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How to get a mortgage

Getting the right mortgage deal for you is important. After all, it’s a long-term financial commitment and monthly expense you’ll need to keep up for years to come. But where do you begin?

The first step is to work out the type of mortgage you need, something which will depend on why you are looking for a mortgage. Usually you’ll fall into one of the following categories:

First-time buyer

If you’ve never owned a home before, a first-time buyer mortgage is usually what you’ll need. Knowing that you’re just starting out, the deposit requirements on most first-time buyer mortgages are generally small and mortgage deals where upfront fees are kept to a minimum are usually available.

» COMPARE: First-time buyer mortgages

Remortgaging

If you already have a mortgage but want to switch to a new one, you are looking to remortgage. Most people remortgage because their current fixed-rate or discounted term is at an end and they don’t want to move on to their lender’s standard variable rate, which is usually higher. Other reasons you might want to remortgage include to raise funds to pay for home improvements, or because falling interest rates or a rise in the value of your home means you could save money by switching to a new mortgage deal.

» COMPARE: Remortgages

Moving home

If you already have a mortgage but want to move home, you may be able to take your current mortgage with you – called porting. Alternatively, you might want to arrange a new mortgage altogether, either with your current lender or a different one. Whichever option you’re considering, you should always weigh up the costs of either porting or exiting your existing deal, along with the potential fees you face if you arrange a brand new mortgage.

» COMPARE: Home move mortgages

Buy-to-let mortgages

If you’re considering buying a property to rent out to tenants, you will need a buy-to-let mortgage. Also sometimes known as landlord mortgages, the minimum deposit on a buy-to-let mortgage is typically higher than on a residential mortgage. You’ll need to show that the rental income you’re likely to receive will more than cover your monthly repayments too.

» COMPARE: Buy-to-let mortgages

How to compare mortgages with NerdWallet

Our mortgage comparison tool is the quickest and simplest way to find the best mortgage rates on home loans suited to you and your circumstances. Answer a few short questions relating to your situation and the mortgage that you want, and the tool – which offers a whole-of-market comparison – will deliver results tailored exactly to your needs.

You’re then ready to compare mortgage rates, fees, and terms, and will get an indication of the monthly repayments you’d need to make too.

» COMPARE: Mortgage rates

How mortgage rates work

Mortgage rates are the rate of interest the lender charges on your mortgage balance, which affects how much you pay each month. A lower interest rate can mean lower monthly payments. These rates can be fixed or variable during the agreed mortgage term.

A fixed rate offers peace of mind that your monthly repayment will stay the same for the length of time that you fix, even if interest rates start to rise, however you won’t benefit from interest rates falling either. With a variable rate, on the other hand, the rate of interest you pay can rise and fall, usually in line with any change in the Bank of England base rate. This means your monthly repayments could change too, which can work in your favour if rates fall but can leave you paying more if rates rise.

To choose between a fixed rate or a variable rate, ask yourself:

• Do I want to know exactly what my mortgage will cost each month?
• Do I mind if my repayments increase and decrease without warning?
• Do I want to take advantage of potential drops in the base interest rate?
• Am I willing to remortgage after my fixed-rate period expires?

What types of mortgage can you get?

There are various different types of mortgage available to both new and existing home buyers, including:

• Fixed-rate mortgages, which have a fixed interest rate for a set period of time, so your monthly payments and interest rate will stay the same. When that initial term ends, if you don’t remortgage, the interest rate usually moves to your lender’s standard variable rate, or SVR.
• Tracker mortgages, which are a type of variable rate mortgage that tend to follow at a certain percentage above the base rate.
• Discount mortgages, which work by tracking a lender’s standard variable rate at a discounted rate for a set period of time.
• Interest-only mortgages, which only require that you pay off the interest each month, and none of your original loan, until your mortgage is at an end. It’s worth remembering that you will still owe exactly the same amount as you borrowed. Lenders may also ask for evidence of your repayment strategy. Another thing to remember is that interest only mortgages can also be on a fixed or variable rate of interest.
• Offset mortgages, which allow you to set your savings against what you borrow to reduce the interest you must pay.

Why loan-to-value ratio matters

The loan-to-value (LTV) ratio is how much you borrow against the property’s total price, after your deposit amount is deducted.

So, say you want to buy a home worth £200,000 and have a 10% deposit of £20,000. It’s no good applying for a mortgage that only offers a maximum 70% loan to value, requiring a 30% deposit. Instead, you’ll need to find a lender who will offer you a 90% LTV.

The LTV can also affect the interest rate you’re charged. You’ll usually get better rates from lenders if you have a lower LTV.

Interest-only vs repayment mortgages

A mortgage has two parts: capital, which is the amount of money you borrow, and interest, which is what the lender charges on the amount you owe.

