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How do mortgages work and how do you get one?

Updated: Feb 17

Getting a mortgage can seem complex, time-consuming and expensive. We’ve broken down

the process for you, so your first home doesn’t feel so far away!


For those of you Squigglers who are aspiring homeowners (whether you’re already looking or have just decided that you’d like to buy a home) – welcome to the mortgage world!


Getting a mortgage can be one of the most significant financial commitments you make in your lifetime, so it’s important to do your research and get a feel for what’s out there. Whether you’ve been gifted the deposit money, used a scheme to help you save for the home deposit or saved enough yourself, you’re now responsible to invest that money – and that’s scary for any one of any age!


I’m not going to lie to you, it gets complicated in the mortgage world, and there’s always new financial jargon being thrown around that never makes sense until someone sits you down to explain it to you – kind of like any Christopher Nolan film tbh. Independent mortgage broker Trussle even reported that two-thirds of home-buyers and movers are confused by all the terminology!


So, here’s me, trying my best to break it down for you, so the whole thing seems a little less daunting and a little more like you’re taking the first step to reaching a dream! As always, I’m not an expert, so if you’d like to find out more, seek out a mortgage adviser for help!


TW: There’s going to be lots of maths and numbers in this blog.


Starting simple – what is a mortgage?

In the simplest of terms, a mortgage is a loan you take out to buy a house and you pay it back over a number of years (usually 20 – 40 years).

In a little bit more detail: when you find a home that you’d like to buy, you have to put down a house deposit. That means you pay part of the value of the property yourself (usually between 10% to 40% of the house price, but it can be as low as 5%) and the rest gets lent to you by a bank or building society. That’s right – ‘lent’, this sadly isn’t free money and you have to pay it back , usually in monthly repayments plus interest until the full loan is paid off. The amount of money you borrow – that’s the mortgage.


The interest they charge you depends on many things, but one of those things is how much deposit you put down – the higher the deposit, the lower the interest rate you’re charged, and vice versa.

 

Mortgage interest rates are usually fixed at the start (usually two to five years) so you’ll know exactly what you’ll be paying every month. After that, you usually move into the “standard variable rate”, which means your interest rate can change, and it may increase or decrease. Ask your mortgage adviser for more info on this!

 

What’s the first thing I need to do before getting a mortgage?

Work out the maths.


I know, it sucks, but there are mortgage calculators online that help you understand how much your monthly repayments will cost based on a number of factors. They help you figure out if you’ve got enough of a deposit saved, what your budget for a home should be or what you can afford and how much you’ll be able to borrow.

It's also a great idea to get a Mortgage Agreement in Principle, which is essentially like a mock mortgage (as if mock A-levels didn’t stress us out enough). Basically, a mortgage lender (after checking a few details of course), will give you a certificate or statement saying they’re happy to lend you a certain amount of money – kind of like a mortgage promise. So, when you put down an offer on a home, it shows your estate agent that you can definitely afford to buy the home (talk about trust issues).


Getting an Agreement in Principle (AIP) isn’t mandatory, but it’s a good step to include. In a recent survey, Which? found that 62% of first-time buyers took out an AIP before buying their home.


Once you have an idea of what you’re looking for, it’s a good idea to speak to a mortgage adviser. They’ll help you understand the different mortgage deals available to you and your particular circumstances.


Things to consider when getting a mortgage

A mortgage application can be a tedious process, and I know I’ve said it multiple times in this blog but do speak to a mortgage adviser to get the best deal and get personalised help with the full process – it’s definitely worth it.


Here are some things you should consider when getting a mortgage (which your mortgage lender will probably be looking at too):

  • Your income matters, but so does your employment status and how long you’ve been in your current job. So, if you’re thinking of leaving your role while applying for a mortgage, maybe wait until you’ve secured your mortgage

  • You might have heard this one: your credit score is really important. A bad credit score doesn’t equal no mortgage, but it does make things more difficult. Make sure you’ve paid all your bills (and on time), avoid dipping into your overdraft, try and pay off any existing debt, and (this is a weird one) register to vote!

  • Securing a mortgage is easier when you’re buying with someone else – because there are two streams of income coming in. Of course, buying a house is a massive financial commitment so it’s worth having a big think about.


Lastly, when you get a mortgage, your mortgage

adviser or provider will talk to you about home insurance and protection, which will help you protect your home.


Another financial product you should consider is income protection insurance, which basically replaces your income if you can’t work due to illness or an accident for as long as you need. So worst case scenario, if you’re unable to keep up with your mortgage payments because you can’t work, income protection insurance could help, instead of having to dip into your hard-earned savings.


With 64% of UK adults (Homeowners Survey 2019) worried about getting a mortgage and being able to repay it, it’s definitely something to think about. Find out more about income protection insurance here.


Want to know more? A financial adviser can help!




Conclusion

Mate, hats off to you for putting ‘buying a home’ on your bucket list. It’s a really big commitment and a financial challenge for many, but such an amazing milestone and achievement!


My advice as a Squiggler? Always ask for advice from an expert. It’s worth it, and a good mortgage adviser will help you find the right deal, support you through the whole process and secure your first mortgage!


And if buying a home isn’t your thing, #renterforlife isn’t so bad either.