Everything You Need to Know About Residential Mortgages
Have plans of purchasing a home in the future? A mortgage is probably the last thing you need unless you are a cash buyer. It can be a good idea to familiarise yourself with residential mortgages because this is the most popular form of home financing in the UK.
Residential mortgage is taken to buy a house that you will inhabit. The loan is secured on the property and may be in any form, that is, fixed or variable rate offers, as well as repayment or interest only. Read on to learn more about how they work.
How Do Residential Mortgages Work in UK?
A residential mortgage is any kind of mortgage secured against a property where you intend to reside.
Residential mortgages, like other types, allow home buyers to acquire a home on loan offered by a mortgage lender.
Most often the purchaser will be required to put down a deposit on the house they are purchasing with the remaining portion being financed by the lender; you will pay the lender back, with interest, over an agreed length of time.
How Much Deposit Will I Need For A Traditional Mortgage?
When you are seeking to acquire a property using residential mortgage you will be required to have a deposit that will comprise a percentage of the market value of the property you are seeking to purchase.
Many of the residential lenders will be providing loan-to-value (LTV) of 90% which implies that you as a borrower would be required to provide a 10% deposit.
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But some lenders will be happy to lend you up to 95% of the value of the property provided they are comfortable that you can afford the payments, so a 5% deposit could be ok in the right conditions.
Are There Other Types Of Residential Mortgages?
Residential mortgages, on their part, can be sub-categorised into a number of products. People have fixed-rate mortgages, where the interest rate is fixed over several years, and tracker mortgages, where the rate follows the Bank of England base rate
In addition to these standard deals, borrowers can possibly make use of discount mortgages, flexible mortgages, guarantor mortgages among others. What is best suited to them will be determined by their situation, and preferences.
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Beyond the residential market though there are other alternatives. Commercial mortgages exist and may enable borrowers to buy commercial real estate, invest in business property, or renovate current areas.
Specifically, there exist buy-to-let (BTL) mortgages targeting landlords. The loans are used by the landlords to purchase the houses which are rented to tenants.
Can You Change A Residential Mortgage To A Buy-To-Let Mortgage?
A situation might also arise where you no longer want to reside in your property, and you wish to lease it to tenants. When it occurs, your mortgage will have to be adjusted.
Asking your lender to give consent to let is one of the options. This is the lender consenting to you letting out a property that is lent against. The lender is not obliged to accept this and even where it does, it may result in your interest rate being hiked and/or you being levied fees. What is more, consent to let may only last for a year or so, meaning you may need to request it again 12 months down the line.
You might also have to remortgage to a specific buy-to-let mortgage. It is a more long-term solution and the mortgage lender will, once more, be keen to conduct affordability assessments to make sure you can afford repayments. Since your home is being transformed into a rental home, the lender will ensure that you have sufficient rental income to service the mortgage.
Without the consent of the mortgage lender, you cannot rent out your property to boarders on a residential mortgage. This would probably be in violation of the terms and conditions of a residential mortgage, and may cause the lending institution to insist that you pay the full amount you owe immediately.
The Pros And Cons Of A Residential Mortgage
The most economical method of purchasing property is through buying in cash and paying in full. But most of us can not afford to do so, and residential mortgage becomes a necessity.
With mortgage terms stretching over decades and interest rates competitive, residential mortgages can make homeownership affordable. However, it is important not to overstretch yourself with too big a mortgage or too pricey a property. If you cannot afford monthly repayments, you could lose your home.
Conclusion
A residential mortgage is a great option for most people looking to buy a home, making homeownership achievable with manageable loan terms. Using a standard 10% deposit, you have a number of mortgage options, such as fixed-rate mortgages or tracker mortgages, based on your requirements. It is important to select a mortgage that you can comfortably pay. When you are all set to check your mortgage options, roll over to Good News Mortgages and check out their expert advice and the best deals personalized to you!
