What is a mortgage?
A mortgage is a loan taken from a bank or a building society to fund the purchase of a property. Typically, a mortgage will run for 25 years, however the term can be longer or shorter subject to your needs. The value of this loan is secured against your home until the mortgage has been repaid.
Types of mortgages
There are many different types of mortgages...
Fixed rate mortgage:
This is where the interest rate on your mortgage is fixed for a set period of time, meaning that your monthly repayments will stay the same while you are on this product, even if the Standard Variable Rate (SVR) changes.
Discount rate mortgage:
This is when the interest rate is discounted from the SVR. Your monthly repayments and interest rate can change with changes to the SVR.
Tracker mortgage:
A mortgage where your interest rate follows an external reference rate, usually the Bank of England Base Rate.
Offset mortgage:
This is where your savings are used to offset interest on your mortgage. Your savings will need to be with your mortgage lender and you will only be charged interest on the difference between your savings and your mortgage. For example if you have a mortgage for £100,000 but have savings of £20,000, you will only be charged interest on £80,000.
Variable mortgage:
A mortgage where your interest rate can go up or down. The rate doesn’t follow an external reference rate and isn’t discounted from another rate.
Working out what you can afford
In order to be offered a mortgage, your mortgage lender will need to assess what you can afford to borrow (in other words, how much you can afford to pay back). To calculate this, your lender will assess your income and all outgoings. Lenders will also cap at an income multiple, this means your income will limit the total amount you are eligible to apply for. Income multiple varies from lender to lender, and can even vary based on the amount of deposit you put down.
To get your own idea of what you may be able to afford to borrow, try our Affordability Calculator.
The mortgage application process
When you’re ready to apply for a mortgage, you will need to make an appointment with a Mortgage Adviser. You can do this via our Contact Us page, or calling us on 0121 557 2551. Mortgage appointments can be conducted in person, or over the phone.
During your mortgage appointment, you will need to provide the Mortgage Adviser with evidence of any income and outgoings you have. They will use this to calculate how much you can borrow. From here, your Mortgage Adviser will write up your application for you and provide you with a European Standardised Information Sheet (ESIS), which explains the mortgage you are applying for in detail.
To proceed with the application, your Mortgage Adviser will require some signatures from you, proof of ID, proof of deposit and bank statements. You may also be asked for additional documents, based on your personal circumstances.
From here, your application will be passed to our Mortgage Underwriting team who will look at your application on an individual basis, looking at your history of lending and more importantly your repayment history. This is the point where many high street lenders will conduct a credit score check on you, to determine if your application is accepted or not, here at The Tipton we don’t do this!
The Underwriting team will also ask our valuers to visit the property you are looking to purchase, to ensure it fits within our policy, and isn’t overpriced!
If your application is accepted, your mortgage offer will be sent to you by secure email, which you will need to sign and return. Then, once your solicitors are ready and you have a date to move, we will pay your mortgage to your Solicitor, who will in turn arrange for the funds to be sent to the seller.
Types of repayment
Repayment:
Where you pay the monthly interest and a contribution to the outstanding mortgage balance each month. At the end of your mortgage term you will have paid off your mortgage.
Interest only:
This is where you only cover the interest charged on your mortgage each month. Monthly repayments will not reduce the mortgage balance, which means that at the end of your mortgage term you will still owe the full amount you borrowed. To clear the balance you will need to have a repayment plan in place, such as an endowment policy, Stocks & Shares ISA, pension or the sale of a second home or investment property.
Part and part:
Where your monthly repayment covers the interest charged and repays part of the amount you borrowed. At the end of your mortgage term you will still owe part of the original mortgage amount. Again, you will need a suitable repayment plan for the interest only part of your mortgage.
Your deposit and its impact
You will need a suitable deposit to buy your first home. The minimum amount is normally 5% of the price of the property. If you are moving home, you will be able to use the equity in your current home as your deposit. If saving a deposit is proving difficult for you, our Family Assist mortgage may be of interest to you and is available for homebuyers where no deposit is needed.
Your deposit can have a large impact on your mortgage. Generally, the larger deposit you have to put down, the better interest rate you are likely to be eligible for. This is due to the reduced risk that the lender is taking in providing you with a mortgage. A higher deposit will also mean that you need to borrow less, which could either make your monthly repayments smaller or allow you to pay your mortgage back quicker. The less you borrow, the less interest you will pay overall too!
Mortgage products are priced and available based on your loan to value or LTV (the amount you are borrowing in comparison to the value of the property). A higher deposit means you have a lower LTV. It is worth noting that most commonly, these will work in multiples of 5 (e.g. products available for 5% deposits, products for 10% deposits, and so on).
Fees and costs to consider
The cost of buying your home isn’t just the price of the property. From saving for a deposit through to consideration for bills once you've moved in, the various costs should not be under-estimated.
Booking fee:
This is a charge for securing the funds for your mortgage. The fee is non-refundable and is paid at application stage.
Arrangement fee:
This is charged for assessing and processing your application. You can choose to pay the fee upfront or add it to the mortgage amount, however if you choose to add the fee to the amount you borrow you will pay interest on the fee at the same rate as your mortgage. Fees can be a fixed amount or a percentage of the mortgage amount.
Valuation fee:
Your lender must assess your property by completing a mortgage valuation. This is to ensure that the property you are buying is worth what you are paying for it and that they are happy to lend on the property. You can choose between a standard valuation or a RICS Homebuyer’s report, which is more expensive but goes into greater detail. The valuation fee will depend on how much your property is worth. You can find details of the fees we charge on our mortgage valuation fees page.
More detailed structural surveys are also available. A structural survey will provide a full detailed report on the soundness of the structure of the property and you may want to consider this type of survey if the property you are purchasing is old or of a non-standard construction. In such cases your lender would still require a mortgage valuation to be completed for mortgage purposes so you may be liable for the cost of both the valuation and the survey.
Legal fees:
You will need to appoint a solicitor or licensed conveyancer when buying your home. They will complete all the legal work for you. You should always get a quote first and check what work they will do for you.
Telegraphic transfer fee:
This is a fee charged to transfer the mortgage funds from your lender to your solicitor. Once you’ve sorted your mortgage and are ready to move, there are still other costs you will need to think about.
Stamp Duty:
This can be one of the biggest costs you will experience when moving home. You will normally pay this cost to your solicitor who will pass it onto the Stamp Office. It is a lump sum payment for buying a property over a certain value which you may have to pay. You can find more information on whether you will have to pay Stamp Duty and if so calculate how much it will cost on the Government's website.
Insurance:
There are many different types of insurance you should consider when taking out a mortgage. Although you do not have to buy them from your lender, you will need to have suitable policies in place. As a minimum, you must have buildings insurance cover and should also have consideration for contents cover and life insurance.
Removals: You are likely to have things to move from where you are currently living meaning you may need to pay for a removal service. Always get quotes and compare what is included to find the best deal.
Council tax:
The amount of Council Tax you must pay depends on where you live and how much your property is worth. You can see how much you may have to pay on the Government website.
General upkeep:
Things can still go wrong from time to time. You may need to put some money aside to repair any issues that come up.
Other bills:
There are always costs of running your home. You will need to consider the cost of bills including water, gas and electricity. As well as the extras, such as food, broadband and television.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE