The complete guide to mortgages
Considering your mortgage options? Get started on the right foot with our clear and simple mortgage guides.
Explore our mortgage guides and calculators
What is a mortgage?
The average UK house price was £233,000 in July 2019 - almost ten times the average full-time salary of £26,000. With house prices so high, it’s unlikely you’ll be able to buy a home outright, which is why getting a mortgage is most people’s method of funding the bulk of their purchase.
A mortgage is a loan that you use to purchase a property and then steadily pay back to the lender over a number of years.
You pay a deposit, which represents a chunk of the property's price, and the lender agrees to fund the rest over a set period of time, while charging you interest.
The mortgage is secured on the property and if you don't make the monthly repayments required, the property can be taken back off you - this is known as repossession.
If you’re unable to buy the home you want with a normal mortgage, there are a number of government schemes and other mortgage types (such as a guarantor mortgage) available to help you, depending on your circumstances.
Watch this video to learn how to get a mortgage in 10 steps with Eva, a mortgage adviser at Trussle.
How to get a mortgage
Getting on the property ladder is a huge financial commitment - probably one of the most significant purchases you’re ever likely to make. To do this, you’ll need a mortgage.
The process of applying for a mortgage involves several parties; from mortgage brokers, surveyors, solicitors, to the lenders themselves.
To avoid any difficulties, it helps to do your homework and familiarise yourself with the factors that could affect your eligibility for a suitable mortgage deal, which will include:
your employment status and salary
how long you’ve been employed
how much you spend each month (it’s advisable to have a record of your expenditure over the last few months)
whether you’ve saved a large enough deposit (lenders normally require a minimum deposit of 5%)
if you have any existing debts
the strength of your credit rating
With your finances in order, you’ll need to decide who’s able to find you the most suitable mortgage deal with the best terms for you.
You might consider going directly to a lender, visiting a traditional mortgage broker, or using an online mortgage broker such as Trussle. If you're unsure about brokers and what they do, read our guide on mortgage brokers.
Once your broker has provided you with a mortgage recommendation, you’ll need to seek advice from the right professionals and instruct a conveyancer or solicitor to handle the legal aspects of the process, although it’s helpful to have one already lined up before you reach this stage.
How much can I borrow?
One of the most important things to consider when getting a mortgage and buying a house is, how much can you borrow?
Generally, you can borrow between 4 and 5 times your total income. Or, if you're applying for a mortgage with someone else, you could get between 4 and 5 times your joint income.
Use our mortgage calculator to get a more accurate idea of how much you could borrow for a mortgage.
How long will it take?
The time involved in getting a mortgage very much depends on your circumstances, and can take anything from weeks to months. We’d generally recommend allowing yourself three months to complete the process.
Getting a mortgage can be a bit more complicated and therefore take longer for those who are self-employed or have bad credit. Visit our dedicated guides for self-employed and bad credit mortgages for more information.
Our How Trussle works page can help you understand how the mortgage process works and how long it takes to get a mortgage through us.
Ways of paying for a mortgage
The most popular mortgage is known as a ‘repayment mortgage’.
You’ll make monthly repayments - made up of interest and capital payments - over a predefined term, and you’ll gradually whittle down the money you owe to the lender until you own the property outright.
There are two main types of repayment type: fixed rate and variable.
Fixed rate mortgages
With a fixed rate mortgage you’ll agree an interest rate with your lender from the outset. This will remain the same throughout the deal’s initial period. If you decide you want to end this period early, you may be expected to pay an early repayment charge.
Your mortgage broker will discuss your plans at the property and circumstances before recommending the most suitable duration for the fixed rate deal. These types of mortgages often allow you to overpay up to 10% of the mortgage balance a year without being charged. The interest rates of fixed deals are typically higher than those of variable rate deals.
Variable rate mortgages
The other type of mortgage is the variable rate mortgage. These interest rates move up and down, generally in line with The Bank of England’s interest rate which generally reflects the state of the UK economy.