With interest-only mortgages, your monthly repayment covers just the interest that you owe on the debt, not the amount borrowed. So you’ll still owe the full amount borrowed at the end of the mortgage term, as you’re not paying back any of the capital borrowed over time. Interest-only residential mortgages have fewer options than repayment mortgages. Also, you may not be able to borrow as much and will need to demonstrate how you will repay the capital at the end of the term.

With a repayment mortgage, you gradually repay all the money you borrowed, over your chosen mortgage term, plus interest. Your mortgage balance will get smaller every month and at the end of the agreed term, there will be no outstanding debt if you’ve met the payments. It’s the most common option.

Factor in mortgage fees

When you compare mortgages, it’s important to consider any fees the lender charges for arranging the mortgage, or if you choose to make overpayments. You should also keep an eye out for other potential costs, such as penalties for late or missed payments. And if you want to repay the entire loan early, the penalty is usually a percentage of the outstanding mortgage while the loan is in its initial deal period.

The annual percentage rate of charge (APRC) takes into account the initial rate, additional fees and charges, such as valuation fees, and the follow-on, standard variable charge rate. Our comparison tool results show the APRC as well as the initial rate, so you can see how affordable deals are, relative to each other.

Stamp duty

If you’re buying a property or land, you might need to pay a tax called stamp duty to the Government which could add to your overall costs. How much you’ll pay depends on the value of the property, where you are on the property ladder, and whether you’ll live in the property or rent it out.

In England and Northern Ireland, if you’ve owned a home before and are buying a property to live in, you won’t have to pay any stamp duty if the home is worth less than £250,000. If you’re a first-time buyer, there’s no stamp duty to pay if your property is worth under £425,000. But in either situation, if your property is worth more than the nil rate threshold relevant to you, stamp duty becomes payable in line with the rate tiers your property falls into.

Stamp duty rates and thresholds are different in Wales and Scotland, and if you’re buying a second property or looking to become a landlord.

» MORE: Use our stamp duty calculator

Can I get a mortgage?

Mortgage lenders have rules about who they’ll lend to. They’ll have a minimum age for applying, usually 18, and 21 for a buy-to-let mortgage, and a maximum age you can be when your mortgage term is due to end, which varies from lender to lender.

You'll usually need to have been a UK resident for at least three years and have the right to live and work in the UK.

Lenders will check your finances, so they are confident you can afford the repayments. So they’ll look at documents, such as your payslips to verify how much you earn and bank statements to see how much you spend each month, and they’ll ask about any debts you’re paying off such as car finance loans. They’ll also look at your credit record. Lenders want to be sure you’ll be able to afford your mortgage now and in the future.

Work out how much mortgage you can afford

You’ll get a good idea of how much mortgage you can genuinely afford to pay each month, and how much you would be comfortable spending on the property by taking a close look at your bank statements. What is your income – and your partner’s, if it’s a joint mortgage – and what are your regular outgoings? What can you cut back on and what are non-negotiable expenses? And consider how much you would be able to put down as a house deposit.

Consider how much you should borrow

While it may be possible to borrow as much as four or five times your salary, lenders will look closely at your personal finances before they come to a decision.

As well as your income, they will look at your other earnings, such as investments, and run a credit check to see your repayment history and credit score to evaluate how much to lend you, taking your house deposit into consideration. The higher your deposit, the more favourable the interest rates become because you’ll need to borrow less as a percentage of the total property price, which makes your loan less of a risk to the lender.

Lenders also look at your debt-to-income ratio, which compares your monthly income to your monthly debt repayments as a measure of affordability. If your outgoings are too high each month relative to your monthly pay, a lender likely won’t approve you for a mortgage.

Knowing how much you can afford can be more important than what you can borrow. You should be left with some disposable income and breathing space in case interest rates rise.

» MORE: How much can I borrow on a mortgage?

How to calculate your mortgage

A quick and simple way to get a ballpark figure is to use NerdWallet’s free mortgage repayment calculator. Just adjust your loan amount, interest rate and repayment term, and you’ll see what the monthly repayment would be.

You can also calculate what might happen to your mortgage repayments when interest rates rise and fall, and how much money you might save if you make regular overpayments.

» MORE: Mortgage calculators

How to apply for a mortgage

You can apply for a mortgage with a bank or building society. You can apply directly with the lender, telling them which mortgage you’re interested in, or through a mortgage broker. You’ll need to provide identification documents and a proof of address, which might be your passport, driving licence or utility bills.

Lenders will also want to see proof of income and evidence of where your deposit is coming from, including recent bank statements and payslips. It will save time if you have these documents ready before you apply.

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