Learn how to get a first time mortgage, buy to let mortgage or remortgage. Calculate how much you can borrow and your monthly mortgage repayments. Explore our guide and FAQs to learn all about different types of mortgage, their fees and their interest rates.
Author: Sebastian Anthony. Published: 3 October, 2019.
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A mortgage - technically a mortgage loan - is a loan that's secured against a house, flat, land, or some kind of property.
If you don't repay the loan, the mortgage lender can repossess your property.
Mortgage loans are usually repaid monthly, with an agreed amount of interest added on.
You can use our mortgage repayment calculator to get an idea of how much a mortgage loan will cost you.
Buying a house will most likely be the most expensive single purchase you ever make. Affording a home, especially in an expensive area like London, requires financial dedication, and choosing the right home requires extensive research and a strong constitution.
Choosing the right mortgage for your financial situation is a key part of the house-buying process (unless you are lucky enough to be able to afford your home outright), and can be extremely daunting.
It takes about 18 to 40 days to get a mortgage. But getting a mortgage is relatively easy. The conveyancy process - changing the legal owner of the property - can take up to 12 weeks.
Before you apply for a mortgage, follow these steps to increase your chances of being accepted:
Next, you should use a mortgage affordability calculator to get some guidance on how much you’ll be able to borrow, based on your income, outgoings, and debts.
Another thing to consider is how much you can afford to borrow. Before you decide to borrow the max amount, use a mortgage repayment calculator to see how much a mortgage will cost you every month, and take a good look at the total costs of buying a home.
The first stage in buying your first house is saving up as much as you can afford as a deposit (if you already own a home, the equity in your property can be used as a deposit). The size of your deposit (or equity) compared to the amount you will want to borrow will determine your loan-to-value (LTV) ratio – and this in turn will affect the mortgage rates you can obtain. As an example, if you’ve saved up a deposit of £30,000 and want to purchase a house costing £300,000, your LTV would be 90% (the amount of your mortgage divided by the value of the house).
It is generally the rule that the lower your LTV, the better rates and deals you will receive. This is because mortgage lenders will perceive you as a lower risk, or at least there will be more than enough equity in the property to cover the amount you wish to borrow. So, saving a bigger deposit helps you on two fronts: not only will you receive better rates, but you will also need to borrow less, or borrow the same and get a bigger/more expensive property.
If, for whatever reason, you cannot raise a deposit, but are confident that your finances are such that you will be able to afford a mortgage, there are mortgages that offer 100% of the value of the home. However, these are rare, and where they do exist, they can often include other charges, such as completion fees or higher lending charges. Be sure to check out all the associated fees with any mortgage deal before you apply.
Following the legislative tightening of mortgage affordability assessments (notably with the Mortgage Market Review in 2014, and later in 2017), it is a lot harder to get a mortgage today. With any application, lenders have to be able to prove that borrowers will not only be able to afford their mortgage repayments, but will be able to ‘weather the storm’ if the Bank of England base rate were to increase dramatically. It is therefore important that you appear to be financially healthy when you apply for a mortgage.
If you are saving up for a deposit, you may already be foregoing luxuries, such as nights out, takeaways, weekend city breaks – but if you’re serious about getting a mortgage and showing the lender that you can afford an interest rate hike, it really can be worthwhile to adopt a penny-pinching lifestyle before and during the mortgage application process.
You should check that everything in your credit history is correct, and your credit rating (and that of any partner or spouse with whom you are purchasing) is as glowing as it can be.
Your credit history and score can be obtained by any one of the three credit reference agencies (Callcredit, Experian or Equifax). Without knowing which agency or agencies your lender will use to assess you, you should check all three. If you find any anomalies, you should inform the agency immediately and ask that they amend your records.
If you find that you or your partner’s credit score is below par, you should take steps to improve it before you apply for a mortgage, as any failed applications can further damage both of your credit scores – and of course you won’t get the mortgage you wanted, or at best you will be offered a mortgage with higher interest rates and fees.