There are three kinds of variable rate mortgage:
Tracker mortgages follow the Bank of England’s official interest rate. They are typically lower than fixed rates, with a shorter life of two to five years, though some lenders offer trackers that last for your full mortgage term (known as lifetime trackers), or until you switch to another deal. Some tracker mortgages have no early repayment charges, affording you the flexibility to make larger overpayments or even repay in full, without being penalised.
Standard Variable Rate (SVR) mortgages usually have high rates that move in line with the Bank of England’s interest rate. This is the rate you will automatically move onto after your initial fixed period.
Discount variable rate mortgages give the customers a discount off the standard variable rate for a period of time.
Like some fixed rate options, variable rate mortgages can also come with early repayment charges.
With an interest-only product, you’ll only pay the interest on the loan – rather than the capital required to buy the property – at the end of each month.
While your monthly payments will be smaller than they’d be with a repayment mortgage, you’ll need to pay off all the capital in one go at the end of the term or make lump sum payments throughout the term.
You will need to provide evidence of how you intend to repay the loan so that the lender is confident it will be repaid. Restrictions will apply depending on your repayment vehicle.
If you can’t afford to pay off the capital you could find it hard to remortgage or switch, which is why this isn’t commonly recommended by mortgage advisers.
Combined repayment and interest-only mortgages
Some lenders combine both interest-only and repayment mortgages. So you’ll pay off the interest and some – but not all – of the capital you borrowed each month.
The remaining capital left to pay at the end of the term should be paid as a lump sum.
First-time buyer mortgage
When you first apply for a mortgage, lenders will analyse your income and outgoings to check you can afford to keep paying your mortgage if the cost goes up.
Your deposit could represent anything from 5% of the value of the property – though the more you have, the cheaper your mortgage is likely to be.
You’ll need to pay solicitor’s fees, valuation costs, and buildings insurance, which is the only mandatory insurance you’ll need. There are other insurance options you can also add, but are optional.
However, one piece of good news is that you won’t need to pay any stamp duty – a buyer tax – on the first £300,000 of any property worth up to £500,000.
How Trussle can help first-time buyers
Once you’ve secured a mortgage, our monitoring service will keep tabs on it and we’ll notify you immediately if there’s a more suitable deal out there at any point in the future.
Read more about first-time buyer mortgages.
A remortgage refers to getting a new mortgage when you already have one.
You can select a new deal from the same lender or look elsewhere altogether.
Most people remortgage their home to secure a more favourable deal. Most mortgages come with introductory periods, and once these have expired it usually doesn’t make financial sense to stick with them since you’ll end up on a generally higher-interest Standard Variable Rate (SVR).
You can also remortgage to release more money from your property to consolidate debts or fund home improvements for example.
How Trussle can help with your remortgage
Simply provide your details by completing your Trussle profile – when your mortgage started, for example, and what type it is – and we’ll scour the market to find the most suitable deal for you.
You can talk to our advisers by live-chat, email, or over the phone if you wish, and keep track of your application from start to finish from your Trussle timeline.
Read more about remortgaging.
You may have to pay an early repayment charge to your existing lender if you remortgage.
If you’re looking to rent out your property, you’ll need a buy-to-let (BTL) mortgage.
Most of the big banks offer BTL mortgages, as do some specialist lenders, and the amount they’ll offer you will be linked to the amount of rental income your property is expected to earn and/or your own income.
You will generally require rental income of either 125% or 145% of your monthly mortgage repayments, assuming an interest rate of typically 5.5%.
How BTL differs from residential
The minimum deposit is typically higher, as most lenders ask for at least a 25% deposit.
Interest-only is more popular, to keep payments low and maximise returns.
Limited company or individual
When you take out a buy-to-let mortgage you need to decide whether you want to take out a mortgage as an individual or through a limited company.
More multi-landlords are now favouring the limited company option, as changes to mortgage tax relief have made it more expensive to be an individual buy-to-let landlord.
Transferring my mortgage
How to change the name on my mortgage?
