Question 1

What is a mortgage in principle?

Accepted Answer

A mortgage in principle, often known as an agreement or decision in principle, indicates how much a mortgage provider might be willing to lend you based on your financial situation. An agreement in principle can be helpful when you start looking for a property, as they let estate agents and sellers know you’re a serious buyer. It doesn’t guarantee a lender will give you a mortgage but provides an indication of whether you’ll be accepted and for what amount. It’s also not binding, so you’re able to change your mind, should you not want to go ahead with the full mortgage application after taking a mortgage in principle. If you struggle to get an agreement in principle, you’ve got time to address any problems, rather than coming unstuck later on in the mortgage application process.

Question 2

What is a guarantor mortgage?

Accepted Answer

This is when a family member or close friend offers to guarantee your mortgage, often using their own property or savings as collateral. They are promising to step in and pay your mortgage if you can’t make the repayments yourself.  It is an arrangement that helps reassure lenders that you’re a safe bet for a loan, but there are risks involved for the guarantor.

Question 3

What is shared ownership?

Accepted Answer

Shared-ownership lets you buy a percentage of a property with a commercial partner, such as a housing association, owning the rest. The scheme allows you to purchase between 10% and 75% of the property value and pay rent on the remainder. You can gradually increase your ownership to 100%.

Question 4

How do joint mortgages work?

Accepted Answer

A joint mortgage is where you buy a home with someone else, for instance, a partner, friend or family member. Typically a joint mortgage is between two people, but it’s possible to buy jointly with up to three other people (four in total) with some lenders. Pooling resources means that you should be able to raise a larger deposit, and the mortgage offer will be based on your combined income. If this helps increase your LTV, you should also get better rates. Depending on the type of mortgage used, you’ll typically own the property jointly with the other applicants.

Question 5

How does Stamp Duty work for first-time buyers?

Accepted Answer

As a first-time buyer in England and Wales, you’re eligible for a Stamp Duty discount. If the property is worth £425,000, you pay no Stamp Duty Land Tax (SDLT) at all. If the house costs between £425,001 and £625,000, you pay SDLT at 5% on anything over the £425,000 threshold. If the house costs more than £625,000, you don’t benefit from the discount. The rules in Scotland are different, but first-time buyers can still get a discount, with the zero-tax threshold at £175,000. You can find out more on the gov.scot website. Welsh first-time buyers do not benefit from a Land Transaction Tax exemption. All the thresholds and how much you’ll pay can be found on the gov.wales website. It's important to note that if you're buying with someone else who has previously owned a property, this will forfeit your first-time buyer status.

Question 6

Should I buy freehold or leasehold for my first home?

Accepted Answer

Most buyers tend to favour freehold, as this means that you own the property and the land it sits on. Most, but not all houses are freehold, however the majority of flats and apartments are leasehold. With a leasehold property you own the property but lease the land that it’s built on.  In some cases it can be beneficial to have a leasehold property, as it means that you won’t be responsible for maintenance of the external parts of the property, or the buildings insurance. However, there are pros and cons involved with both types of ownership and you can read more here about freehold vs leasehold properties.

Question 7

Should I get a longer term mortgage

Accepted Answer

With the current financial crisis in 2022, many buyers and those remortgaging are considering extending their mortgages to make the monthly repayments more affordable, by spreading them out over a longer period of time.  Whether or not this is the right option for you will depend on your circumstances, particularly your current age and finances, however, it’s important to understand that extending the term of your mortgage means that you will pay more interest overall.

Question 8

What loan to value is best for first time buyers?

Accepted Answer

The lower the loan to value ratio of your borrowing, the better, as this will both increase your choice of lender/deal and the competitiveness of the interest rates available to you.  It’s not always easy to save a large amount of money for a deposit in today’s economy however, and there is no one size fits all mortgage. A broker will be able to discuss this with you and make recommendations based on your individual circumstances.

Question 9

What is the best mortgage for first time buyers?

Accepted Answer

There's not really one product that will suit all first-time buyers, as it will come down to your individual circumstances and your home ownership preferences. This can be a tricky decision to make and there is an overwhelming number of deals and information to sift through, so it can be very helpful to speak to a mortgage broker.

Question 10

Can I get a guarantor mortgage for a buy-to-let property?

Accepted Answer

Lenders won’t usually give you a guarantor mortgage for a buy-to-let property. But whether and how much they will lend to you is worked out differently with buy-to-let, so it may be easier to take out a buy-to-let mortgage without help.

Buy-to-let mortgages are usually taken out on an interest-only basis, so the repayments are lower than for residential mortgages, which would usually be on a repayment basis. Lenders also look at how much rental income you're likely to get for the property when deciding how much to lend you.

Question 11

Is a guarantor on the mortgage forever?

Accepted Answer

No, but the guarantor will remain linked to the mortgage until the homeowner has paid off a sizable proportion of the debt. This is usually based on a certain number of years of repayments or reaching a lower loan-to-value on the loan – but if the borrower has repayment difficulties in the meantime, this period can be extended by the lender.

Question 12

Is a guarantor mortgage the same as a family boost mortgage?

Accepted Answer

There are several different forms of guarantor mortgage, each with a slightly different name and different conditions depending on the lender. Family springboard or family boost mortgages offer ways to help aspiring home buyers purchase a property using security from family members, either in the form of savings or property.

Question 13

What are the interest rates on guarantor mortgages?

Accepted Answer

Interest rates on guarantor mortgages can be higher than for standard mortgages, particularly given that some guarantor mortgages are 100% mortgages. For this reason, it’s important to ensure that you can make the monthly repayments before taking out the mortgage. Rates currently range from around 2.75% to 4.25%. You also need to take fees into account to find out which deals are the cheapest overall.

Question 14

Which lenders do guarantor mortgages?

Accepted Answer

Lenders that currently offer guarantor mortgages include Beverley, Buckinghamshire, Loughborough, Mansfield, and Tipton & Coseley building societies, as well as Nationwide and Barclays.

You can find out which lenders offer guarantor mortgages and check eligibility criteria using comparison sites or by speaking to a mortgage broker.

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