Mortgages

Man writing on notepad during a meeting.

What are mortgages?

House prices have been increasing steadily for years, and most people would never be able to buy a property outright. A mortgage is a long-term loan taken out to purchase land or a property over many years to make it affordable. Most are on a term length of 25 years and the loan is secured against the value of your new home until it is paid off. This means that if you fail to keep up with the payments, you could lose your house.

What types of mortgages are available?

Fixed-rate mortgages

A fixed-rate mortgage will mean your monthly payments should stay the same until an agreed date, no matter what happens to interest rates in the market. Fixed-rate periods come in various lengths, for example, 2, 3, 5 and 10 years.

Tracker mortgages

Tracker mortgages follow the Bank of England’s Base Rate and rise or fall along with it. The interest rate charged is the Bank of England’s Base Rate plus an agreed margin. There are ‘lifetime’ trackers for the life of the mortgage and term trackers, which may be for 2 or 3 years.

Discount mortgages

Discount mortgages are variable-rate deals that charge your lender’s SVR minus a fixed margin. So if your lender’s SVR is 5% and your deal charges the SVR minus 2%, you’ll pay a rate of 3%. If the lender puts up its SVR (for example, if the base rate goes up), your payments will go up accordingly. But if the SVR goes down, you’ll pay less. Discount mortgages usually come with introductory deal periods of two years.

Standard variable rate (SVR) mortgages.

The SVR is the rate of interest that’s usually charged once a fixed rate or term tracker period ends. You can often move to another fixed mortgage or tracker product instead of moving onto a SVR. Some lenders may also let you take out a mortgage on their SVR. Your lender decides the rate and may increase or decrease it throughout your mortgage.

Interest only mortgage

An interest only mortgage is where you only make payments on the interest accrued on the loan. This is cheaper on the monthly payments but you aren’t actually paying towards owning the property. You can make extra payments as and when you can. An interest only mortgage works well for people with variable income.

Repayment mortgage

With a capital repayment mortgage, the monthly repayments include an element that repays the borrowed capital and a payment for the monthly interest of the loan. With this repayment method, you can ensure your mortgage is paid off at the end of the mortgage period.

95% mortgages

A 95% loan-to-value (LTV) mortgage allows buyers to contribute a 5% deposit. If eligible, you could potentially borrow up to 95% of your property’s value or the purchase price (whichever is lower).

Buy-to-let mortgages

You’ll need a buy-to-let mortgage if you’re buying a property to rent out. A buy-to-let investment can be a big commitment, so you need to consider the costs, risks, and responsibilities of becoming a landlord or landlady.

Specialist mortgages

Sometimes your circumstances will mean that you need or may be eligible for a specialist mortgage. Some of the main types are as follows:
  • Bad credit mortgages: if you have marks on your credit history, you may need to get a mortgage from a specialist lender.
  • Mortgages for self-employed buyers: it can sometimes be harder to secure a mortgage if you’re self-employed.
  • Guarantor mortgages: if you need help getting on to the property ladder, a parent or family member could use their savings or property to guarantee your loan.
  • Green mortgages: some banks offer cheaper rates for people buying new-build properties that have high energy-efficiency ratings.
  • Lifetime / equity release mortgages: over 55s have an additional option of taking out an equity release product. These aren’t right for everyone, and while they have their Pros, they also have significant Cons.
Disclaimer:
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayment on your mortgage.