Mortgages are loans secured against property in the form of a charge registered with HM Land Registry.
Because the loan is secured, mortgages are deemed to be a lower risk than an unsecured loans like a personal loan from a bank, for example. Hence the lender can afford to lend on more favourable terms, at a lower interest rate and over a longer period.
The main types of mortgages are: residential mortgages; second home mortgages; buy to let mortgages; equity release mortgages and commercial mortgages (a loan to a business).
Different rules apply under different circumstances so arranging a mortgages can be a minefield and take a frustrating amount of time and energy. An experienced mortgage adviser will, therefore, save you a lot of time and money.
Applying for a mortgage
Applying for a mortgage is normally a two-stage process. The first stage involves a basic fact find to help you work out how much you can afford, and which type of mortgage suits your needs best. The second stage is where your mortgage adviser will conduct a more detailed affordability assessment, and if they haven’t already requested it, evidence of your income and where your deposit is coming from.
Your mortgage adviser will ask you a series of questions to work out what kind of mortgage you want, and how long you want it for. They’ll also try to work out, without going into too much detail, your financial situation. This is used to provide an indication of how much a lender might be prepared to lend you and on what terms. They will also give you key information about the product, their service and any fees or charges if applicable.
This is usually where you begin your application. Your adviser will begin a ‘fact find’ and a detailed affordability assessment, for which you’ll need to provide evidence of your income and specific expenditure, and ‘stress tests’ of your finances. If your application is been accepted, the lender will provide you with a ‘mortgage offer’ and a mortgage illustration and key features documents explaining terms of your mortgage. This will come along with a ‘cooling off period’ of at least 7 days, which will give you the opportunity to reflect on accepting your lender’s offer. Some lenders might give you more than 7 days to do this. You have the right to waive this period to speed up your home purchase if you need to. During this period, the lender usually can’t change or withdraw their offer except in some limited circumstances. For example, if the information you’ve provided was found to be false.