How to Get the Right Mortgage

What is a mortgage and why do they matter?

A mortgage may be the largest and most important loan you take out, and with many mortgage types available, choosing the right product is essential. Even the smallest percentage difference in your mortgage rate can affect total repayment costs over the mortgage term, which typically spans 25 years or more.

Understanding mortgage basics

There’s a lot to think about when buying a new home. Where to buy, your price range and the number of bedrooms will be on your mind, but understanding mortgage basics is also crucial. This can include:

• How borrowing and repayments work. You borrow money to purchase a property, repaying it with interest, often over a period of 25 to 40 years (depending on your mortgage terms)

• How your deposit size affects interest rates offered. Larger deposits often secure better deals and can show lenders improved financial stability

• The types of mortgages available to you. Mortgages may be fixed-rate, with payments staying constant, or variable-rate, with payments fluctuating. Understanding the differences and what may be more suitable for your circumstances can help inform your decision

• How lenders assess affordability. Lenders usually look at your income, outgoings and credit history, and will typically lend around 4 to 4.5 times your annual salary

Why getting the right mortgage impacts your long-term costs

Mortgage types can impact finances and long-term costs. Interest rates vary from one mortgage to another, which can mean higher or lower monthly repayments. For instance, fixed-rate mortgages have fixed interest rates for an agreed period, so you know exactly what you’re paying during that time. Variable and tracker mortgages are often subject to interest rate changes, so your repayments may change throughout the mortgage term.

Mortgage types explained

There are three types of standard mortgages: fixed-rate, variable-rate and tracker mortgages. Learn more about each type here.

Fixed-rate mortgages

With a fixed-rate mortgage, your interest rate is fixed for a set period. You know how much your repayments will be for that timeframe, despite market changes or fluctuations to the Bank of England’s base rate.

The term for a fixed-rate mortgage is typically 2 to 5 years, though it’s possible to get one for as long as 10 years. The longer the term you fix your mortgage rate for, the higher the interest rate is likely to be, as the lender is taking on a greater risk.

Variable-rate mortgages

A variable-rate mortgage uses interest rates set by lenders in line with market conditions. They don't necessarily follow the Bank of England’s base rate. Some lenders offer new borrowers an initial discount on their variable-rate mortgage for a set period.

For example, if the variable rate is 5%, there could be a 2% discount for the first 2 years. After which, the rate reverts to the standard variable rate (SVR). While you might benefit from lower payments if SVRs fall, your payments could also increase if rates go up.

Tracker mortgages

A tracker mortgage’s interest rate moves up and down in line with the Bank of England base rate. It consists of the base rate plus an additional percentage agreed with your lender. For example, if your mortgage variable rate is 2%, your overall interest would be 2% plus the current base rate.

You can check the current base rate on the Bank of England’s website. The Bank of England’s Monetary Policy Committee get together every month to discuss the base rate.

Moving house with a mortgage

It may also be possible to transfer your mortgage when you move house, a process known as porting. Check the conditions of your mortgage with your lender or adviser to find out more.

Should you use a mortgage broker?

A mortgage broker can help mediate between you and a lender, but should you use a mortgage broker? It’s possible to apply without one, but a broker can be a useful starting point for getting the right mortgage and understanding what aligns with your current circumstances. They can outline available options and support you through the application process. Requirements vary by lender, but a good broker should be able to know these differences.

What does a mortgage broker do?

A mortgage broker can help you understand what you can afford. Banks and building societies typically offer their own mortgage products. However, some brokers can access products from multiple lenders, which may allow you to explore more options.

How to choose a qualified broker

A mortgage broker must be fully qualified, authorised and regulated by the Financial Conduct Authority (FCA). When choosing a broker, it may be helpful to ask the following questions:

• Are they qualified? You can verify this through the FCA register

• Who has the most to offer? Different brokers may have different offerings. A bank’s mortgage brokers will usually only advise you on the in-house products available, while independent brokers can recommend products from across the market

• Are there any fees involved? Some brokers will charge you a fee for their services. They may offer you a call, a home visit or an appointment at their office. You can ask how much they’ll charge and what range of products they can show you

• Can you go straight to a lender? A few lenders offer mortgages directly to customers that aren't available via brokers, so even if you use an adviser you trust, it can also be a good idea to check the market yourself

Getting a Decision in Principle (DIP)

A Decision in Principle (DIP), also called a Mortgage in Principle (MIP), can give you an idea of how much you could potentially borrow before you start viewing properties. However, it may be worth speaking to a mortgage advisor before sharing your DIP with sellers or estate agents.

What is a Decision in Principle?

A DIP is a written statement provided by a mortgage lender or broker which outlines how much money you could potentially borrow. A DIP is not a formal offer and is only valid for 30 to 90 days. If your DIP expires, you can apply for a new one or renew your existing one. Unlike a mortgage offer, a DIP is just an estimate of how much you could potentially borrow.

How much can you afford to borrow?

The amount you can afford depends on several factors, and your lender will assess how much you can borrow for your mortgage based on your financial situation and credit history.

Lenders assess affordability to determine how likely you are to meet mortgage repayments each month. They may consider the following:

• Credit score

• Income

• Outgoings

• The size of your deposit

• Employment status

• Other debts

Ready to become a homeowner? Explore our brand-new homes across the UK. Whether you’re a first time buyer or existing homeowner, we have a wide range of offers to help you make your next move.

Call or visit our Sales Advisers to kickstart your homebuying journey.