Choosing a mortgage

What is a mortgage? Essentially it is just money you borrow to buy (or build) a property, with the property itself as security if you can’t repay it. However, since there are many different circumstances in which you might buy a property, there are also several different kinds of mortgage.

The majority of mortgages are residential, i.e. they are used for buying homes (including buy-to-let). Business property is bought with commercial mortgages, which generally have different lending criteria that relate to the business in question. Special kinds of residential mortgage include right-to-buy and self-build. The right-to-buy scheme enables a tenant of a social housing property to buy it at a discount (which is likely to affect the mortgage terms). A self-build mortgage enables you to finance the cost of building your own home – this is generally cheaper than buying it, but interest rates will often be steeper because of the greater risk involved.

Most people opt for a repayment mortgage, whereby the loan is paid off over the mortgage term (typically 25 years). It is possible to take out an interest-only mortgage, so that your monthly payments only cover the interest. However, you will still need a way of paying off the loan at the end. Interest-only mortgages can be a good choice for buy-to-let properties, since you can sell the house or flat when the mortgage term runs out and pay off the loan from the equity. But if property prices fall, you could still end up out of pocket.

Whether or not you can secure the mortgage you need will depend on many different factors, including your income (and its reliability), your credit history, your loan-to-value ratio (i.e. what proportion of the property’s value will be covered by the loan) and your lender’s own criteria, to name just a few. However, more than 80 per cent of applicants who take advice on their mortgage are approved first time.

For more tips on applying for a mortgage, consult our Mortgage Survival Kit before speaking to a mortgage adviser. Find a mortgage adviser in your local area.

Some questions to ask a mortgage adviser:

  • What mortgage would be most suitable for me?
  • Would an interest-only mortgage be appropriate in my case?
  • How much will I need to save for a deposit?
  • How can I improve my chances of approval?

If you’re trying to get a good mortgage deal, a lot depends on your credit score. You can check your score, see how it might affect your prospects and even find out how to improve it at Experian. Get your free credit score.