Mortgages are loans which are intended to help buyers purchase residential and commercial property. When an individual takes out a loan, the lender charges interest: the same is true of a mortgage. A mortgage is a ‘secured’ loan, which means that the loan is secured against the value of the property being purchased until the mortgage is paid off. Sources of residential mortgages include high street banks, building societies and other types of less well-known financial institutions.
Mortgage providers follow a set of rules and procedures when deciding whether they will agree to provide a mortgage to purchase a residential property. Although different lenders apply different lending criteria, the amount a potential buyer can expect to borrow of a property’s purchase price is determined solely by the mortgage provider’s requirements.
Here are some of the factor’s lenders consider when making their decision:
The mortgage provider will want to be certain that the borrower can afford to service the loan - i.e. to make the monthly repayments as and when they fall due. To help them make that decision, the lender will want to see the borrower’s personal financial incomings and outgoings. Any rent the borrower may be paying will be discounted, but the lender will factor in the potential cost of the monthly mortgage repayment.
The amount the borrower can contribute towards the cost of buying a property - the ‘deposit’ - is a major consideration. Because most mortgage loans are secured on the value of the property, mortgage providers prefer borrowers who can provide large deposits: the smaller the loan, the lower the lenders’ risk. And the larger the deposit, the lower the borrower’s monthly repayments will be, which reduces his or her outgoings and improves the affordability criteria from the lender’s point of view. In the current financial climate, most lenders expect borrowers to deposit at least 5% of the property’s purchase price.
Mortgage providers lend against the value of the property, not the agreed purchase price. To avoid lending more than is absolutely necessary (and therefore increasing their financial risk) most mortgage providers will insist on having the property in question valued by a qualified surveyor.
Some lenders will not consider mortgaging certain types of properties. Leasehold properties, properties below a certain price, property being purchased through an assisted purchase scheme or under a Right to Buy scheme, or where property is being purchased ‘off plan’, may not be acceptable to the mortgage provider.
Mortgage providers generally have a maximum number of years over which they lend and will set a date when the mortgage must be repaid in full.
Associated mortgage fees and costs:
Survey: A surveyor will be appointed (generally at the borrower’s expense) to assess the property’s condition and market value. The surveyor will also identify any issues which could affect the property’s future value.
Conveyance: which is usually conducted by a solicitor or conveyancer — is the process by which the ownership (legal title) of the property is transferred from the seller to the buyer. The seller usually pays for this cost.
Stamp Duty: This is the property tax that is payable to the Government - https://www.gov.uk/stamp-duty-land-tax
Lenders administration fee: There may be a lenders arrangement fees but it may be possible to add them onto the mortgage.
Broker fee: This is a fee that maybe payable to AIMS on completion of your mortgage.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST FORMS OF COMMERCIAL MORTGAGE AND MOST FORMS OF BUY TO LET MORTGAGE.
We offer a comprehensive range of mortgage products from across the market. We offer both first and second charge mortgages, but not deals that you can only obtain by going direct to a lender.
For those seeking to increase their existing borrowing, alternative finance options may be available and more appropriate for your needs. For examples, a further advance from your existing lender or an unsecured loan (e.g. a personal loan). For those seeking a ‘Retirement Interest Only Mortgage’, a ‘Lifetime Mortgage’ may be available and more appropriate for your needs.
Principal: Peter Varney
Aldershot Independent Mortgage Service (Aims) is a trading style of Peter Dane Varney which is an appointed representative of TenetLime Limited, which is authorised and regulated by the Financial Conduct Authority. TenetLime Limited is entered on the Financial Services Register (www.fca.org.uk/register) under reference 311266.
The guidance provided within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.