Steps you can take to improve your credit score can include ensuring that you appear on an electoral roll, that you are responsible for and successfully repay credit over a period of time (for example a utility bill), and overpay on any existing debts. All of this will go some way to demonstrate to lenders that you are a responsible borrower.
The best mortgage rates and deals are reserved for borrowers who have a relatively large deposit.
This is because mortgage lenders see you as less of a risk.
If you have a high loan to value ratio, you will usually be offered a higher interest rate, and you might not be able to borrow as much money.
Lenders usually segment their mortgages in 5% steps. If you can go from 5% deposit (95% LTV) to 10% deposit (90% LTV), you will unlock mortgages with lower interest rates. If you're on the edge of a 5% step - for example, you have a deposit of 14% - then it might be worth saving up a bit more money or buying a slightly cheaper house.
To find the best mortgage rates, first decide what kind of mortgage you need, and then use online mortgage comparison tools (such as Bankrate!) to find a product that fits your situation.
You have three options for actually applying for a mortgage: use a mortgage broker, go direct to the lender (for example your bank), or get an execution only mortgage online.
If you are a first-time buyer, enlisting the help of a mortgage broker or adviser is a good place to start. There are plenty of good, free mortgage brokers out there.
You can talk to a high street bank or building society as well, but they will only tell you about their own mortgage products. Online comparison sites and independent mortgage advisers can offer a much wider range of mortgages suitable for your financial situation.
In some cases, particularly if you're remortgaging with the same lender, you may be able to get a mortgage online without ever talking to a broker or the lender. This is known as an execution only mortgage.
When getting a mortgage, one of the first decisions you need to make is what type of mortgage you should get.
The number of mortgage types might seem intimidating, but don't panic: generally, your financial situation and circumstances for getting a mortgage will decide what products are available to you.
Most first time buyers, for example, will be happy with a conventional fixed rate mortgage.
If you have a very small or no deposit, then you'll need to look into 100% LTV mortgages or guarantor mortgages.
If you're remortgaging or moving house, then a more complex product like an offset mortgage or equity release mortgage could be for you.
And if you're a landlord or buying a second home, then a buy to let mortgage might be suitable.
Read on to learn more about the different types of mortgage.
A fixed rate mortgage allows you to pay a fixed interest rate for a specific period of time, typically for 2, 5 or 10 years. The main benefit of a fixed rate mortgage is that you know exactly what your monthly repayments are going to be, making it easier to budget, without the worry of the Bank of England base rate rising. Of course the converse of this is also true: if the base rate falls, you will not benefit.
Fixed rate mortgages often come with an early repayment charge if you decide to remortgage or repay your mortgage within the fixed period.
Once the introductory rate has expired, your mortgage will revert to the lender’s tracker or standard variable rate (SVR). Ideally, you should be looking for a new mortgage deal two months before your current promotional period ends, so you’re ready to switch and don’t get hit by a higher rate of interest.
A buy to let mortgage is specifically designed for landlords who wish to buy a property (or multiple properties) for rental purposes. Such mortgages work in much the same way as residential mortgages, in that the repayments can be fixed, tracker, or on an interest only basis.
However, there are some fundamental differences with buy to let mortgages, notably that a larger deposit is required (typically a minimum of between 25%-30%), and most lenders will insist that the rental income is at least 125% of the mortgage repayments. Furthermore, the interest rates and fees payable on buy-to-let mortgages tend to be much higher.
If you're not planning to have a tenant who pays regular rent, you may need a holiday let mortgage instead.
With an interest only mortgage, your repayments only pay off the interest on the mortgage, leaving the principal debt to be paid at the end of the term by other means. The most common way of paying off an interest only mortgage is by selling another property, or through an inheritance windfall or savings pot.
The monthly cost of an interest only mortgage is obviously much lower – but because you don’t pay off any of the underlying debt, the total cost will be higher because you will be paying interest on the full loan throughout the mortgage term.
Interest only mortgages are rarely offered by lenders, because historical evidence has shown that investments such as endowment policies did not perform well and often fell short of the amount needed to pay off the remaining capital. Where lenders will consider an interest only mortgage, they will often require a cast-iron plan of how you are going to repay the capital, and may well check on your plan occasionally to ensure that it is still on track to meet the entire capital amount.
