Mortgages

Complete guide to mortgages

Many people in the UK need to take out a mortgage to buy a property or land.

Here we run through the basics so you can choose the most appropriate mortgage product for you.

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What is a mortgage?

  • 1. Secured Loan: When you take out a mortgage, the property you’re buying serves as collateral. In other words, your house becomes security for the loan. If you fail to make repayments, the lender has the right to repossess your home.
  • 2. Repayment Structure: Most mortgages follow a repayment model. You pay back the loan amount (the principal) along with interest in regular installments. These monthly payments gradually reduce your debt over time.
  • 3. Long-Term Commitment: Mortgages are typically long-term loans that span many years. Nowadays, you can even find mortgage terms extending up to 40 years.

What are the different types of mortgage available in the UK?

  • 1. Fixed-Term Mortgages

    • Duration: These mortgages lock in a fixed interest rate for a specific period (usually two to five years).
    • Pros: Predictable payments during the fixed term.
    • Cons: Early exit penalties if you switch mortgages before the term ends.
  • 2. Tracker Mortgages

    • Interest Rate Tied to Base Rate: The interest rate on tracker mortgages moves in sync with the Bank of England’s official base rate.
    • Impact: If the base rate rises (as it has recently), your monthly repayments increase accordingly.
  • 3. Standard Variable Rate (SVR) Mortgages

    • Default Option: When your fixed-term deal ends, you automatically move to the lender’s SVR.
    • Flexibility: No fixed term, so you can switch to a better deal without penalties.
    • Cost: SVRs tend to be more expensive than fixed-rate options.
  • 4. Discount Mortgages

    • Variable Rate with Discount: You pay the lender’s SVR but with a fixed discount for a set period (usually two or three years).
    • Watch Out: The lender can adjust the SVR during the contract, affecting your payments.

Remember, explore your options carefully and make sure you understand what you are signing up to!

Not quite ready to get a Decision in Principle yet?

If you're not sure what a Decision in Principle is or why you need one, you might like to read our mortgage FAQ's to run you through the basic terminology.