Mortgage Basics

Overview & Benefits

What's a Mortgage Anyway?

Getting a mortgage is how most folks in the UK buy a home. It's a big loan you get from a bank or a building society. You borrow a lot of money to pay for your house, and then you pay that money back over many years. This usually means paying it back over 20 to 35 years. Think of it like a long-term agreement where you live in the property, and after all those payments, it's finally all yours.

Types of Mortgages to Know About

There are two main ways a mortgage usually works here in the UK:

• Repayment Mortgage: This is the most common kind. Every month, a part of your payment goes towards the actual loan you borrowed (the capital), and another part covers the interest. Over time, the amount you owe gets smaller and smaller until it's all paid off.
• Interest-Only Mortgage: With this type, your monthly payment only covers the interest on the loan. The original amount you borrowed stays the same. At the end of the mortgage term, you still need to pay back that big lump sum. These are less common for first-time buyers now, and you need a solid plan to pay off the capital, like selling another property or an investment.

How Much Can You Borrow?

When you apply for a mortgage, banks and building societies look at a few things. They check your income, how much money goes out each month (your regular bills, loans, etc.), and your credit history. They need to be sure you can afford the monthly payments. Often, they might lend you around 4 to 4.5 times your annual salary. If you're buying with a partner, they'll usually look at your combined income.

It's also worth checking your credit score before you apply. If you've missed payments on phone bills, credit cards, or other loans in the past, it can make it harder to get a good mortgage deal. Sorting out any credit issues beforehand is a smart move.

The Deposit – Your Starting Point

You generally can't borrow 100% of a home's value. You'll need a deposit, which is a chunk of money you put down yourself. The bigger your deposit, the less you need to borrow, and often, the better interest rate you can get on your mortgage. For example, if a house costs £200,000 and you have a £20,000 deposit, you'll be borrowing £180,000.

Other Costs When Buying a Home

It's not just the house price and the mortgage you need to think about. There are other costs that crop up when you buy a place:

• Stamp Duty Land Tax: This is a tax you pay to the government if the property you're buying is over a certain value.
• Legal Fees: You'll need a solicitor to handle all the legal paperwork for the purchase.
• Valuation Fee: The mortgage lender will want to get the property valued to make sure it's worth what you're paying for it.
• Survey Fees: You might want to get a more detailed survey done on the property to check for any hidden problems.
• Removal Costs: Don't forget the cost of moving all your belongings from your old place to your new one!

Next Steps for You

Getting a grip on these mortgage basics is a brilliant start. Before you even walk into a lender like Lloyds Bank, Nationwide, or Halifax, you'll feel much more prepared. Know your income, track your spending, and have an idea of how much deposit you can realistically save up. Our course here at Leicestershire Financial Foundations helps you get ready so you can talk to a mortgage advisor with confidence. We're right here in Leicester, ready to help you understand it all, without the confusing jargon.