Chancellor Rishi Sunak has confirmed that from the 1st July 2021, the threshold for paying stamp duty will be lowered from £500,000 to properties over £250,000. This threshold will remain until 30th September 2021 before reverting to pre-pandemic stamp duty rates.
A first time buyer is someone who has never owned a property before anywhere in the world. If you have inherited a property or a member of your family has bought property for you, you will not be classed as a first time buyer.
When you move house, you can often choose to take your existing mortgage with you - this is known as porting your mortgage. If you don’t have a portable mortgage or you find a better deal elsewhere, you can take out a new mortgage although you may have to pay early repayment charges or exit fees.
A buy to let mortgage is for people who intend to buy a property specifically for the purpose of renting it out. With a buy to let mortgage, lenders take both your income and a percentage of the rental income you will get from letting the property into account.
Your home may be repossessed if you do not keep up repayments on your mortgage
A mortgage is essentially a loan from a bank specifically provided for the purchase of property. The reason it's called a mortgage and not a loan is due to a subtle yet significant difference between the two.
So what is the difference between a mortgage and a loan? If you miss a payment or have trouble repaying a loan, the provider of the loan will chase you for it in the usual way that they might for most other credit product types. However if you were behind on your mortgage repayments and were close to being unable to afford it, the bank could take (repossess) your home.
A mortgage also allows you to start using the property immediately, so you would not need to repay the amount in full to start living in it or start renting it out to a tenant. You could start using the property once the sale has completed, but this would obviously depend on you keeping up with repayments every month.
Mortgages are typically taken out for longer terms like 25 years. The longer your term the more spread out your costs, so the lower the monthly repayments, but the longer it will take to repay.
The LTV, or loan to value, is the ratio between the value of your property and the amount you're looking to borrow. All mortgages have a maximum LTV – that is a maximum percentage of borrowing in relation to the house value.
Typically the higher the LTV the higher the interest rate of the mortgage. Mortgages for first time buyers tend to have higher LTVs, and hence higher rates, in comparison to a remortgage for existing homeowners.
The APRC is a good way of comparing different mortgages. It takes the overall rate charged over the lifetime of the mortgage, incorporates any fees, and gives you a baseline comparison rate.
While some mortgages may offer a low rate for the first two years for instance, once they revert they may prove to be more expensive over the full term.
Or, conversely, one rate may have a lower rate but have high fees associated with it. The APRC allows you to compare these mortgages and see what the best overall product is for you.
A mortgage lender will need to do their own property valuation before offering you a mortgage, but you can get a good indication by using the value quoted by a surveyor.
Whilst some mortgage providers use a surveyor it is more common these days for a drive by valuation or desktop survey to be conducted. Your mortgage provider will combine this with land registry data, recent sales in the area, macroeconomic data, and house price indices.
When comparing mortgages, one of the most common and important factors for people buying a home is working out how much the monthly mortgage payments will be. The payments will depend on the budget you've set for the property type and area you want to buy in, as well as your income and deposit.
Once you have a figure in mind, you can start speaking to mortgage brokers or directly to lenders to see if you can get the mortgage you want at your price range and financial circumstances.
You will need to also compare the various terms of each mortgage type. Ask yourself:
How much will my monthly mortgage payment be?
How much will my mortgage cost if interest rates rise?
If you are able to switch to a better deal, how much would the penalty fee cost you to leave your current mortgage provider?
It's important to think of the answers to these questions as early as possible in the home buying process, and ideally it should be done when you start comparing mortgages so you can have a better idea of the kind of mortgage that will work for you. You can use our comparison tool to see a wide range of mortgages from many of the country's leading mortgage providers.
Once you know what mortgage type you're after just answer some questions and we'll find deals personalised to you.
Tell us your estimated property value, your deposit figure, the term over which you want to repay your mortgage, and how long you want to fix your interest rate for.
Even if you have the necessary income and deposit available, lending criteria has been tightened in recent years. You can get an idea of what you could afford by using our affordability calculator above.
Mortgage lenders will usually want to see around 6 months' of bank statements. They want proof of income coming in regularly, and they may look at your recurring expenses to get an idea of how much of your income you are spending each month. Spending a large amount of your monthly income may be seen as riskier to the lender.
In the run up to applying for a mortgage make sure to budget properly. Look at all your spending habits before you even start comparing mortgages. Are there any standing orders or Direct Debits you have been paying for years that you don't need? Can you cut down on your weekly shopping spend or minimise how much you spend on nights out? Begin with a budget of your regular outgoings – the more you monitor your spending the more likely you are to cut back the little things.
