Mortgages are basically loans from a bank, building society or other financial institution, which is paid back (with interest) over a number of years.
The property itself is used as security against the loan. This is why the lender insists, at your cost, that a qualified surveyor provides a valuation to confirm that the property is, for mortgage purposes, at least equal to the amount being paid.
Also, because the property is the security for the loan, your home is at risk if you do not keep up the repayments. In the event of default, and after providing due notice, the mortgage lender will have the right to repossess your home, evict you, and sell it to try to recover the amount loaned.
In order to secure a mortgage, your proposed lender will have to check out your ability to repay the loan. They do this by taking references to confirm the amount of income you receive from your employers, by making credit checks to confirm you are creditworthy, and also ensuring you have no County Court Judgements (CCJs) against you, for example, for default of loan repayment in the past.
Depending on your age, most lenders are prepared to offer you a loan up to 3 times your regular yearly income. This is your income net of any other loan repayments or regular payments you have to make.
If you’re married, engaged, or living with your partner, it may be possible to include one year of your partner’s annual income, with some lenders being more generous by allowing you 2.5 times your joint net income.
In addition to the level of your income versus the value of the loan you are seeking, there are a number of factors that need to be considered:
- The type of property you are looking to buy – for example, leasehold and converted properties can make a difference to the percentage loan available.
- How much cash you have for a deposit and therefore, given the value of the property you want to buy, the percentage loan you will need.
- Given the percentage loan, whether a mortgage indemnity guarantee is required (an extra payment is often demanded if you are borrowing over 75% of the value of the property).
- What your employment status is, full or part time and for how long, self-employed or on contract and the certainty of your income from this.
- Any other loans or liabilities you have, the amount outstanding, and the value of monthly repayments.
The entire process of gaining a formal mortgage offer typically takes about one month.
Understanding the concept of a mortgage is the first step toward successful homeownership. It’s a financial agreement that requires careful consideration, preparation, and a solid understanding of your financial situation. By breaking down the term into simple, understandable components, this guide aims to equip you with the knowledge you need to navigate the mortgage process confidently.
Remember, a mortgage is not just a loan; it’s a commitment to your future, a path to owning your dream home, and a journey worth taking with clarity and confidence.