Buying a home for the first time? Or maybe it’s a while since you went through the mortgage process. If you’re thinking of buying a property, here we answer the UK’s most commonly asked questions…
Recent research by price comparison website Comparethemarket.com, looked into the most commonly searched mortgage-related questions. The most frequently asked question is ‘how long does a mortgage application take’ with over 20,000 annual searches!
We take a look at each of those questions below and give you a candid response to each:
1. How long does a mortgage application take?
As a general rule, it can take anything from two to six weeks to obtain a Formal Mortgage Offer, depending on circumstances, the complexity of your application and so on. This is after you have found a deal that works for you and your mortgage advisor has helped you get an agreement in principle (this means the lender agrees that they are, in principle, happy to lend a certain amount of money to you). Then, when you find a property you love, you must submit a mortgage application, which will need the property to be valued by a surveyor. The application process is complex and help from a mortgage adviser can be useful.
We explain the whole home buying process from start to finish in a recent blog.
2. How long does a mortgage offer last?
Once you get a mortgage offer it is usually valid for between three and six months. This period usually applies from the date the offer is issued to you, however some lenders count from the day you make an application, so be sure you understand the situation. You may be able to get an extension on your mortgage offer if you are buying a new build property or for other circumstances beyond your control (such as Covid-related delays).
3. Will bad credit affect my ability to get a mortgage?
It is worth making sure your credit rating is as good as it can be before applying for a mortgage. Your credit score shows how good a borrower you are, whether you pay back your loans on time and helps the mortgage company assess if you are a good risk for them. There are several ways in which you can improve your credit score, before applying for a mortgage. It is worth taking some time to get this in order before you plan to move.
4. What is an interest-only mortgage?
When you take out an interest-only mortgage, you are not paying off any of the capital of your loan, only the interest. This can help to keep your monthly payments lower. However, you must be in a position to pay off the loan amount when you sell your house or move property. So, if you borrow £60,000 when you buy your property, 10 years later you will still owe £60,000, despite making monthly payments. You could hope that your house will have risen in value by £60,000, so you can pay off the mortgage from the sale proceeds or you could build a lump sum by paying into a policy or savings scheme that will cover the amount of your loan by the time your mortgage term comes to an end. As most plans or schemes have no guarantees, this comes with added risk.
5. What is a lifetime mortgage?
A lifetime mortgage is paid off when the borrower dies or moves into long-term care. This type of equity release allows older mortgage holders to take some of the equity held in their property and use it to fund their retirement, help children get on the property ladder or pay for grandchildren’s school or university education for instance. It could also be used to replace an existing mortgage that is becoming difficult to afford. When you die (or go into long-term care), the property will be sold so that the loan can be paid off.
Find out more about the different lifetime mortgage products that are available.
6. What is a bridging loan?
Bridging loans bridge the gap between the sale of one house and the purchase of another. For instance, if you want to secure your dream home urgently but the sale on your existing property is still in process, you could use a bridging loan to enable you to cover payments on both properties. It can also be used if you buy a house at auction, where you need the money immediately, but haven’t sold your existing home or do not have time to arrange a normal mortgage. A closed bridging loan is only valid for a set amount of time, normally a maximum of 12 months, useful perhaps if you are waiting for the sale to close on an existing property. An open bridging loan has no specific term and because of this is more difficult to find.
With such a lot of debt involved, this is something where you need to get some solid advice from an independent adviser.
7. What is APR?
APR – or Annual Percentage Rate – is the rate of interest applied to financial products such as credit cards, loans and hire purchase. The APR shows you the cost of your borrowing over a yearly period. It is calculated using the interest rate, when interest is charged (ie, daily, month, yearly) plus any fees or charges made when taking out the loan.
When looking at APR the most important thing to do is to see how much extra you will be paying on the original loan amount.
We explain more mortgage jargon here.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across England and Wales. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email firstname.lastname@example.org.
YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.