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Residential Purchase Mortgages

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What is a residential mortgage?

Since 2015, the average price of a home in the UK has risen over £250,000, while it nearly doubles this amount in London and the South East. This means that very few people can afford homes from their savings. This is why residential mortgages are common in the United Kingdom.

A residential mortgage is simply a large loan meant to help you, the borrower, to purchase a home. The property you intend to buy is put up as the security for this mortgage. A residential mortgage ensures that the buyer can raise the value of the property from an up-front deposit and a top-up from the lender. The borrower is expected to pay back the money loaned plus an interest rate monthly for a designated period.

You can only take up a residential mortgage on a house you intend to use as your residence. If you plan on using the property as a commercial property, you cannot finance the plan with a residential mortgage.

What are the repayment types?

There are two types of repayments for residential mortgages. These are repayment and interest-only mortgages.

For a repayment plan, the borrower is expected to pay portions of the value of the property and interest on a monthly basis.

An interest-only plan requires the borrower to pay the interest on the borrowed amount. Once the loan term ends, the borrower will need to pay back the initial amount borrowed. However, you can pay the loaned amount within the loan period if you can afford it.

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What are the interest types?

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What are the interest types paid on residential?

Variable rate, fixed rate and tracker mortgage rate

What is a mortgage?

A mortgage is funding raised and secured against property. Whilst giving you the ability to raise money in order to purchase or refinance it also permits a mortgage provider to hold a legal right over the property itself, commonly referred to as a first charge. This means that a lender has a legal ability to repossess the property or ‘call in the mortgage’ should you fail to keep up with your repayments.

What is the difference between a capital repayment/interest only mortgage?

Capital repayment means you pay both the capital and interest back to a lender, where an interest only mortgage means you only pay back the interest and the amount borrowed is left to pay in full at the end of the term. There are various uses for an interest only facility and can be beneficial in certain situations however for a standard residential mortgage it is usually recommended that the capital repayment option is taken as long as it fits within an applicant’s budget and/or circumstances.

What is an income multiple?

An income multiple is what a lender occasionally uses to calculate a maximum figure they can look to lend you for a mortgage, for example; 4.5x income multiple on an income of £30,000 per annum would amount to a £135,000 mortgage. This however could reduce when the overall affordability of an application is looked into. Details such as monthly commitments on both household costs, bills etc, along with unsecured credit commitments such as credit cards or car finance will all have a bearing on what they lender deems to be ‘affordable’. Lenders have tightened their affordability models and how they assess a mortgage application and therefore it is now key to ensure that consumers are comfortable with mortgage repayments.

What is a credit score?

A credit score is statistical data that determines your credit position. There are 3 more commonly known credit referencing agencies; Experian, Equifax and Call Credit, all of whom report data to give you an overall score. There are various factors that can impact your score these include; missed payments or defaults on your finances, not being on the electoral register, too many searches being carried out on your file within a short period – all of which can have a negative impact on your score. Being on the electoral register, keeping up to date with your payments and not being over indebted (being too reliant on credit) can improve your score as well as other factors. As well as lenders using credit scoring from these credit referencing agencies, they also conduct their own personal internal score on you as a client to make a decision on whether to lend money or not.