MORTGAGE FAQ’S

What is a mortgage?
A mortgage is a loan you take out from a mortgage lender to pay for a property.
If you don't pay back the loan, as per the agreement you make, then the mortgage lender can take possession of the property and sell it to repay the loan.
The loan is divided into the capital (i.e. the amount of money you borrowed to buy your property) and the interest (i.e. the amount the mortgage lender charges for lending you the money).

How much can you borrow?
This depends on how much you earn and how much the property you want to buy is worth.
Depending on the property's value

Most lenders will loan up to 75% of the property's value and many will go to 90% or 95%. Some will even let you have up to 100% - but you'll pay over the odds for this and will probably be forced to buy mortgage indemnity insurance.
A few will even lend more than that but special rules will apply.

Depending on how much you earn the amount you can borrow will vary between lenders but the rule of thumb is three and a half times your annual earnings. However typical variations would include:

Couple 1: two and a half times both annual incomes

Couple 2; three to three and a half times the greater income plus one year of the second income.

Some lenders now use more sophisticated credit rating methods, where they examine your income and your outgoings. The idea is that every borrower has unique circumstances.

Someone with teenage children and high outgoings can't afford to borrow as much as a singleton earning the same salary.

Sometimes people are lent five times income.

Here's a secret: Assuming you have a regular income and clean credit history you are likely to be offered a loan fairly easily.

Despite the impression you may be given that you've got to jump through the hoops, the competition between lenders is fierce and they want your business. To secure the loan though you'll still be best off playing the game by acting duly grateful though.

Perhaps the more important question is more how much can you afford. Some lenders will want to estimate this by checking your average outgoings e.g. your household bills, any debts etc. Some will get you to fill in a detailed questionnaire either by hand or on the phone or online etc.

If you're a first time buyer it will always help if you can show you've been paying regular rent for a similar amount to what your intended mortgage payments will be.

Depending on the area you want to buy in, sometimes lenders' may refuse a loan if they feel the property isn't expensive enough for the area. This is more likely to be the opposite - where a property is seen as too expensive.

What is remortgaging?
Remortgaging is not about buying a new home but switching your mortgage to another deal to lower your repayment amounts and save money. It is of particular relevance if the value of your home has risen.

What is conveyancing?
Conveyancing is the legal work involved in buying and selling a house. It would normally be done either by a solicitor or a licensed conveyancer.

As a buyer you need to have one or the other for the sellers/vendors Estate Agent to contact immediately your offer is accepted so try to have one lined up before you get to this stage.

What is a mortgage in principle?
This is a conditional offer made by a mortgage lender that - provided the information you give them is correct - they will "in principle" give you the loan you have discussed with them.

It's very useful to have one before you even start looking for a house to give you the edge over any competition. Having one means you should be able get the actual mortgage quicker when the race to buy your chosen home begins.

Knowing what you can afford will help you narrow your search. You can get this offer in writing to show to Estate Agents and sellers who will see you as a serious prospect and not a timewaster who's interested, for example, in looking around peoples' homes for a laugh.

To get a mortgage in principle you have to go through the same motions as an actual mortgage, ie consider what type of mortgage you want and then find a mortgage lender you feel can offer you the best deal.

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