Remortgaging simply means getting a new mortgage to replace an existing mortgage. You can remortgage with the existing lender or switch to a new lender.
Generally there are two reasons for remortgaging: to secure a new promotional interest rate for a number of years, or to release equity in a property (usually to fund renovations).
If you switch lenders, remortgaging is just like getting a new mortgage and can take weeks to complete. If you stay with your current lender, remortgaging can be as simple as a quick phone call.
You may still be able to find a mortgage without a deposit (also known as a 100% LTV mortgage), but the interest rate will usually be much higher, and there may be other requirements - such as requiring a guarantor, or that you're already an existing customer (i.e. you're remortgaging).
Bad credit mortgages - also known as poor credit or adverse credit mortgages - are for people who have a bad credit history. If you have failed to make credit payments in the past, exceeded an overdraft, declared bankruptcy or otherwise have a black mark on your credit file, then you will likely need a bad credit mortgage.
Bad credit mortgages usually have a higher interest rate and a larger deposit requirement than other mortgage products.
First time buyer mortgages are mortgages that are designed for people buying their first home. Usually this means that you can get a mortgage with a relatively small deposit (5% or 10%; 95% LTV and 90% LTV), though the interest rates will be higher than if you saved up a larger deposit.
First time buyer mortgages can be fixed rate or variable rate - it's up to you. It is very unlikely that you'll be offered a buy to let or interest only mortgage as a first time buyer.
With an offset mortgage, you will have the opportunity to use any in-credit balances or savings to reduce (or ‘offset’) the amount of interest you pay on your mortgage.
For example, if you have a mortgage of £350,000 and you have £50,000 in a linked savings account, you would only pay mortgage interest on the remaining £300,000.
You can gain access to the money in your linked savings account, but you will lose the amount you can offset against your mortgage.
For example, with the same mortgage of £350,000, if you took out £10,000 out of your savings account, you would have to pay interest on the remaining £340,000.
Many lenders will allow you to link multiple accounts to your mortgage, including current accounts, savings accounts and ISAs, which will help to maximise the benefit if you are always in credit. You won’t earn any interest on your savings, but you also won’t pay any tax.
Offset mortgages come in ‘fixed’ or ‘tracker’ rates, and can be especially beneficial if you can keep a large amount of money in a savings account (which must be with the same provider as your mortgage lender), as it can help to reduce your monthly mortgage payments, or help you pay off your mortgage quicker (because you can opt for a shorter term).
Shared Ownership mortgages allow you to buy a share (between 25% and 75%) of a newly built property or a housing association property, and pay rent on the remaining share. If your financial situation improves, you can apply to increase your ownership of the property. In order to be eligible for this scheme your household income must not exceed £80,000 per year (£90,000 in London), and you must either be a first time buyer, an ex-homeowner, or an existing shared owner wanting to move.
With a Help to Buy mortgage (also known as Help to Buy Equity Loan), the government will lend you 20% of the cost of a home (or 40% in London) so that you can afford the deposit on a new-build home.
You need to provide a deposit of at least 5% from your own funds, and then you get a mortgage for the remaining amount needed to buy the property. You do not pay interest on the government loan for the first five years.
Guarantor mortgages are another way that you might be able to get a mortgage without a deposit.
A guarantor is someone - almost always a family member - who puts up their own house as security for your mortgage. If you can't keep up with your mortgage repayments, your guarantor must step in and make the payments for you.
If your guarantor can't keep up repayments, then their home could be repossessed by the lender as well!
Self build mortgages are special products where you borrow money to buy some land and build your own property.
Unlike a normal mortgage where you get one big lump of cash, self build mortgages are usually phased: the lender gives you money as the project progresses through the various stages of building a property.
There are two types of self build mortgage. With an arrears mortgage you have to fund each stage with your own funds, but then the lender pays you back. With an advance mortgage you get the money before each stage begins - and then you provide evidence afterwards of how the money was spent.