To make the home buying process much smoother though, you should consider getting a mortgage decision or agreement in principle (AIP).
Getting an AIP means that the lender or broker has assessed your circumstances and credit rating and would in theory approve you for a mortgage of a certain value.
Rather than going through the entire mortgage application process once your offer has been accepted, an AIP usually means that your application is at a more advanced stage and your mortgage is more likely to be approved, meaning that there's less chance of finding problems further down the line.
|LTV||2 years||5 years|
|95% LTV||Hanley Economic Building Society - 3.69%||Barclays - 3.45%|
|90% LTV||Progressive Building Society - 2.40%||Clydesdale Bank - 3.28%|
|80% LTV||Furness Building Society - 1.69%||Yorkshire Building Society - 2.08%|
|75% LTV||Furness Building Society - 1.19%||Barclays - 1.49%|
|60% LTV||The Platform (part of the Co-operative Bank) - 1.06%||HSBC - 1.21%|
Mortgage interest is similar to interest on any other loan product. When you borrow money, you have to pay it back with interest. However, the interest rate is even more important on a mortgage because it is likely you will be paying off your mortgage for many years, often as long as 25 to 30 years.
So how is interest calculated on a mortgage loan? Mortgage interest rates are calculated quite differently than other types of credit and loans. If you take out a credit card, you would have the annual percentage rate (APR) as a guide on how much to pay once you start borrowing outside of the interest-free period. On a loan, you are more likely to have a fixed amount to pay each month for 3 to 5 years.
With a mortgage you have interest to start paying immediately, and the value of this can go up or down depending on the interest type you're on, the Bank of England base rate and the mortgage lender.
Generally, the first rule of mortgage interest rates is that they're usually lower for people with higher deposits. So, if you've saved up a decent chunk of the property value, you will be rewarded with lower interest rates.
If you're remortgaging then you have more equity built up in your home, so your interest rates are also likely to be lower. On the other hand, if you have a lower deposit, as many first time buyers do, you're likely to have to pay more interest.
With a mortgage, your interest rate is dependent on a few factors, including the Bank of England 'bank rate' or 'interest rate'. The bank rate is the rate which the Bank of England (BoE), the central bank of the United Kingdom, sets to other banks on lending. They do this according to the demands of the wider economy.
As a general rule, the lower the BoE base rate, the lower the cost of borrowing, but also the lower your return on savings will be. When the BoE interest rate goes up, so does the likelihood of getting a better return on your savings, but similarly, the cost of borrowing will be higher.
Despite the fact that the Bank of England base rate is likely to change, there are several types of mortgages that can give you a range of interest repayment options.
The two key types of mortgage interest are fixed rate and variable rate mortgages. As the names imply, fixed rate mortgages give you an interest rate which is fixed for a set number of years, and variable rate mortgages give you interest rates which are subject to change.
Mortgage rates in the UK vary with market competition and the base rate of interest set by the Bank of England.
The best UK mortgage rates you can get will vary according to your circumstances and how much deposit you can put down.
The best mortgage rates will only be available to those with the largest deposits (typically over 40%).
There are two different mortgage types; repayment or interest-only. The one you go with will determine how you repay your mortgage.
Most residential mortgages nowadays are repayment mortgages. With a repayment mortgage, you pay back some of the capital (the amount your borrowed from the lender) and some of the interest every month. By the end of the mortgage term - which is usually 25 years - you will have paid back both the capital and the interest in its entirety.
Interest-only mortgages allow you to only pay off the interest portion of the mortgage.
For example, if you had a mortgage of £200,000 at 5%, over 20 years, the interest would be a total of around £116,779. Instead of paying back the capital and the interest together, you would only pay back the £116,779 interest.
If you paid the capital and interest together like you would with a repayment mortgage, you would have higher monthly repayments.
However, you still need to repay the capital by the end of the repayment term. As it can be hard to raise enough savings to pay back the capital, interest-only mortgages are not as widely available as they used to be, due to the extra risk posed to lenders.
Before you take out mortgage protection insurance, ask yourself if you really need it. If you lose your job or fall ill and find yourself unable to pay your mortgage, do you have a spouse or any family members able to help cover bills for a few months?
If you feel it is worth having as a safety net, make sure you compare mortgage protection insurance policies effectively. Some policies may be useless depending on your personal circumstances, so read policies closely to weigh up what the right cover is for you.
Generally, premiums can cost anywhere between around £20 to £100 per month – and possibly higher. Prices vary depending on how much of your repayments you want covered, your general health and wellbeing, as well as your age and medical history.
There are many other factors at play when comparing mortgage protection insurance so read our guide to learn more.