker rates can change over time, which means your payments can go up and down. However, a tracker mortgage has a set interest rate at a fixed amount which is above or below another rate. It is typically tracked by the Bank of England base rate.

Will a bad credit score affect my eligibility to get a mortgage?

It is still possible to get a mortgage with bad credit, however it can be harder. Lenders will look at your credit score as a part of their checks to see your affordability and whether you’d be capable of making the repayments. Bad or low credit rating means you might find it harder to get a mortgage, but it’s not impossible.

What is LTV ratio?

LTV stands for Loan to Value. It is a percentage of the borrowing you take out against the property. It basically measures how much money you are borrowing, compared to the value of your property. 

For example: If you pay a deposit of £20,000 for a home that is worth £200,00, you will get a mortgage loan for the remaining £180,000. So, with a 10% deposit, your LTV is 90%. 

What is the Government Help to Buy Scheme?

This government backed scheme helps first time buyers purchase their dream homes all across the UK. Help to Buy is a scheme where the government lends money to the buyer, which in turn increases the size of deposit the buyer can provide. This means that the first time buyer is more likely to be eligible for a mortgage, with more favourable rates. However, it only works on new builds. So, if you are interested in buying an older property using help to buy, this is discussed further in the next FAQ.

Using this government backed scheme, all the first time buyer needs is a 5% deposit. The government would lend a further 20% of the purchase price (40% in London), and a mortgage would then be taken out for the remaining balance. The great thing about this scheme is that it is interest free for up to five years. 

Please note that the help to buy scheme can’t be used to purchase a buy to let property.

Is there a Help to Buy Scheme available for older homes?

Yes. This scheme is called the second hand property help to buy. It is privately backed, and unlike the government backed scheme which restricts you to new builds only, it helps first time buyers buy older homes. This scheme gives borrowers access to far more properties, and overall, has many benefits.

Firstly, more borrowers may qualify and you may be able to borrow more. This loan is interest only, which helps reduce the monthly payments. More importantly, borrowers may buy an older property which can be improved or have more profit build in as a long term investment. If you’ve had your eyes on a used property for a while, this scheme may be perfect. Generally you need is a 5% deposit of the purchase price. 

What is conveyancing?

Conveyancing is legally transferring a property from one owner to another. When buying a property, you will need a licensed conveyancer who takes charge on your behalf. Their job is to make sure you receive all the title deeds to the property and/or land. They do all the legal and administrative work that’s required for a house to be purchased under law.

Can I rent out my mortgaged home?

This all depends on how long you’re planning on letting the property out for. If you’re only thinking about temporarily letting, your lender may give you consent. If your plans were to rent your home out on a permanent basis, then unfortunately you won’t normally be able to stay on your current mortgage. In this case, you may want to switch to a buy to let mortgage either with your current or new lender.

What happens if you’re having difficulty repaying your mortgage?

The first thing you should do is let your lender know. They can come up with a solution that works for both parties. In these situations, most lenders tend to be sympathetic. Here’s what they may offer as a solution:

• Change when you pay
• Repay what you owe at a later date
• Reduce the amount that you currently pay for a short period of time 
• Repay your mortgage over a longer term
• Reduce your monthly interest
• Change to interest only 
• Switch to a cheaper mortgage plan

Is it possible to get a mortgage with a part time job?

Generally, lenders are more interested in your affordability and financial status than the hours you work. It’s definitely possible to get a mortgage whilst working part time, as long as you have enough proof of income. Lenders will perform checks anyway, to check your affordability and how much your monthly repayments would be. So with that being said, if you earn enough, it is definitely possible.

Talk to a Promise Money adviser for more details

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