Buying a House? Find Out How Best to Secure Mortgage Finance
Most people buying a house rely on a loan secured on their purchasing property – a mortgage. According to Rightmove, the best deals are available to those who have a deposit of at least 15 per cent of the total sale price. Unfortunately, mortgages requiring less of a deposit has diminished since the economic crash of 2008. However, with knowledge of the finance market, some expert financial advice from finance experts and estate agents, and some careful research, you can secure a competitive and suitable mortgage for your financial situation.
The Different Types of Mortgage For Buying a House
The economic turmoil of recent years has made choosing the right type of mortgage a challenging task. In some cases, seemingly eligible mortgage applicants are refused a home loan altogether – forcing them to find a property to rent instead.
With interest rates at record lows, people on variable rates have enjoyed several years of incredibly low monthly mortgage repayments. However, those rates aren’t going to last forever, so choosing the best deal for buying a house for both your current and future financial circumstances requires a thorough understanding of what is available.
Tracker mortgages link to the base rate set by the Bank of England. As a result, they rise and fall in line with base rate changes – usually at a differential of a few percentage points above the current rate.
Standard variable rate (SVR) mortgages are also directly linked to the base rate, but their terms differ depending on the lender.
Discount rate mortgages link to SVRs, so they are far more changeable than tracker mortgages.
Fixed-rate mortgages provide certainty for buyers, as they fix the interest rate payable for a predetermined period, which can be up to 10 years. While this could be advantageous when interest rates are rising, being on a fixed-rate mortgage when rates are at historic lows (as they are now) means you could end up paying a higher rate than that set by the bank of England.
According to thisismoney.co.uk, the majority of first-time buyers prefer the certainty and safety of fixed-rate mortgages. However, depending on the outlook for the economy, they suggest that tracker mortgages could provide the best value – given the right circumstances.
Choosing the Mortgage That Suits Your Circumstances
There are thousands of mortgage options in the UK at any time, and choosing the best one for your circumstances can be a minefield. An excellent way to assess the current market – and what the future holds – involves enlisting the expert help of a mortgage broker. You will get advice on what products best suit your financial circumstances and the broader state of the economy.
The Money Advice Service can help you extrapolate the mountains of information that accompany the house buying process, but choosing the best finance option is usually based on three major factors.
Please make sure you have several like-for-like quotes to compare and assess them regarding flexibility, charges and how monthly payments might fluctuate.
Check the term of each product. While the average duration is 25 years, there are often options for far longer or shorter loan terms. Which length of time you decide will depend on the monthly repayments you can afford and exactly when you want to take full ownership of your new home.
Most high street mortgages will offer discounts or special offers for the first few years of a loan, so you should know when any offers expire and precisely what takes their place.
How Much Can You Borrow?
Before you start on your mission to find property for sale, you should have a clear idea of what you can afford. To ascertain how much a lender is likely to loan you, you should first determine how big your deposit is. If you have a large deposit, you will likely receive a substantial mortgage offer. And if you have at least 25 per cent of the asking price in cash, you will be able to take advantage of the best mortgage rates on the market.
The way mortgage providers make decisions on how much people can borrow has changed substantially in recent years. In general terms, the decision is made on an applicant’s ability to keep up with the repayments, rather than the old system of lending three or four times an annual salary. Thisismoney.co.uk has a simple affordability calculator, which will give you a straightforward idea of how much you can expect to borrow, as does the BBC loan calculator.
Getting approved for a mortgage
Before you start to trawl the houses for sale in your area, it will put you in a firm negotiating position if you have already secured a mortgage promise. In some cases, making offers in such a position can positively impact house prices – at least for you as the buyer.
As well as submitting proof of your employment and income, you will be required to submit a credit check. To what extent it is necessary will depend on the lender in question. If you have fulfilled all the criteria for a ‘mortgage in principle, you’ll receive d with a ‘key facts illustration from the mortgage company’ that demonstrates your buying power to sellers.