Should you wish to change the name on your mortgage, you’ll need to contact your lender and solicitor. If you’ve recently married or wish to revert to your maiden name after a divorce, you’ll need to obtain legal documents showing a name change; for example, a marriage certificate or a copy of your divorce decree.
Your lender may also want a photocopy of your updated driver's license and may charge a small processing fee.
If you’re recently married, your lender may allow you to add your spouse without having to refinance the loan. However, should you want to add or remove names on the mortgage for other reasons, you must refinance.
How to transfer my mortgage to another property? (Portable mortgages)
Whether you’re relocating or moving to a larger property and you’re tied into your current mortgage deal, you can take it with you by ‘porting’ it. The typical cost to transfer your mortgage is a few hundred pounds.
If you’re still tied into a deal or wish to remain on the existing one, you can request to transfer it to your new home, meaning you’ll continue to be charged the same interest rate and the same terms and conditions will continue to apply, including the product end date. If you have a mortgage with early repayment charges, porting can often be the only way to avoid any early exit fees.
Before you apply, your lender will need to value the new property to satisfy themselves that they’re happy to lend on it. If the new property is larger, you may need to borrow more (known as a 'top-up') and you’ll have to satisfy your lender that you can afford the higher repayments. Their criteria will be based on your income and outgoings, and any other payments. Should they not agree to extra borrowing but another lender will, you’ll need to pay the early repayment fee in order to finance your new home.
If you’re not tied into a mortgage deal, you’re better off switching providers for a more competitive rate. An online mortgage broker like Trussle can quickly compare different offers and find the right one for you.
What is a mortgage overpayment?
Making an overpayment is when you’re paying your mortgage provider a larger amount than you’re supposed to pay. You can do this either by:
making a one-time lump sum payment
adjusting your monthly repayments so that they’re always greater than the specified amount
Depending on your lender, interest on your mortgage may be calculated daily, monthly, quarterly, or annually. If interest is calculated daily or monthly, the timing of your overpayments won’t matter. But if it’s only calculated periodically, you should coincide your overpayment with the calculation or you won’t make any savings.
Before making an overpayment, you should consider the following:
Not all lenders allow overpayments.
Overpayments mean less interest for lenders and therefore less money for them, so they may charge hefty fees to dissuade you.
Fees can be as high as 5% of the overpaid amount. You may find that this cost cancels out or exceeds the benefits of overpaying.
Many lenders allow overpayments of up to 10% of the outstanding amount each year during the term of a fixed rate mortgage. Once the term ends and you’re switched to the standard variable rate, many lenders won’t apply any restrictions, whilst others will charge for overpayments at every stage of the mortgage.
If you don’t have any savings and only limited extra cash, you may want to building them up before you think about overpaying.
Other unsecured debts such as personal loans and credit cards carry higher interest than your mortgage, so if you have any, it’s best to settle these before overpaying.
Unlike putting your extra cash into a savings account, any overpayments made towards your mortgage won’t be able to be accessed again until you sell your property.
What are the benefits of overpaying my mortgage?
Making overpayments has three main benefits:
It can help you pay off your mortgage sooner. The extra amount you overpay goes entirely towards repaying the mortgage itself, not on any interest you owe. This means you could shorten the amount of time you need to repay the mortgage in full.
It can lower the amount of interest you have to pay. Since overpayments pay down the mortgage itself, you could significantly cut down the amount of interest you have to pay. This is because the interest you’re charged is calculated on the outstanding amount you owe. If your outstanding amount is lower, the amount of interest calculated will be lower too.
It can give you increased flexibility. Overpayments put you ahead of schedule by covering the cost of specified repayments for many months. This opens up the option of underpaying down the line. Not all lenders will allow you to do this.
How much does it cost to renew or extend a lease?
A leasehold renewal and a leasehold extension are broadly the same thing - the only difference being that, under a lease renewal, there is a legal instant in time between the expiry of the original term and the commencement of the renewal term. A lease extension is a continuation of the original lease, without interruption.
