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Mortgages for beginners

Written by Ipswich Building Society

27 Sep 2018

Tags

First time buyers

3 min read

What is a mortgage?
A mortgage is essentially a loan provided by a lender to facilitate the purchase of a property. It allows a borrower to purchase their own home without having to pay the whole cost upfront. The loan is secured on the property, which means a lender can be confident that if the borrower fails to make repayments on the loan or can no longer afford the mortgage, the lender can use the sale of the property to recoup some of the money.

How much are the repayments on a mortgage?
This depends on how much you borrow, how long you borrow it for, how much interest is charged on the mortgage and on the Loan to Value (LTV) – that is, the ratio between the deposit you put down and the property value.

What is a deposit?
When applying for a mortgage, you will need a deposit to put down on the property – a larger deposit would lead to a lower LTV, and vice versa. As a rule, mortgages with a lower LTV come with a lower interest rate than those with a higher LTV.

How easy is it to get a mortgage?
Before you can get a mortgage, the lender needs to ensure that the mortgage is affordable and an acceptable risk – for both you and them. When you approach a lender they may perform a credit check on you. This is to look at your credit history and any outstanding loans or credit cards you might have, and to assess how ‘good’ you are at managing your money.

In most cases you’ll need to provide a deposit of at least 5% of the property value – perhaps the biggest barrier to young people getting a mortgage is raising the deposit. For those who can’t enlist the Bank of Mum and Dad to help them, many young people face an uphill battle saving for a deposit while also supporting living costs and rent in the face of rising prices and low interest rates.

Will I be able to afford a mortgage?
The most important check a lender will make when applying for a mortgage is affordability. Lenders will assess your income alongside your expenditure, so you should be prepared to submit full information during a mortgage application. Every lender has a responsibility to make sure that the mortgage you want is affordable and will ensure you have enough income to cover the mortgage repayments, even if your circumstances were to change.

What to do next?
To learn more about our mortgage products, please click here. For a more detailed view of the mortgage process from application to completion, visit our blog.

This article was published under our previous name of Ipswich Building Society. We changed our name in 2021 – find out more.

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