Residential Mortgages: Your Pathway to Homeownership

There are 2 types of mortgage repayment types – Capital Repayment & Interest Only

Capital Repayment: This is the most common type of mortgage repayment for residential mortgages. Borrowers make regular monthly payments that cover both the capital amount borrowed and the interest charged by the lender. Over time, the portion of the payment going towards the capital increases, while the portion going towards interest decreases. Provided monthly payments are made on time, a capital repayment mortgage is guaranteed to be repaid in full at the end of the term.

Interest only mortgage: This is mainly used for Investment properties (Buy-To-Let or Commercial Investment). Interest only mortgage means only the interest is being repaid during the term of the mortgage, therefore the capital borrowed is still outstanding at the end of the term. Unlike a capital repayment mortgage that guarantees the mortgage is repaid at the end of term, lenders will require borrowers on an interest only mortgage to have a viable repayment strategy in place in order to ensure the mortgage is fully repaid at the end of the term.

A person is classed as a first-time buyer if they have never owned a property before.

You will usually need minimum of 5% to 10% deposit to purchase a residential property however there are lenders who now provide mortgages with no deposit required (100% mortgage).
Ideally it is better to put down as much deposit as possible to secure lower rates and reduce monthly payments.

A first-time buyer can typically borrow around four-and-a-half times to five times their income. They can also borrow more if they apply as a joint mortgage as lenders will assess affordability on both applicants combined income.
Lenders will also assess credit history, credit commitments and regular expenditures to determine the amount they are willing to lend.

The following schemes are available to first time buyers to assist them with getting onto the property ladder;

Lifetime ISA: You can save up to £4,000 each tax year in a Lifetime ISA account and receive an annual government bonus of up to 25%, capped at £1,000/year.

Guarantor mortgage: A guarantor mortgage is for borrowers who don’t have enough income to qualify for a mortgage on their own. The guarantor who is usually a parent or family member provides an assurance that they will repay the mortgage if the borrower misses their mortgage payment.

Shared ownership: Shared ownership schemes enable buyers to purchase between 25–75% share of a property, whilst also paying a reduced rent on the remaining share. Buyers are also able to buy more shares in the future which is known as staircasing.

Right to buy: Right to Buy allows eligible council tenants to purchase their council home at a discount up to a maximum of 70%.

Having bad credit may make it more difficult to get a mortgage however it is not impossible. There are several specialist lenders who are willing to lend to borrowers with a poor credit history therefore it is important to speak with a mortgage broker who can help you explore your options.

The following tips can help you improve your credit score;

• Make credit commitment payments on time
• Keep your credit utilisation low
• Don’t go over your credit limit
• Get a credit builder card
• Ensure you’re on the electoral roll
• Don’t change address too regularly
• Avoid too many hard searches

You can view your credit report for the 3 main credit reference agencies (Equifax, Experian & TransUnion) on checkmyfile.com

A remortgage is the process of making changes to your existing mortgage. This could be moving to a new lender in order get a better deal, raising capital for home improvements, purchase of another property or to consolidate other existing debts.

If you are coming to the end of your current fixed rate deal, it is usually advisable to start exploring your options 3 to 4 months before the end of your fixed rate deal. This is to ensure your remortgage completes before the end of the fixed rate term as mortgage offers and legal work can take a few weeks to process. This can also prevent you from going on the lender’s variable rate, which can be much higher than your current fixed rate.