Most flats are leasehold which means that you have the right to occupy for a fixed period of time but don't own the property outright. Most people renew their lease long before it expires.
Under the 1993 Leasehold Reform Act, you’re legally entitled to get 90 years added to their lease, if you’ve owned the flat for at least two years. Should you let your lease drop to 80 years or less, your freeholder stands to profit a lot. This is because after that you’ll pay 50% of the flat's 'marriage value' (the amount of extra value a lease extension would add to your property) on top of the the usual lease extension price. If your lease has 83 years left, it's time to look seriously into this.
Extending short leases is pricey. If your lease is shorter than 60 years, seek advice from a solicitor about how much it will cost (the leasehold calculators won't work below 60 years).
Costs of extending or renewing a lease include:
Legal costs - the less the freeholder tries to drag it out, the cheaper your legal costs
Lease extension valuation - typically cost about £400 to £900 depending on your flat’s value
Stamp duty - applicable above £125,000
The premium price of the new lease*
Deposit - either 10% of the lease cost stated in the notice or £250, whichever is greater
* Under the 1993 Act, the premium is the total of:
the reduction in the value of the landlord’s interest in the flat (the difference between the value of his interest now with the present lease and the value of his interest after the grant of the new lease with the extra 90 years.)
the landlord’s share of the marriage value (the potential for increase in the value of the flat arising from the grant of the new lease). The Act requires that this ‘profit’ should be shared between the parties
compensation for loss arising from the grant of the new lease
Should I buy a flat with a short lease?
Solicitors generally advise against buying a flat when the lease has less than 70 years left to run, for a few key reasons:
It’s difficult to get a mortgage on a property with a 'short' lease.
The value of a leasehold flat diminishes as the lease gets shorter so saleability options will be limited.
You’ll be charged a higher premium to extend the lease.
In principle, there’s no problem buying a flat with a short lease, provided that its price reflects this. In practice it can be more difficult, particularly if you need to take out a mortgage to buy the property. A number of lenders consider a ‘short lease’ as being less than 80 years, which is the point at which ‘marriage value’ (the potential for increase in the value of the flat arising from the grant of the new lease) kicks in.
If you do consider buying a flat with a short lease, your lender may only grant a mortgage on the basis that you’ll apply for a new lease which you’ll have to wait two years to do.
How much does converting a leasehold to freehold cost?
Leaseholders have a legal right to buy the freehold of their home if they meet certain criteria.
Buying the freehold of a house is fairly straightforward. However, purchasing the freehold of a flat can be a little more complicated because:
it can cost as much as extending the lease of the property
you’ll need to get the other residents of the block involved
you’ll still have to contribute towards service charges
The cost of buying the freehold depends on a number of factors, which include:
the annual market rent value
the ground rent
the number of years left on the lease
the value of the house today
the shorter the lease, the more expensive the freehold will be
A chartered surveyor should be able to calculate the value of the freehold. Once you’ve determined the cost of the freehold, you’ll need to consider the other costs involved - as with most property sales, there’ll be other fees to pay on top of the initial valuation costs (not just yours but the freeholder’s as well):
Legal fees - you’ll need a specialist solicitor to draw up a participation agreement and issue a tenants’ notice on the landlord.
If the freehold costs more than £125,000 then you’ll be liable for stamp duty.
The landlord could ask you to pay three times the annual rent of the property as a deposit.
Frequently asked questions (FAQs)
Can I get a mortgage without a current job?
With no job income verification, it can be difficult to secure a loan. But, it isn’t impossible. Some lenders will look at other income sources such as pensions, certain benefits, tax credit, and rental income.
Most lenders have different requirements, but they all share one thing in common - you must have a reliable source of income. If you’re making any sort of money from side projects, you should share this information along with proof of income, and show proof of any savings, should you have some.
If you have a job lined up, you could ask your employer (or client if you’re self-employed) for a non-revocable employment contract, which guarantees employment for a specified amount of time. Many lenders will accept a signed contract as proof of income depending on how the start date corresponds with the mortgage completion date.
