The thrill of bargain hunting doesn't quite translate when navigating the complexities of mortgage applications and terms. Still, using advice from experienced mortgage brokers, you can make this process as hassle-free as possible. Learn how to pick the best mortgage for your needs, or contact our agents for personalised advice.
Finding the Best Mortgage with Moneysprite
How to choose the right mortgage for your personal needs
Purchasing a property is likely to be the most expensive purchase you ever make, which will take decades to repay for most people. When making such a big financial commitment, you’ll want to ensure you get the best deal for your situation. We cover this topic in detail (without jargon) to help you choose the right mortgage in the UK.
Understanding the basics of a mortgage
Choosing the right mortgage requires an understanding of what a mortgage does and how it works. A mortgage is a type of secured loan used to buy property. Most people purchasing a home don’t have enough money in the bank to buy the property on their own, so they ask a mortgage provider to fund the purchase (usually up to 80%) and the home buyer pays the rest. The loan is secured by the property being purchased, which means if the home buyer fails to repay the mortgage, the mortgage provider can seize possession of the property and sell it to recover the mortgage debt.
A mortgage loan usually lasts for 25 or 30 years. This is called the loan term and is the time it takes to repay the principal mortgage amount and the interest added to the loan each month. Mortgage interest is added to the outstanding balance each month. The interest is compounded, which means any interest added to the mortgage debt will also be subject to interest in the following months. This is why you can pay back considerably more than you borrow. The interest rate is one of the most important factors to consider when selecting a mortgage as the rate will determine how much money will be repaid to the lender, and differences can be significant over such a long repayment term.
How to choose the right mortgage
The response to the most important question – “what type of mortgage can I get?” can only be determined by understanding the following things:
- Understanding what types of mortgages are available and which ones match your needs
- Considering a wide range of options, preferably the whole of the market
- Evaluating the options against your personal financial situation
- Considering options against your long-term goals
It may be worth speaking with a mortgage broker who can offer advice on the best types of mortgages for your needs and then compare the options across the entirety of the mortgage market. These brokers may also be able to unlock deals that aren’t as widely available.
Assess your financial situation
Your financial situation can determine which mortgages are available to you. For example, some mortgages with lower rates may be available to people who only need to borrow 70% of the purchase price rather than the typical 80%. Moreover, your financial position will influence your mortgage borrowing power and possibly other terms of the loan, such as interest rates and repayment terms.
There are mortgage calculators available to give you an estimated projection of your mortgage borrowing power. We have our own free-to-use mortgage calculator to try now.
Important factors to consider when selecting a mortgage
The most important factors to consider when choosing a mortgage are:
- The type of mortgage (fixed rate vs variable rate)
- Further terms of the above mortgages, such as fixed length or type of variable rate mortgage (standard, tracker, offset, etc.)
- Mortgage loan term
- If you can repay the mortgage early or whether you will have to pay early repayment charges
- Personal circumstances and longer-term plans
The last bullet point on the list is important but often forgotten by those doing a DIY comparison of options. It refers to several things that could happen in the future which would affect your financial position.
For example, do you plan to start a family or transform your lifestyle? Do you plan to change careers and must undergo a period of retraining with less income? Or do you even plan to purchase a second property or start a property portfolio? Everyone has a different plan for their future and these things should be heavily considered when picking out a mortgage. Remember, a mortgage isn’t only for the immediate future.
Mortgage features and flexibility
As mentioned earlier, a mortgage can be repaid over shorter or longer timeframes. Stretching repayments over a longer period may allow you to spread costs for cheaper monthly repayments, but doing so increases the interest rates applied in most cases. In other words, by opting for a shorter repayment term, you won’t just pay off the loan quicker but you may also pay less interest. However, this doesn’t mean it is the better option for you. Some buyers might benefit from spreading out repayments for longer.
Mortgage lenders and their offerings
Mortgages are no longer just offered by high-street banks and building societies. There are now many online banks offering mortgages – all of whom now have more different mortgage products than ever. This is good for buyers because competition amongst lenders will cause those lenders to work harder and suggest better mortgage options to get clients. Lenders may win clients by offering lower interest rates, but there are alternative (and more unique) ways of making their mortgages attractive, such as:
- Considering future income for new graduates in certain professions, such as medicine or law.
- Providing cashback offers to help cover conveyancing costs or moving fees
- Including additional benefits, such as an offset account to use your ongoing savings to reduce interest
Legal considerations
The new Mortgage Charter has been rolled out to ensure mortgage payers get more support from mortgage lenders if they are finding it tough to repay. The Charter sets out a series of principles to ensure people can repay their mortgage despite tougher financial circumstances, which may mean triggering a repayment holiday or seeking other support. It’s worth asking your UK mortgage adviser about the new Charter and understanding its benefits and added protection.
Mortgage affordability and pre-approval
Mortgage lenders must make sure you can repay the loan they provide. They calculate this based on your income, but they also consider any future increases in the interest rate to make sure you would still be able to repay if times got tougher. This is called a mortgage stress test, which recently became more stringent for added protection.
One way to understand how much you can afford in light of mortgage provider affordability checks and stress tests is to get a pre-approval. This is when you supply the mortgage provider with identification and evidence of your income and debts. They use this information to provide a pre-approval notice telling you how much you can borrow through a mortgage with them. They’re also useful because they allow you to enter the market and make bids on property with confidence, rather than having purchases fall through. Although a pre-approval is quite reliable, it doesn’t guarantee your actual mortgage application will be successful.
Evaluating and comparing mortgage options
Evaluating mortgage options and comparing them can be difficult. Working out interest rate costs over the long term can be confusing, and as mentioned above, there’s much more to consider alongside your personal situation. Deciding on a 25 or 40-year mortgage can be a puzzle, especially for those first-time buyers just dipping their toes into the property market.
For these reasons, it may be better to leave it to an expert and enlist the services of a mortgage broker. These professionals are qualified to provide advice and guidance on mortgage options by comparing them against individual circumstances. Many of them compare the whole of the market and can only advise what is in your best interest.
Book a consultation with an experienced and reliable mortgage adviser today. Our team are ready to listen to you and treat you as an individual in the mortgage market. Let’s get your mortgage journey started.
If you need help with your mortgage, call us today: 0345 450 4660
Make an Appointment
Send a request and we’ll schedule a meeting