Equity release mortgages are a range of mortgage products that allow you to extract equity from your home.
Equity is the difference between the value of your home and the size of your mortgage loan. If you've paid off your mortgage completely and own your home outright, you have lots of equity that can be released.
There are different ways of releasing equity, and generally all equity release mortgages are expensive. They are popular products, however, because they can give you a source of income later in life and allow you to stay in your current home.
Lifetime mortgages are a type of equity release mortgage that are only available if you're 55 or older and own your home outright.
With a lifetime mortgage, you can borrow up to 60% of the value of your home from the lender. This money is given to you as a loan that accrues interest.
You keep ownership of the remaining percentage of the property, and you can continue living in the property. When you die or move into long term care, your home is sold to pay off the loan and any interest - and the remainder is an inheritance for your family.
There's no such thing as a self employed mortgage! If you're self employed, you have access to the same mortgages as normal employees. But mortgage lenders will look at your finances more closely to see if you can afford the mortgage repayments.
If you're self employed and want to buy a house, there's one very important thing to bear in mind: when deciding how much you can borrow, lenders will look at your net profits over the last two or three years. If you offset a lot of expenses against the business, and your net profit is low, then you won't be able to borrow very much.
Right to Buy is a housing scheme that allows some council house and housing association tenants to buy their home at a discounted price.
To use Right to Buy you must have lived in your property for at least three years and it must be your main home. The longer you've lived there and paid rent, the bigger the discount off the current market value.
The Right to Buy process is quite complex, but getting a Right to Buy mortgage is fairly straightforward. Many high street lenders offer Right to Buy mortgages.
A second mortgage - also known as a second charge mortgage - is exactly what it sounds like: it lets you borrow more money by using your home as security.
This can be a good way of borrowing more money for home improvements - but for most people, a conventional remortgage is a better solution.
You should not get a second charge mortgage if you're already struggling to make your monthly repayments. If you're looking to consolidate other debts, a 0% balance transfer credit card could be a better option.
A retirement interest only (RIO) mortgage is a relatively simple type of equity release mortgage. If you're an older home owner with an interest only mortgage, or you own your home outright, you may be able to use an RIO to borrow money from a lender.
The main difference with RIO mortgages is that you only pay interest on the amount of money borrowed. When you die or move into long-term care your home is sold to pay off the mortgage loan.
An islamic mortgage, also known as a sharia or halal mortgage, is an alternative way for a Muslim to buy a property without borrowing money.
These products aren't technically mortgages - they're home purchase plans. With a home purchase plan, the bank purchases the property outright - and then you gradually pay for the property until you own it outright.
The total cost of an islamic home purchase plan is similar to a normal mortgage.
Most mortgage lenders will let up to four people apply for a mortgage. A joint mortgage is very similar to a normal mortgage, except it can get quite complex if one person wants to exit the mortgage. For example, if you have a joint mortgage with your partner - but then you break up and want to sell your share of the house.
One popular reason for getting a joint mortgage is to pool your resources: by combining your income and savings, you might be able to get a mortgage on a more expensive property.
Joint mortgages create a 'financial association' between everyone named on the mortgage, which can impact each person's credit score.
If you're over 60, it can be hard to find a mortgage. This is because, in the eyes of lenders, you are a riskier proposition.
Also known as a commercial mortgage, a business mortgage is essentially any mortgage for a property that you won't be living in.
One very popular type of business mortgage is a buy to let mortgage, where you buy a property to rent it out.
If you're using a business mortgage to buy an investment property, the amount you can borrow will usually be limited by your expected rental income. This is to reduce the lender's risk: if you're receiving monthly rent from a property, you can probably meet the monthly mortgage repayments.
Discount mortgages start with the lender’s SVR and then apply a discount for a fixed period of time. For example, if a lender has an SVR of 5%, and the discount is 3%, then your interest rate would be 2%.
Importantly, if the lender’s standard variable rate increases – in line with a Bank of England base rate hike, for example – so does the discounted rate.
