As possibly the biggest commitment you are likely to make – financially speaking – it is important to ensure that you make the best choice for your circumstances when it comes to choosing a mortgage. As such, you may find this quick guide helpful as an overview of what’s out there, and to provide a starting point from which you can take any further questions to your mortgage provider.
Deposit and Repayments explained
A deposit is the amount you need to put down before getting a mortgage. Most buyers should expect this to be about 20 to 25 per cent of the purchase price of their new home. For those who are unable to get such a deposit together, certain mortgage providers offer 95 per cent mortgages, for example, where the buyer’s deposit will be just five per cent.
While this can sound tempting, it’s a good idea to put down the biggest deposit you can, because you’ll be entitled to a much more favourable rate in future.
What different types of mortgages are out there?
Standard variable rate (SVR)
As the most basic type of mortgage, the standard variable rate has a set rate of interest charged by the mortgage lender. This rate is usually around two per cent above the Bank of England’s base rate. It is called “variable” as it changes according to rising or falling interest rates.
The tracker mortgage is not unlike the SVR, except that it is directly tied to the Bank of England’s base rate, rather than to the lender’s SVR.Â
A fixed-rate mortgage will ensure that the rate you pay remains the same for a set amount of time. You could get a two, three or five-year fixed rate mortgage. By choosing this option, you will be saved from paying extra if interest rates rise. Also, you can plan your outgoings more easily as your repayments will be the same amount each month.
There is extra help out there for people who are struggling to find a mortgage to suit their financial situation. Shared equity can reduce the amount of deposit required on some new-build homes, while “rent to buy” schemes offer tenants discounted rent in a property while they save up their deposit to buy.