How can I finance buying a new build?
Buying a new build home can make you a higher risk to the lender and the process can be complex for some of the following reasons:
Developers often work to demanding timescales - once you’ve put down a deposit, you may have only 28 days to exchange contracts with the developer, at which time you’re legally bound to buy the property.
If buying off-plan, your mortgage offer is likely to be valid for only six months. Some lenders have longer validity periods, while others offer specific new build products.
The required deposit is typically higher (15% to 25%) for new build flats, than for a new build houses (10% to 20%) because they’re deemed less saleable. This is due to the oversupply of new build property, meaning that many lenders will be more accommodating on new houses than flats.
If you’re struggling to save up for a deposit, you could be eligible for the Help To Buy scheme; a government initiative helping buyers to purchase a new-build home worth up to £600,000, with just a 5% deposit. The government will loan (interest free for the first five years) up to 20% (40% if buying in London). You can repay the loan at any time, without penalty.
What happens when a fixed, tracker, or variable rate mortgage ends?
When the initial period of a fixed rate deal comes to an end, your lender will automatically transfer you to their higher-interest Standard Variable Rate (SVR) deal. It’s normally best to start looking to switch to a new mortgage deal three months before this happens, so you’ve plenty of time to avoid the SVR.
Tracker mortgage deals typically run for two to five years or the entire term of the mortgage if it’s a lifetime tracker. Although you may be borrowing money over a 25 year period, your special interest rate deal will eventually run out. When it does - in two to five years, depending on your deal - you’ll automatically be switched over to your lender’s SVR. Usually this rate will be significantly higher than the rate you were on. To avoid unnecessary interest payments, you could switch to a new deal with another lender or stay with the same lender and complete a product transfer - you don’t always have to change lender to get a better deal.
See whether it’s time to switch by using Trussle’s remortgage calculator.
What is a capped rate mortgage?
Capped rate mortgages are a type of variable rate mortgage. But there’s an important difference - they have an interest rate ceiling or cap, beyond which your payments can’t exceed, no matter what the tracked rate rises to. If the interest rate falls, you’ll benefit financially, paying less in interest. And you’ll get a certain degree of protection if rates rise.
A capped rate is normally only for an introductory period, which can typically be anything from two to five years.
This type of mortgage is pretty rare and tends to appeal to people who are worried about interest rates soaring. Although the interest rates can go up or down with the base rate or your lender's SVR, a capped rate mortgage comes with a guarantee that it won’t rise above a certain amount. The cap tends to be set quite high and the starting rate is generally higher than normal variable and fixed rates.
What is a flexible mortgage?
Some mortgage deals allow you to make overpayments, underpayments, and perhaps take payment holidays to suit your financial situation.
If you want a mortgage that works for you and fits around your unique situation, a mortgage deal that has these features may be a suitable option.
Many people take a flexible mortgage deal because they allow you to make additional payments to your mortgage and pay less in interest overall.
Common features of a flexible mortgage include:
overpayments - without any limits or caps and, without a charge
a reserve account from which you can access overpayments you have made
ability to offset savings
Are mortgages available without early repayment charges?
Early repayment charges may apply to all kinds of mortgages, be they fixed rate mortgages or variable rate mortgages such as tracker and discount deals.
Many but not all lenders will allow you to clear an extra 10% off the balance each year without extra charges. Some with allow you to pay more of this without charges, but if you settle your entire mortgage before the deal ends you’ll then have to pay a certain percent of the total loan.
For example, some lenders don’t impose early repayment charges on some of their deals, meaning that should you want to make overpayments on your mortgage, you won’t be restricted by the usual limit of 10 percent of your outstanding balance. Also, if you sell up and want to clear the mortgage before the five years is up, you won't be hit with expensive fees when you redeem early.
What is a secured loan and is getting one a good idea?
A mortgage is a form of secured loan. It’s secured against an asset, which in this case is your home. As the bank has a lower risk because it can collect the collateral if you default on payments, this type of loan generally has a lower interest rate.
