Buying a House? Find Out How Best to Secure Mortgage Finance
The vast majority of people buying a house will be forced to rely on a loan secured on the property they are purchasing – a mortgage. According to Rightmove, the best deals are available to those who have a deposit of at least 15 percent of the total sale price, and the availability of mortgages that require deposits of less than that has been severely curtailed 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 mortgage that is competitive and suitable for your financial situation. See how securing mortgage finance fits into the overall process of buying a house in our handy guide.
The Different Types of Mortgage For Buying a House
The economic turmoil of recent years has made choosing the right type of mortgage a very difficult task. In some cases, seemingly eligible mortgage applicants have been refused a home loan altogether – forcing them to find 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 are directly linked to the base rate set by the Bank of England. 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 can differ depending on the lender
Discount rate mortgages are linked 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 given time, and choosing one that is best for your circumstances can be a minefield. A good 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 wider state of the economy.
The Money Advice Service can help you to extrapolate the mountains of information that accompany the house buying process, but choosing the best finance option is usually based on three major factors.
Make sure you have several like-for-like quotes to compare, and assess them in terms of flexibility, charges and how monthly payments might fluctuate.
Check the term of each product. While the average term is 25 years, there are often options for far longer or shorter loan terms. Which term you decide on 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 be aware of when any offers expire and exactly what takes their place.
How Much Can You Borrow?
Before you start out on your mission to find property for sale, you should have a clear idea of what you can afford. In order 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 percent 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, decisions are 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 very crude 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 very strong negotiating position if you have already secured a mortgage promise. In some cases, making offers in such a position can have a favourable impact on 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 to a credit check. To what extent it is used, will depend on the lender in question. If you have fulfilled all the criteria for a ‘mortgage in principle’, you will be provided with a ‘key facts illustration’ that demonstrates your buying power to people who are selling houses.
Armed with a mortgage promise, you can start to search for the home of your dreams. However, if you are selling at the same time as buying a house, you might be dependent on that before you can buy. If you want to know ‘who’ll buy your home for the most money and in a time-frame that you need’ then try Flying Homes’ unique home buying service. We buy any house at the best price and in a fraction of the time it takes to sell on the open market – leaving you to get on with the important business of starting anew. Call us now on 0800 68 99 420 for a free instant online quote.