The chances are that buying your own home is likely to be the most expensive purchase you ever make. With the average UK house price sat at £235,000 (Sep 2018), the vast majority of the UK population simply don’t have access to the level of funds needed to buy a property outright.
To help would be buyers start climbing the property ladder, mortgages are available which can help to cover a large percentage of the purchase value.
Let’s take a closer look at how mortgages work and what you can do to improve your chances of acceptance.
How Do Mortgages Work?
Mortgages work in a similar way to any other traditional loan in that you’ll be lent a lump sum which is repaid over a pre-determined period of time. The difference is that mortgages are often for a much larger value than your typical loan, stretching into the hundreds of thousands or even millions of pounds.
You’ll need to put down a contribution towards the purchase price, known as a deposit. The amount of mortgage deposit you’ll need will depend on a number of factors, including:
- The mortgage amount
- Your income
- Your credit history
- The length of your mortgage
- Your employment status
Each individual mortgage lender will use a spread of variable when assessing each application, so take a look at the individual eligibility criteria of each lender before submitting your final application.
Your repayments are calculated based on the term of the mortgage, the amount borrowed and the agreed interest.
You’ll notice that ‘fixed’ and ‘variable’ interest rates are available. In it’s simplest terms, fixed interest rates will remain the same for the whole duration of the mortgage whereas variable interest rates can fluctuate depending on the Bank of England’s base rate.
Because the lending risk is so much higher, mortgages are usually secured against the property that is being purchased meaning that you’ll need to keep up your monthly repayments or could face losing your home.
Applying For A Mortgage
If you’re looking to apply for a mortgage then you’ll firstly need to compare mortgages online and get the ball rolling on your initial application. This lengthy process can take a few weeks to complete depending on the required paperwork and complexity of the application. You’ll also want to tie the start date in with your purchase so balancing these different dates can be tricky business.
For a tailored comparison on your next personal loan, get a free no obligation comparison with CreditRaters.com today.