Getting a mortgage

Taking out a mortgage

When you start looking for a mortgage, that dotted line – the one you’ll sign to buy your dream home – can feel a very long way away.

But whether you’re buying for the first time, remortgaging for the second time, self-employed, or a prospective landlord, there could be a mortgage with your name on it. All you need to know is where to look.

That’s where we come in. We’ll fill you in on the types of mortgages out there, along with the different ways you might choose to pay. Plus, we’ll get you up to speed on the challenges, pitfalls, and jargon you’ll encounter along the way – and help you navigate them from start to finish.

Ways of paying for a mortgage

Repayment mortgages

The mortgage you’re most likely to consider first is what’s known as a ‘repayment mortgage’.

It’s the kind you’re probably already familiar with, and that’s because it’s by far the most popular type of mortgage recommended by mortgage advisers. You’ll make monthly repayments over a predefined term determined by your monthly budget, until you’ve paid both the investment capital you borrowed and the interest it builds. You’ll gradually whittle down the money you owe to your lender until you own the property outright.

Mortgage repayment types

There are two main types of repayment type: fixed rate and variable. Both have their pros and cons, and you’ll be able to decide which you’d prefer.

Fixed rate mortgages

With a fixed rate mortgage you’ll agree an interest rate with your lender from the outset. This will remain the same throughout the deal’s initial period – though if you decide you want to end this period early, you may be expected to pay an early repayment charge.

Variable rate mortgages

The other type of mortgage is the variable rate mortgage. These interest rates move up and down, generally in line with The Bank of England’s interest rate which generally reflects the state of the UK economy.

There are three kinds of variable rate mortgage:

  • Tracker mortgages, which follow the Bank of England’s official interest rate.
  • Standard Variable Rate (SVR) mortgages, which are set independently by each lender. They’re usually the highest rate mortgage type offered by each lender, and typically move in line with The Bank of England’s interest rate.
  • Discount variable rate mortgages, which give customers a period of time during which the rate is offered at a discount. They’re often only available for the first couple of years of the mortgage and track a set percentage below the lender’s SVR.

Variable rates give you more flexibility to pay off your mortgage as they allow you to make larger overpayments than normal. However, not all variable rate mortgage deals are free from early repayment charges (ERCs), so make sure you speak with your broker about this to ensure you’re recommended the right deal. They could also mean you’ll see your rate drop below the fixed rate equivalent throughout your mortgage term.

But this can work against you, too, and you could end up paying more than you’d have done if you’d chosen a fixed rate in the first place.

Interest-only mortgages

With an interest-only mortgage, you’ll only pay the interest on the loan – rather than the capital required to buy the property – at the end of each month.

This means your monthly payments will be smaller than they’d be with a repayment mortgage. But you won’t have paid off the amount you originally borrowed at the end of the full mortgage term, and won’t own the property until you do.

Interest-only mortgages come in fixed rate and variable rate forms, so you can choose to fix your rate for an initial two-year period, for example, should you prefer.

Paying off the capital at the end of the term

With an interest-only mortgage, you’ll need to pay off all the capital in one go at the end of the term. So your lender will want to make sure you’ve got an adequate plan (known as a repayment vehicle) in place to be in a position to do so at the end of the term.

Capital repayment strategies vary significantly depending on the lenders you use. But they might consist of using a large savings pot, or building up a portfolio of investments - from equities to properties - which can cover the costs.

This kind of mortgage demands a lot more personal supervision than the others. It’s your responsibility to make sure your capital is on track to pay off the mortgage at the end of the term. The lender may check in once in a while, but they’ll largely leave you to it until you next remortgage.

If there are concerns about the eventual repayment, you may find it troublesome to remortgage your property or switch to another lender. No surprises, then, that this isn’t commonly recommended by mortgage advisers.

Combined repayment and interest-only mortgages

You may be able to find a lender that combines both interest-only and repayment mortgages.

With a combined mortgage, you’ll pay off the interest and some – but not all – of the capital you borrowed. This means you’ll have lower monthly repayments than a repayment mortgage, and less capital to pay off at the end than an interest-only mortgage.

Combined mortgages like this aren’t universal, so you’ll need to find out which lenders offer them. How much of this capital you pay off as you go will also vary from lender to lender.

Buying position

First-time buyer

You’ve reached that stage where you’re finally ready to become a homeowner. So what now?

As a first-time buyer, you have plenty of flexibility and may find that any of the types of mortgage we’ve looked at above might be most suitable for you. This choice in itself can be intimidating, but if you do your research or speak to a mortgage broker, you’ll find the one that’s right for you.

The costs for first-time homeowners

When you first apply for a mortgage, you’ll have to go through a series of checks to make sure you can afford to take it on. You’ll need to prove your income and detail any outgoings, as well as undergo a ‘stress test’ to assess whether you’d be able to keep up your repayments if your circumstances changed.

