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 a 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's the difference between capital repayment and interest only?
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's an income multiple?
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.
What is a credit score?
This is also known as ‘decision in principle’ and is an agreement from a mortgage lender confirming whether they are willing to lend. They will base this assessment on the information provided to them initially, a credit search & an affordability assessment. When purchasing a property it is usually a preferred requirement that you have had an agreement in principle to show that you can borrow the funds required.
This all depends on your personal circumstances. Many factors go into making a decision on how much you are eligible to borrow from a lender when enquiring about a mortgage. These include ‘income multiples’ (please see above what is an income multiple section for more details), your credit score (please see what is a credit score section above for more details), your overall finances – how much you currently have as unsecured debt, how many dependents you have, what mortgage term you will be looking at, what product you will consider and last but certainly not least your income. These are just a few of the factors taken into consideration, but as professional mortgage specialists, we can help advise you on your mortgage needs.
How much can I borrow?
If you have had adverse/poor credit previously which has in turn impacted your credit score, you may be unable to obtain a mortgage from the ‘high street’. Adverse credit simply means something has occurred financially that shouldn’t, for example you may have missed payments on unsecured or secured debts such as credit cards, loans, or 1st / 2nd charge mortgages. There are specialist lenders who work within the ‘sub-prime’ market, so you may still be able to get a mortgage even if you have had credit issues in the past.
What is a sub-prime/non-conforming mortgage?
Stamp duty is tax you pay on a property purchase. The amount you pay is tiered dependant on the purchase price of the property and if you already own property. It can change year on year when the annual budget is announced by the chancellor of the exchequer. Click to download Sapphire's Free guide to Stamp Duty