Like most mortgages with an introductory period, some overpayments are usually permitted with discounted mortgages, but there is often an early repayment penalty if you change mortgage providers or repay your mortgage before the end of the fixed term.
A tracker rate mortgage has a variable interest rate, which rises and falls in line with the Bank of England base rate, and is usually a percentage point or two above that rate. This type of mortgage can be more unpredictable in terms of knowing what you are going to pay every month than a fixed rate mortgage – but on the flip side, tracker mortgages usually offer some of the best interest rates on the market.
Tracker rate mortgages are only offered for a limited period of time (typically around two years), and like their fixed rate counterparts, when the introductory period ends, your interest rate will revert to the lender’s SVR.
Also known as a ‘long term tracker’, a lifetime tracker rate is similar to a standard tracker rate, in that the interest rate is tied to the rise and fall of the Bank of England base rate. The difference with a lifetime tracker mortgage, as you may have surmised from its name, is that there’s no introductory period: it’s a tracker mortgage for the duration of the loan.
Lifetime trackers are rarely offered these days, and where they are found, they generally charge a minimum percentage above the base rate, regardless of how low the interest rates fall, and are often restricted in terms of the length of the mortgage (maximum 10 years for example).
This type of mortgage is the lender’s default mortgage, meaning it is the mortgage rate you will revert to once any introductory offer has expired. As the name suggests, the rate is variable and is loosely connected to the rise and fall of the Bank of England base rate. The main difference with a standard variable rate is that the interest rate charged is completely at the discretion of the lender and can be altered at any time.
Capped interest rate mortgages are simply variable rate mortgages with a cap or ceiling on the interest rates you will have to pay. These mortgages are only offered for a fixed period of time (typically between two and five years), but do offer the security that your payments will never exceed a certain level. You can also benefit from any fall in interest rates. These perks come at a price though: the interest rate will usually be higher than a competitive tracker or discounted mortgage. Once the introductory period ends, your mortgage will revert to the lender’s SVR.
A flexible mortgage allows you a greater amount of leniency in regard to how much is repaid every month, including over and under payments, taking payment holidays, offsetting savings against your mortgage, borrowing back any overpayments, or moving to another provider without any penalties or charges.
Not all flexible mortgages offer all of these benefits, and many have minimum requirements (such as a minimum monthly payments), so it is important to check the details of each mortgage you are considering. There are often fees and charges levied when you take out a flexible mortgage, so you should weigh up whether the flexible nature of such a mortgage outweighs the cost.
There are a broad range of fees that can be applied to any mortgage application, and they should all be considered when comparing mortgages. Some mortgages, which might look good at first glance, can have eye-watering fees that wipe out any gains that you might get from a low interest rate.
Mortgage fees can include one or a mixture of any of these:
A product fee, also known as an ‘application fee’, ‘arrangement fee’, a ‘booking fee’, or a ‘reservation fee’ is the money that is payable to the lender in order to secure a particular mortgage deal. Lenders can charge a combination of two of these fees (an arrangement fee and a booking fee for example), and can often disguise low rates with high fees. You should be careful to take into account all the fees chargeable for any deal you are considering.
On occasion, the lender will offer you the option of either paying some of these fees upfront, or adding them to your mortgage. The dilemma here is that if you pay upfront and there is a problem that blocks the purchase, your money is lost – yet if you add it to the mortgage, you will pay it back over your entire mortgage term. Adding it to your mortgage may help your cash flow in the short term, but you will pay back extra interest long term.
There isn’t an exact answer to this one, though there is one savvy strategy that you can try: add the product fee to the loan, and then overpay your mortgage by the exact amount (if permitted) as soon as the sale is completed.
A higher lending charge – formerly known as a mortgage indemnity guarantee , or ‘MIG’ – is a charge that can be imposed by a lender if they consider you a higher risk, because the amount you are borrowing is a high percentage of the value of your property (a high LTV). Higher lending charges are usually limited to high LTV mortgages (80 to 95%), and not all lenders impose it. However, where it is charged, it can be as much as 8% of the loan, though there is usually the option of adding this charge to the mortgage. It should be remembered though, that if you add it to your mortgage, your loan to value ratio increases even further.