Other types of secured loans include:
car loans - similar to a mortgage, the car itself as collateral for the loan. If you default on payments, the car can then be repossessed.
secured credit cards.
title loans - when you use a paid-off vehicle as collateral for another loan.
A secured loan can be a good way to build credit if you go through a reputable lender, like a bank or credit union. However, it’s important to make sure you make your repayments on time - the danger of a secured loan is that you may lose whatever you set up as collateral if you fail to make your payments on time.
How do mortgage offset accounts work?
Having a mortgage offset account where your savings are linked to your mortgage, is a flexible way of using savings to offset the interest. Instead of earning interest on your savings, the money is set against your mortgage and as a result, you pay less interest on that debt.
For example, if you had a £150,000 mortgage and £30,000 in savings, you’d only be charged interest on £120,000. Your monthly repayments will probably be based on the full £150,000, meaning you overpay each month and your mortgage is paid off more quickly.
You’ll be mortgage-free sooner.
You can access your savings at any time.
You’ll save tax - because you don’t earn any interest if the money is offset against your mortgage, there’s no tax to pay, making this an attractive option for higher taxpayers.
What is a bridging loan and how does it work?
A bridging loan can be useful if you need to borrow money for a short-period. The most common use of this type of loan is to help find a new house purchase while you’re waiting for your existing property to sell. Bridging loans can also be used as a short term loan to help you buy a property at auction, where you’ll need the money immediately but may not have sold your current property yet.
Generally, they’re valid for a six month period but can be extended for up to 12 months. Some high street lenders offer bridging finance and there are several specialist bridging loan companies.
There are two types of bridging loan: 1. A ‘closed’ bridge - where there’s a guaranteed exit in place. 2. An ‘open’ bridge - where long term finance isn’t in place.
You can normally borrow up to 70 to 75% of the property value you’re putting up as security if it’s a ‘first charge’ (there’s no other mortgage secured on it) and you’re able to make the interest payments.
Advantages of bridging loans:
Can be arranged quickly - often within a few hours
If you opt to have the interest retained you don’t have to pay interest until the whole loan is repaid
Flexibility - the loan can be paid off as soon as you’re able to
Disadvantages of bridging loans:
High interest rates
Fees can be expensive
Can be a risky option if you have no timescale of when the sale will happen
What is an unencumbered property?
An unencumbered property is one that you own outright with no mortgage or loans secured against it. If you’re mortgage free, there are a number of reasons why you may look to remortgage on an unencumbered property:
To raise finance for home improvements.
To move home, but keeping your existing property to rent out.
To purchase an investment property.
While taking on a mortgage may be financially beneficial, you should consider the following:
Will you be comfortable with a new financial commitment and making these new payments?
All mortgages carry risk - failing to keep up with repayments could result in repossession.
Remortgaging an unencumbered property to consolidate debt may not always be the best idea because you may be stretching your debts over a longer term on the mortgage, which in turn means that you could end up paying more interest overall. Your mortgage broker will be able to advise if this is a favourable move for you.
Lenders treat mortgages on unencumbered properties the same as any other mortgage - they’ll still carry out standard assessments such as income, affordability, LTV (Loan-to-Value), outstanding debts, and employment status.
What mortgage options are available when buying a second home?
A mortgage can be used to finance a second home – not to be confused with a remortgage or second charge mortgage.
If you wish to live in the second home, your application will be treated as a second home mortgage because you already have a residential mortgage that you’re currently paying.
Normally, in order to get a second home mortgage, you’ll need a larger deposit than you required for your first mortgage. Second home mortgage deals also tend to carry higher interest rates than standard mortgage deals.
The financial assessments should be the same as they were with your first mortgage application, but your lender will be extra cautious because you’ll be taking on two mortgage repayments and associated running costs of the properties each month.
Not all mortgage providers offer second home mortgages so it’s worth seeking the advice of a mortgage broker who can take you through your options.
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Your home could be repossessed if you don't keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
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