Mortgages Explained

Everything you need to know about Mortgages and how a Mortgage Broker can help you through it all

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: November 24, 2023

Looking to learn all about mortgages? This guide will tell you everything you need to know, from the different mortgage types available to finding the perfect deal for your needs.

Read our mortgage guide in full for a complete overview or jump to the section you’re looking for.

What is a mortgage and how do they work?

A mortgage is essentially a loan used to buy property or land, either for residential or investment purposes. The mortgage lender will charge interest on the amount you borrow (otherwise known as the capital) and repayments will be made over a pre-agreed time period, from as little as a few years to as long as four decades.

The loan is secured against the property until it has been repaid, which means your home can be repossessed if you fail to keep up with the repayments or breach your contract in any other way.

There are two ways you can repay your mortgage – either through a repayment or interest-only arrangement.

  • With a repayment mortgage, your monthly repayments will cover both the interest you owe and a portion of the capital, which means at the end of the term you’ll be mortgage-free and will own your home outright.
  • An interest-only mortgage is slightly different, in that your monthly payments will only cover the interest owed on the amount you borrowed. This means you’ll need another method to repay the capital once the term comes to an end.

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What types are available?

Once you’ve decided between a repayment or interest-only deal, you’ve then got several other mortgage types to choose from, including:

  • Fixed rate mortgages. As the name suggests the interest rate is fixed for a set length of time, normally between two and 10 years but in some (rare) cases as long as 40. The benefit of this kind of deal is that your repayments will be guaranteed for the term of the offer period.
  • Tracker mortgages are a variable rate and often track the base rate, but with set margins applied (e.g. base rate +2%) over an initial term.
  • Discount mortgages offer a discount on the lender’s standard variable rate (SVR) for a set number of years.
  • Capped rate mortgages are again variable, but the lender will apply a cap on the highest rate you’ll be charged (and sometimes a collar on the lowest too) over the initial period.
  • Standard variable rate (SVR) mortgages. These mortgages charge the standard rate of interest as set by the mortgage provider. The rate can change at any time – often in line with the Band of England base rate – and as such repayments can similarly fluctuate. The SVR is often referred to as the revert rate, as borrowers would only pay it once the initial fixed or variable term came to an end.
  • Offset mortgages are linked to another of your accounts – normally a savings account – with the balance being “offset” against your mortgage so you pay less interest.
  • Remortgages. A remortgage is simply when you move your mortgage to another lender or new deal, often at the end of an initial term and/or to get a better rate.
  • Cashback mortgages offer a cash incentive for taking out the mortgage deal.
  • Flexible mortgages offer a greater degree of flexibility in how you can repay the balance, for example allowing you to make overpayments or take payment holidays.
  • Unencumbered mortgages are those placed on a property you already own outright, often in order to release equity.
  • Joint mortgages allow you to buy a property with another person (or people) and can come in different forms, such as joint borrower sole proprietor mortgages.

Given the huge range of mortgage types available, it’s often wise to consult a mortgage broker who will be able to help you determine the type that best suits your particular requirements.

Investment mortgages

Investment mortgages are a specific subset purely used to buy a property in order to turn a profit, rather than for residential purposes.

This includes:

  • Buy-to-let mortgages, which allow you to buy a property to rent out to tenants.
  • Commercial mortgages allow you to buy a commercial property or business premises, or even a business itself.
  • Buy-to-sell mortgages allow you to buy a property and sell it shortly afterwards. It’s a form of short-term finance and is often used by those who want to renovate and quickly get it back on the market.

You may come across different types of mortgage loans that can be used for investment purposes as well, such as bridging loans and development finance. These are short-term loans (typically for 12-36 months) that can, for example, help finance the purchase of a property with a quick turnaround or fund a development project, with flexible terms and interest-only arrangements being commonplace.

Specialist mortgages

More specialise deals can include:

  • First-time buyer mortgages This type of home loan normally comes with high LTVs (loan-to-value) – typically around 90% or in some cases as high as 95% – and therefore higher mortgage rates, but can be a great way for those with low deposits to get on the ladder. You may also come across gifted deposit mortgages and guarantor mortgages, which both offer ways for family members to help new buyers.
  • Help to Buy. This mortgage scheme is a Government-backed initiative offering financial assistance to those looking to buy their first home.
  • Shared ownership mortgages allow you to buy a percentage of the property and rent the rest, with the option of buying a greater proportion over time.
  • Self-employed mortgages are those available to self-employed applicants, with lenders using different eligibility criteria to take account of variable incomes and accounting procedures
  • Bad credit mortgages are designed for those with a less-than-perfect credit history who may struggle to source finance through mainstream lenders.
  • Second home mortgages are for those who have more than one property, often with stricter criteria to ensure you can keep up with the repayments on both properties.
  • Self-build mortgages are for those who want to build their own home, with the funds often released in stages that coincide with construction.
  • New build mortgages are for newly-built properties that can often be more difficult for lenders to value.
  • Overseas mortgages are for those who want to move abroad or perhaps have a holiday home overseas. In a similar vein, expat mortgages allow those already living overseas to buy a property either in their country of origin or the one they’re currently residing in.
  • Second charge mortgages allow you to take out additional lending on your property, often to release equity or as an alternative to a standard remortgage.
  • Retirement mortgages are specifically for those in or approaching retirement for whom standard deals would be difficult to come by. They come in several forms, including lifetime mortgages (a kind of equity release) and retirement interest-only mortgages.

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How to get a mortgage

There are several steps you’ll need to go through in order to secure a mortgage, and the mortgage application process can be daunting if you’ve never gone through it before. You can find out more in our guide to mortgage applications which includes step-by-step instruction about how to apply, but the first step should be to speak to a mortgage broker.

Get matched with the right mortgage broker

A mortgage broker should be the first port of call for anyone looking to arrange a new mortgage loan, not only for their expertise but also their lender contacts. But how can you find the advisor to suit? We can help.

Our unique, no obligation and completely free broker matching service will put you in touch with the broker who can accommodate your requirements, whether you’re looking for a simple remortgage or need something on the more specialist end of the scale. Just call us on 0808 189 2301 or make an enquiry and we’ll take it from there.

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FAQs

This will depend on the lender you’re dealing with.

Some may be able to offer mortgage protection products alongside their finance, while if you’re dealing with a high street bank you’ll have access to their full range of banking, loan and savings products as well, and will often have access to loyalty rates or additional perks for having your mortgage with them too.

It can also be more convenient to arrange things like offset mortgages if you have a savings or current account with the lender.

You can do this in one of two ways – research the market yourself, or let a broker do it for you. The latter can often mean you’ll have access to a wider range of products as some lenders only operate via intermediaries, so this could be a great way to ensure you’re getting the right lender and, as a result, the right mortgage deal.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

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Pete Mugleston

Mortgage Advisor, MD

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