Guide To House Buying
A Brief Guide to Your Mortgage Options…
Fixed rate mortgages
: This is a great way to stick to your budget. Fixed rate mortgages are not directly influenced by constant changes in interest rates. Instead, you know exactly what the interest rate is and how long it will stay that way. Most fixed rate mortgage last for two to five years meaning your rate won’t change over that time. This means you know exactly how much your monthly repayment is going to cost with no sudden spikes to worry about. For this reason they are often chosen by first time buyers whose budget is usually stretched at the start and need certainty that their repayments won’t change.
Tracker mortgages
: These are usually linked to the Bank of England base rate set every month by the Monetary Policy Committee (MPC). Typically the interest rate on a tracker will be the base rate plus a certain percentage. But it doesn’t have to be tied to the base rate. It can also be tied to LIBOR – the inter-bank lending rate – but this is more unusual.
What’s great about a tracker mortgage is that the monthly repayments will decrease if the interest rates fall but with base rates historically at rock bottom at 0.5% there’s little likelihood it will fall further. However, as you may have guessed, they will also increase if the base rate rises. They can be capped – so they don’t rise above a certain amount – or collared meaning they can’t fall below a certain rate though this is rarer.
Discount mortgages
: Not too far removed from tracker mortgages, discount mortgages are usually set slightly lower than the lenders standard variable rates. These SVRs vary by several percentage points between lenders so you need to look at the SVR and the amount it is discounted by before signing up for one.
Discount mortgages are often granted to first time buyers to help them get started with a property – so if this is your very first property Investment, this may well be an option for you.
Your creditworthiness (and how to prepare yourself)
Before granting you a mortgage, lenders weigh up a number of factors to decide whether you will be able to keep up the repayments. It’s worth noting that not all lenders will assess these factors in the same way so if you’re turned down by one, you can still keep on trying.
Briefly, your credit score is influenced by your salary and length of time with your employer, the type of employment (e.g. contract, full time staff etc.), your outgoings and whether you have kept up with other debt repayments, such as a credit card or loan.
It helps if your salary is set and not boosted by commission, bonuses or overtime – as these could change at any time. And, of course, the higher your salary the better your odds of being accepted for a home loan. Remember, your outgoings such as existing debts, monthly bills, insurance and pensions will also be factored in.
Your application also stands a better chance if you have been at your employer for some time. If you recently changed jobs, it does not mean you will be denied a mortgage, but a good employment history implies financial stability, which is of the utmost importance to potential lenders.
Lastly, the longer you have lived at your current residence the better. It’s essential that you are listed on the electoral roll for that address, so make sure to double check your registration details with your council before filing an application.
About The Author
With content provided by independent experts to equip you with knowledge you need, Mortgages.co.uk is one of the many specialised personal finance websites in the We Know Money portfolio – Working for you.
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