Check out some of the most commonly asked questions below.
Frequently Asked Questions
Mortgage & Protection
What is a mortgage broker? A mortgage Broker is someone that has access to an array of mortgage lenders and mortgage products. The best mortgage brokers are `whole of market` as they can access all available products. A mortgage Broker will work with you to match you with the most suitable mortgage lender and product based on your personal circumstance. They will then complete the mortgage process on your behalf from Decision in Principle stage to full mortgage application.
How much can I borrow? This is lender specific but usually revolves around their own lending criteria, your credit score and an assessment by them of your affordability. Generally, though `rule of thumb` lenders will take 4.5 times your total gross income into consideration and take off credit commitments such as loans, hire purchase and credit cards. There are lenders who lend more than 4.5 times income, but all dependent on loan to value, profession and a range of specific criteria.
How much deposit do I need? For residential properties, taking government and other incentives aside such as builders deposits, the average deposit needed is 10% of the property valuation. However, there are some lenders that will accept 5%. For Buy to Let properties, the usual deposit required is 25% of the property valuation. Though recently one lender had lowered this to 20%. It should be noted that generally the lower the deposit the higher the interest rate will be.
What is a decision in principle? A decision in principle (DIP) or often what is termed as an Agreement in principle (AIP) is a non-binding agreement obtained from a mortgage lender stating that they would be willing to lend to you. It often will state a maximum amount that they will lend, all subject to the information in the DIP being correct. The lender will usually do a credit file check on you at this DIP stage, though it is usually a `soft footprint`, meaning that the credit check does not impact on your credit score.
I have bad credit, can I get a mortgage? The answer is more often than not, yes. Essentially if you’ve got a good credit history, ie you’ve kept up to date with all your financial commitments e.g. no missed payments then you will more than likely be accepted for many types of credit, all dependent on circumstance and affordability naturally. Usually this will be with mainstream banks and lenders and for the best interest rates and terms. However, there are many other specialist lenders, often ones you may not have heard of, who will assess you with a different, more flexible approach and criteria. This means they look at your credit history and make a judgement based on this and other criteria they deem to be relevant. They will look for example at information available to them such as the amount and value of any missed payments you may have, whether you have or are in a debt management plan or whether you have ccj`s, the list isn’t endless. Each specialist lender has its own scoring and criteria. Due to the complexity of this lending and in their eyes the higher risk they would be taking on, then the interest rates will be higher than mainstream lenders and usually the length of process from start to finish.
I’m self employed, can I get a mortgage? Yes, naturally all dependent on individual circumstances. However, whereas a mortgage application for an employed person requires up to date payslips and often corresponding P60, these are not usually applicable to a self-employed position. So, lenders will require far more proof of income history that demonstrates that an income has previously been consistent and would reasonably be considered to be in the future, i.e. over the term of the mortgage lending. For this a lender may require the following - business profit & loss and balance sheet accounts/projected accounts, SA302, business and personal bank statements, proof of contract if contract worker to name a few. So to conclude there are a few more hurdles to getting a mortgage when you are self-employed, but as there are over 4 million self employed people in the UK, as at Sept 2024, then this is a growing market that mortgage lenders want to be involved in.
What different types of mortgages are there? Generally, there are three types of mortgages available now – Variable, Fixed and Tracker. There used to be many more. Standard variable interest rate is a lender `default` rate. It is the interest rate that you would be subject to were you to not take one of their other type of mortgages. Variable rates are usually a higher interest rate than other rates by the lender. For this reason, they are the least popular. Fixed interest rates do what they `say on the tin`. They are fixed for a period of time, usually 2,3 or 5 years. Though there are more variances. This means you `lock in` to a rate for the chosen period of time, whereby you pay the same monthly mortgage payment until the `deal` ends. It can give you peace of mind knowing that any change to the Bank of England Base Rate (used by lenders to set their rates) will not affect your monthly mortgage payment for the duration of your fixed rate. Tracker interest rates, usually track the Bank of England (BOE) Base rate. So, if you have a tracker rate mortgage that is 1.25% above the BOE rate and the BOE rate was 4.75%, then the interest you would be paying on your mortgage would be 6%. And if the BOE went up your interest rate and payments would go up, conversely if the rate went down, yours would equally go down, you get the idea. It’s really a `punt` when taking such a product about whether you believe the interest rates are going to go down in reality.
What is the difference between repayment and interest only? Put simply, a repayment mortgage pays off your total mortgage loan amount in monthly payments resulting in full repayment by the end of the agreed mortgage term, for example 30 years. Your monthly repayments are made up of paying off an element of the outstanding capital (the loan) and an element of interest on the loan. An interest Only mortgage is where you pay only the interest element of the loan. This means that at the end of the term of the mortgage, using the example of 30 years, you would still owe the full mortgage amount. You would have only paid the interest each month on that loan and would either have to remortgage, if you could, pay it off in full with other monies or sell and move out of the property.