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What is a mortgage and how do I get one?

We unpick the mortgage jargon to help you get to grips with the different types of loan that are available.

 

by Victoria Bischoff on Feb 17, 2012 at 12:12

What is a mortgage and how do I get one?

Buying a house is a complex and costly process, which can be more than a little intimidating for those of us with little experience of property.

The good news is that once you understand the jargon it's not as difficult to get to grips with as it seems.

So, to help you navigate the maze, we talk you through the basics.

What is a mortgage?

A mortgage is simply a loan – a way of borrowing money to buy a house.

However, unlike other loans a mortgage is secured against your house, which means if you repeatedly miss repayments your provider could seize your property.

A standard mortgage term is usually around 25 years, but this can vary depending on what you need and the lender you choose.

Starting out

The first thing you need to decide is how much you want to borrow, or rather how much you can realistically afford to borrow.

Each lender will do its own affordability assessment when you apply for a mortgage based on your income and expenditure, but it’s a sensible idea to work this out yourself in advance. There are many budgeting tools and calculators available online to help you do this.  

You also need to decide how much you want to put down as a deposit – very few lenders offer 100% mortgages these days.

Your lender will express the amount you can borrow as a percentage of the property’s value. This is known as the loan to value – or LTV.

For example, say your dream house costs £150,000 and your lender offers you an 80% LTV mortgage: this means you will need to stump up £30,000 as a deposit.

You also need to be prepared to fork out for some seriously big admin fees. Mortgage arrangement fees, valuation fees, broker fees, insurance costs and so on can add up to thousands of pounds.

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2 comments so far. Why not have your say?

Dennis .

Feb 19, 2012 at 09:45

It was so much easier in the 70's. We had a guy from Sun Life who visited the company every few weeks. I phoned him up and said I wanted to buy a house, he phoned back an hour later saying it was all sorted with the Halifax and an endowment policy to go with it (which paid out handsomely). I never met the guy in person and I never ever visited the branch of the Halifax that provided the loan.

No arrangement fees etc. Now we have armies of IFAs and mortgage brokers etc, makes you wonder who is paying for all of this.

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malcolm roberts

Feb 19, 2012 at 23:38

How true it was Dennis, mortgages were easy back in the seventies and was no hardship.

I still had to show how much i was earning but that was enough to secure a mortgage. Now I cant get a mortgage on a site that I can benefit from a discounted tenant relief. I stand to make 40% profit on day of purchase.

The banks wont lend because we dont fit into thier criteria.

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