This fee is to pay for your mortgage lender to transfer the money to your solicitor in the form of a CHAPS payment.
If you have used the services of a mortgage broker, there will be fees involved. A mortgage broker can charge fees in several ways: a flat fee; an hourly rate (though here they should tell you what this rate is and what might affect the number of hours they spend on any application; or a commission-based fee, which will be a percentage of the amount you are borrowing. Any and all fees should be declared by the broker during your first conversation, and this should be in writing.
It is important to note that a house survey is different to a valuation. A valuation is exactly that: a cursory glance at a property in order to estimate its value. A survey, on the other hand, is an inspection of the property in order to ascertain the general and structural condition of the property. You should always ensure that the surveyor you choose is registered with the Royal Institute of Chartered Surveyors (RICS), as they adhere to professional standards and rules of conduct. There are generally three different levels of report to choose from, with the difference between them being the intensity of the survey:
The cost of these surveys can differ wildly between surveyors, so it’s worth shopping around. Because a house is likely to be the most expensive single item you will ever purchase, it is likely worth taking out the most comprehensive report you can afford. Investing in a report at this stage could save you money and anguish in the future.
These are the fees that the lender incurs in the process of your mortgage application. The level of fees is set by the solicitor and will need to be paid up front. It is usually the case that these fees are added onto your own legal fees by your own solicitor. Some mortgage deals offer to waive these fees.
When buying your home, you will need to employ a conveyancer or conveyancing solicitor to carry out the necessary legal work. The fees charged for this will need to be paid before your house purchase can be completed. Some mortgage deals offer to waive these legal fees.
Stamp duty is a tax payable on all land-based transactions. The rate of stamp duty you will be eligible for is dependent on several factors, including the cost of the house you are purchasing, whether you are a first-time buyer, and whether you are buying the house on a buy-to-let premise. Further to this, the rate and the actual name of the levy differs depending in which country you are buying the house. In England and Northern Ireland for example, the duty is known as ‘Stamp Duty Land Tax’, in Scotland it is known as ‘Land and Buildings Transaction Tax’, and in Wales it is simply ‘Land Transaction Tax’.
If you’re a first-time buyer in England and Northern Ireland, you are exempt from stamp duty on home purchases up to £300,000, and you pay a reduced rate of 5% up to £500,000. If your first home costs more than £500,000, you get no tax relief at all: you have to pay the full whack.
For more information on stamp duty and the rates, read our full stamp duty guide. Or if you already know your price point, put some figures into our stamp duty calculator to find out exactly how much you’ll need to pay.
Your mortgage provider will need to value your property to ensure that it is worth the amount you wish to borrow (and thereby ensuring that they have enough of an asset to cover the mortgage if you default). Some lenders offer this valuation free of charge on certain mortgage deals, so it is worth checking and shopping around. It is important to note that a valuation made by a lender is in no way a survey: this should be taken out separately to check the condition of the property.
After you’ve got a mortgage, there are other fees that may become payable once you leave your lender, whether this is because you have fully paid off your mortgage, or whether you wish to move to a new lender for a better deal. These fees are not always due, and do not apply to every type of mortgage. For example, you may be subject to fees on a fixed rate deal until a specific date, but after that date, once you move to the lender’s standard variable rate, the fees no longer apply if you move or repay. Any of these fees and their associated rules will be cited on any offer letter from your lender. Be sure to read and understand the rules before you decide to switch or repay, to ensure that you won’t be penalised.
This is a fee payable to your mortgage lender on certain mortgage deals (usually fixed, tracker, and discounted mortgages) if you:
Any early repayment charges will be set out in any offer letter you receive when you take out the mortgage – read and understand the rules before you switch to ensure that you won’t be penalised.
This fee is charged by some lenders when you fully repay your mortgage, even if you are not repaying it early. Any fees and exact amounts payable will be set out in any offer letter.
Edited by: Sebastian Anthony
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Last updated: 2 August, 2019
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