Your deposit could represent anything from 5% of the value of the property – though the more you have, the cheaper your mortgage is likely to be. There are all sorts of other charges you’ll need to take into account, too, including solicitor’s fees, valuation costs, and insurance payments.

The good news? You won’t need to pay any stamp duty – a tax which goes towards the verification of legal contracts – on the first £300,000 of any property worth up to £500,000.

How Trussle can help first-time buyers

With so many mortgages to choose from, it can be difficult to know where to turn. But Trussle exists to make the process a whole lot easier.

We’ll be able to recommend the right mortgage for you – searching 11,000 deals from over 90 lenders – and keep you in the loop about your application from your personal Trussle timeline.

Once you’ve secured a mortgage, our monitoring service will keep tabs on it and we’ll notify you immediately if there’s a more suitable deal out there at any point in future, so you’re never paying more than you should.

Remortgaging

So you already have a mortgage, and you think there might be a better deal out there for the same property. Well then, it might be time to remortgage.

You can look at a new deal with the same lender, or look elsewhere altogether. And the more of your existing mortgage capital you’ve paid off, the more competitive deals you’ll qualify for. But as with the first time you buy, there are plenty of things out there to catch you by surprise if you’re not armed with the information you need.

Why remortgage?

Most people remortgage their home to secure a more favourable deal. Most mortgages come with introductory periods, and once these have expired, it usually doesn’t make financial sense to stick with them since you’ll end up on a generally higher-interest Standard Variable Rate (SVR).

For some people, it’s simply a chance to:

  • Move to a new property
  • Protect against possible future rate increases
  • Raise money for home improvements
  • Release equity from the property
  • Consolidate their debts

You should be able to switch deals whenever it makes sense to do so, though some lenders may charge you an early repayment fee to do so. You’ll need all the information you used when you originally applied for a mortgage – including proof of income and details of outgoings.

How Trussle can help with your remortgage

Rather than spend your time speaking with a number of lenders to compare their mortgage products against each other, we’ll do the legwork for you.

Simply provide your details by completing your Trussle profile – when your mortgage started, for example, and what type it is – and we’ll scour the market of over 11,000 deals and 90 lenders to find the most suitable deal for you.

You can talk to our advisers by live-chat, email, or over the phone if you wish, and keep track of your application from start to finish from your Trussle timeline.

Buy-to-let mortgage

If you’re looking to rent out your property, you’ll need a buy-to-let (BTL) mortgage.

Most of the big banks offer BTL mortgages, as do some specialist lenders, and the amount they’ll offer you will be linked to the amount of rental income your property is expected to earn. Lenders complete rental stress test on the monthly rental income to determine how much they can lend you, and will generally require rental income to be 125% of your monthly mortgage repayments, but some lenders have recently increased this to as much as 145%.

How do BTL mortgages differ from residential mortgages?

On the whole, the rules around BTL mortgages are similar to residential mortgages. But there are a few key differences you’ll need to be aware of:

The minimum deposit is higher. Most lenders will ask for a minimum 25% deposit, but this will depend on a rental stress test. There are a handful of lenders who will look at a lower deposit.

Fees can be higher. You can normally choose to pay these fees upfront or add them to the loan, which will incur interest.

Interest-only mortgages are more popular. For landlords looking to generate an income, interest-only mortgages keep monthly payments low and can maximise returns.

Am I eligible for a BTL mortgage?

To secure a BTL mortgage, you’ll need to be over 18, earning more than £25,000 per annum (a few lenders will ask for less than this, and some don’t have a minimum requirement at all), and you’ll need to pass a credit check. The type of property you choose will also affect the lender’s decision.

Your loan-to-value (LTV) ratio will come into play, too. An LTV ratio is a lender’s way of measuring the risk involved in the mortgage, and while it’s not the only factor that will determine whether you secure a loan, it is a key metric.

It’s calculated by dividing the amount of money you can borrow by the overall value of the property. For example, if you take on a £75,000 mortgage to pay for property worth £100,000, your LTV ratio would be 75%.

Buy-to-let lenders generally offer a maximum LTV ratio of 75% (a few offer higher). A higher LTV ratio doesn’t exclude you from borrowing money, but the cost of the loan will increase in kind. So a borrower with an LTV ratio of 85% may have their mortgage approved, but they’ll usually pay more than someone with a LTV ratio of 75% for an equivalent property.

Benefits of applying with online mortgage broker Trussle

  • Apply at a time that suits you, at home or on the go
  • Speak with qualified mortgage advisers via live-chat, email, or phone
  • Receive a recommendation selected from over 11,000 deals by 90 lenders
  • Track each stage of your application from your Trussle timeline
  • Use our mortgage monitoring service to receive an alert when it’s time to switch
  • No broker or hidden fees
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