With so many types, complex terminologies, and policy small prints, it can often feel like an impossible task to understand all the different mortgage options, let alone which one is most suitable for you.

With the Financial Conduct Authority (FCA) finding that mortgage commitments are 15% higher than in 2020 (FCA, https://www.fca.org.uk/data/mortgage-lending-statistics), it seems the market may be beginning to recover from the COVID-19 pandemic.

Considering this, here is a jargon-busting guide to help you understand the main mortgages, key terms you may encounter, and the range of options that may be available to you.

1.  What type of mortgage is right for me?

The most suitable mortgage for you depends on your individual circumstances and financial situation, so feel free to get in touch to discuss your specific needs. For a standard mortgage, there are three categories of repayment:

•  Capital repayment – this is where you agree to a fixed term of years, and your monthly repayments are arranged so you finish paying at the end of the period, including interest.
•  Interest-only – these tend to be rare since the financial crash. They require lower monthly payments as you only pay off the acquired interest in the agreed term. Once you end the term, the original loan is still payable.
•  Part and part – a combination of the two.

2.   What does fixed-rate and variable mean?

A fixed rate mortgage offers you a special period at the beginning of your mortgage term, capping your repayments even if interest rates rise. After this period, you will move on to the SVR (standard variable rate) for that lender and plan. The SVR can be changed easily by the lender though, so it may not be at the same level as when you took out the mortgage.

•  A variable mortgage has variable interest rates, which fluctuate depending on the economy at the time. With variable mortgages, you have three subtypes:

• Tracker –the tracker follows the base rate, often the Bank of England’s borrowing rate, meaning it is only affected by changes in the national economy.
  
  
• SVR – a variable mortgage can follow the standard variable rate spoken about earlier. These are set by the lender and can often fluctuate. As they are often high and unpredictable, when their fixed term ends, people sometimes choose to remortgagetheir property and move to a different lender on a new fixed term.
  
  
• Discount rate – if the SVR is too high for you on its own, the lender sometimes offers a discount rate, most of the time for a short period of your term. Obviously in these cases, the savings you make are relative to what the lender decides to do with their SVR, meaning that while good savings could be made, it is unpredictable.

3.  What are offset and current account mortgages?

These mortgages are slightly different. While they still can be fixed rate or variable, they allow you to do some unique things:

•  Offset –with an offset mortgage, your bank will use any savings you have in your account to reduce a part of the loan and therefore the interest you must pay. These can sometimes have higher rates, so unless you have a significant level of savings, they can be counter-intuitive in the long-term.
• Current account – this is when your current account and mortgage are joined. This means that while you still make normal mortgage payments each month, any money in your current account from your salary for example, acts as an overpayment. While you might spend more one month and less another, fluctuating what you owe, this could potentially mean you pay off the loan quicker.

4.   Is there anything else I should know?

With mortgages, there isn’t one magic guide that will tell you exactly what you need to know – a lot of it is dependent on your unique situation and needs.

This guide only covers the standard house purchase mortgage options.

• If you’re buying a house for rental purposes, you can read our guide on buy to let mortgages.
• If you’re building your own house, you can visit our page on self-build mortgages.
• If you have an adverse credit history, see our page for the mortgage options available to you.

For any more support or advice on your mortgage needs, no matter how specific, get in touch or call 0121 285 8528.

Disclaimer: As a mortgage is secured against your property, it could be repossessed if you do not keep up the mortgage repayments.

Mortgage FAQs:

How much will I be able to afford? – This depends on the cost of the property, the amount of money you can pay towards the deposit, your income and your outgoings and expenses. While this is often determined in the purchasing process, you can refer to our handy borrowing calculator for an accurate estimate, and our income expenditure calculator to work out your average outgoings and expenses.

Who is the most suitable mortgage lender? – Mortgage lenders, and what they offer, vary. You can search comparison sites for the most current information. It is important to keep in mind that your unique circumstances will be what determines a suitable lender for you. Some may be more open to self-employed borrowers, while others may specialise in those with an adverse credit history, for example. At Whateley, out team focus on your individual needs to smoothly navigate and find you the most suitable solution. Get in touch and book an appointment to chat to one of our advisors.

Do I need an advisor or broker when finding a mortgage? – You are free to shop around for mortgages without any third-party advice. However, it can be useful because advisors know the intricacies of the market and make the process smoother and less stressful. If your requirements are unusual, you’re inexperienced or a first-time buyer, or you’re unsure how your circumstances effect your options, it can often help to have someone who understands your situation and the complexities of the process.Advisors often know what lenders are open to certain criteria and can help you understand the terms of a mortgage and the legal implications of the small print.

Disclaimer: As a mortgage is secured against your property, it could be repossessed if you do not keep up the mortgage repayments.

Mortgage Glossary:

Annual Percentage Rate of Charge (APRC): This is the overall yearly cost of a mortgage. You can use this figure to compare different plans.

Base rate: The interest rates on borrowed money and savings in UK bank accounts. This is determined by the Bank of England.

Conveyancer: When buying or selling a property, a conveyancer will write up the necessary contracts, help with the money transfer and work through the process with the land registry.

Deed: The legal contract between the borrower and the money lender. This covers the obligations and terms of the contract as well as the rights of the lender and borrower in the circumstance of repayment issues.

Early repayment charge (ERC): These fees are applied if you decide to pay off some of your mortgage early, outside your plan’s agreed terms.

Guarantor: A guarantor is a person who commits to the mortgage repayments if you can’t pay them. For young people or first-time buyers, this could be your parent or another family member.

Joint mortgage: These mortgages can be taken out by multiple people, like partners, or parents who are purchasing a property for their children.

Land Registry: The Land Registry is the official organisational body which maintains and handles property ownership details.

Mortgage payment protection insurance: This insurance can cover your mortgage for a certain time if you become unemployed or cannot continue your employment for health reasons.

Stamp duty: This is an additional tax that must be paid if you purchase a property above a certain price. As of October 2021, this will be £125,000 for residential properties and £150,000 for non-residential properties.

Tie-in period: In the tie-in period you are bound to your mortgage, meaning a penalty fee must be paid if you decide to leave. These are often at the beginning of your mortgage.

For any more questions, guidance and advice, or to discuss your individual situation and needs in your mortgage hunt, get in touch or call 0121 285 8528 to chat with one of our advisors.

Disclaimer: As a mortgage is secured against your property, it could be repossessed if you do not keep up the mortgage repayments.

 

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