A mortgage works by a lender providing a loan to a customer who wants to purchase a property. This loan is secured against the property. This means if they do not keep up repayments on the mortgage then the property may be repossessed by the lender in order to repay the loan.

There are a few different fees involved when purchasing a property:

• Deposit (percentage of the property)
• Lenders product / arrangement fees
• Legal fees (solicitor / conveyancer)
• Valuations & surveys
• Stamp duty land tax

The amount that you need to earn to get a mortgage depends on how much the property costs. Lenders usually base it on an income multiple. An example being 5 X Yearly wage = the amount you can borrow. So if you earned £40,000 per year you could borrow £200,000. However, this income multiple can depend on the LTV % or whether you are a first time buyer.

A repayment mortgage is when your monthly payments consist of interest payments and capital repayments. Meaning at the end of your mortgage term if you made every payment on time, you would redeem your mortgage and not owe anymore to the bank.

An interest only mortgage does what it says on the tin. The monthly payments consist only of interest payments. This means your monthly payments will be less however at the end of the term you will still owe the full amount you borrowed.

If you need a second mortgage to purchase a holiday home or  a buy to let property for investment purposes, then this is very possible. However there is some tax implications. When purchasing a second property there is an additional surcharge in relation to stamp duty, meaning you will have to pay more than you would if you were just moving house. Also purchasing a property as a holiday home or a buy to let means you can not live in these as your main residence.

Getting a mortgage with bad credit involves a few more steps but is definitely possible. There are specific lenders out there that offer loans to people with a bad credit history, however these lenders usually charge a higher interest rate as the risk is higher for them. It is best to get a credit report ready for your mortgage broker so they know what they are working with. for more info go to our bad credit mortgages page.

Loan to value (LTV) is a ratio / percentage of the amount of loan you require compared to the value of the property. EG if you were borrowing £150,000 on a property worth £200,000 then your LTV would be 75%.

This is one of the most common mortgage FAQs. And the amount of deposit you need all depends on how much you want to borrow. As this forms your loan to value ratio (explained in last question). Usually the more deposit you have the better as the interest rate will be lower. However there is mortgages available with just a 5% deposit.

Create a budget planner! This will tell you what you have left over each month and what you can afford to save. Make saving this amount the first thing you do when you get paid or you just won’t do it. Finally put it somewhere you cannot access it because if you just have it sitting in your account, chances are you are going to spend it.

The lender will first need to verify your identity and where you live. This is usually done automatically through a credit reference agency and the electoral roll. If they can not find you they would need a passport / drivers licence and a utility bill showing your address. 

As well as this, lenders will need recent copies of bank statements and payslips (usually last 3 months) This shows the lender that you earn how much you say you do and also what your monthly outgoings are.