Mortgages

A guarantor mortgage is a type of mortgage where another homeowner – usually a family member or close friend – agrees to cover the mortgage repayments if you’re unable to.  

Guarantor mortgages can be a way to get mortgage approval if you’re a first-time buyer with a limited deposit or you have a poor credit history.  

However, it’s a massive financial responsibility for both you and your chosen guarantor. If neither of you can afford to cover the repayments, you could both end up losing your homes. Guarantor mortgages are also unlikely to offer the best mortgage rates, so think carefully about whether you can afford the monthly repayments before deciding if it’s the best option for you.  

The mortgage rate is the amount of interest you’ll be charged on the loan against the property. Mortgage rates vary based on several factors, including your deposit amount, the length of your mortgage term and whether you’re choosing a fixed-term deal or variable rate. 

A fixed-term mortgage secures a guaranteed mortgage rate for an agreed term. This is typically two to five years, but some providers offer fixed-term mortgages for up to 15 years. The variable rate means your mortgage payments could go up or down, throughout your term, in line with the Bank of England base rate. 

Mortgage rates are largely dependent on whether the Bank of England base rate goes up or down. Even if the rate changes during the next 12 months, if you have a fixed-rate mortgage you won't be affected until the term ends.

The best mortgage rates are typically offered to borrowers with larger deposits and the highest credit ratings. If you want to secure a decent rate, it may well be worth building your credit score before you consider applying for a mortgage.  

There are a few ways to help improve your credit rating, including: 

• Registering on the electoral roll. 
• Checking your credit report for any errors or out-of-date info. 
• Always paying your bills on time. 
• Cancelling any unused accounts and cards. 
• Avoiding applying for different types of credit over a short period of time.

While the mortgage rate tends to be the main number to look at when searching for a mortgage, you shouldn’t ignore the mortgage fees. These are the costs you need to pay up front. 

Advice fee – if you get help from a mortgage advisor, you may have to pay for their services. You won’t need to pay this if you get advice from our partner London & Country Mortgages. 

Booking fee – this ‘reserves’ your loan as the application goes through. It’s worth noting that this will need to be paid upfront and won’t be refunded if you decide not to take out the mortgage. 

Arrangement fee – this is what you pay your lender for setting up the mortgage. While a typical fee will be around £1,000, it could be as much as £2,000. You can pay upfront or add it onto your mortgage, but remember you’ll then be paying interest on it. 

Valuation fee – there’s no set price for a valuation and some lenders offer them for free. They cover the lender surveying the property you want to buy to make sure it’s worth the amount you want to borrow. 

Legal fees – paid to a solicitor to cover all the legal paperwork, including Stamp Duty and search fees. Stamp duty is a tax paid by the buyer on the purchase price of a property and is related to the size of the mortgage. 

Find out more about mortgage fees when applying for a mortgage.  

An agreement in principle is an offer of a mortgage from a provider. Most sellers will need you to have an agreement in principle before you make an offer on a house, as it shows you have the ability to borrow the amount needed to buy the property. 

Once you’ve found the right property, you can then go back to your potential lender and finalise the terms of your mortgage. 

To get an agreement in principle, you’ll need to provide a mortgage broker or potential lender with information about your income, outgoings and other financial details. Based on the information you give them and your credit score from a credit reference agency, they’ll calculate how much you’re eligible to borrow. 

A loan-to-value ratio (LTV) is used to show how much of your property’s total price is paid for by your mortgage. It’s usually expressed as a percentage. You can work it out by subtracting your deposit as a percentage from a property’s total value. 

For example, a £20,000 deposit on a £100,000 home works out as 20%. Take 20% away from 100% and you’re left with an 80% LTV. 

A higher LTV usually results in a mortgage with a higher interest rate because there’s more risk to the lender. If you can increase your deposit amount or buy a cheaper property in relation to your deposit, you could get a better mortgage rate. 

Mortgage protection insurance, also called mortgage payment protection insurance (MPPI), can cover the cost of your mortgage each month if you lose your job or can’t work because of illness. Many policies will pay out for a maximum of a year. 

This safety net can be particularly useful if you’re self-employed so aren’t eligible for sick pay from an employer. 

Other types of insurance, including life insurance and income protection insurance, can also be used to help cover mortgage payments. 

While not a legal requirement, your lender might insist you have a valid life insurance policy and buildings insurance in place as conditions of your mortgage offer.

APRC stands for annual percentage rate of change (APRC). You’ll see this figure when mortgages are advertised and it’s something you can use to help you compare deals. It brings together the costs of the mortgage per year, including fees as well as interest. It’s calculated as if you were to keep the mortgage for the full term and not remortgage. 

Mortgages often have an initial rate of interest that will last for a set period of time. Once that time is up, you’ll move to the lender’s standard variable rate if you don’t remortgage. The APRC takes this into account, showing you how varying rates will impact the mortgage in the long run. 

Before you start looking at properties, it’s a good idea to get a mortgage agreement in principle to help establish your budget. 

You’ll need to provide your mortgage broker or lender with details about your finances to get one. 

Agreements in principle are normally valid for 90 days, which should give you plenty of time to find your perfect home. Once your offer on a property has been accepted, you can start the full mortgage application. 

No one likes to be rejected, so you’ll want to make sure you’re as prepared as possible to boost your chances of mortgage approval: 

• Check your credit file and take time to build up your credit score. 
• Save enough for a decent deposit – the larger your deposit, and the lower your LTV, the more chance you’ll have of securing a good mortgage deal with a better rate of interest. 
• Choose your property wisely – mortgage lenders can be prickly when it comes to non-standard homes and flats with leasehold issues which may be difficult to sell on. 
• Get your paperwork together – lenders want to see proof of income – usually three months’ worth of bank statements, payslips and your latest P60, or tax returns for the last two or three years if you’re self-employed.
• Be careful with debt – ideally, try and pay off large outstanding debts and avoid applying for any type of credit just before you apply for a mortgage.  

Find out more ways to maximise your chances of mortgage approval.  

Thanks to the Mortgage Guarantee Scheme it’s possible to get a mortgage with just 5% deposit from participating lenders for a property with a purchase price of £600,000 or less. However, this does mean your options are limited, and the scheme is only available until 31 December 2022. 

Most lenders typically want a 10% to 20% deposit, with 20% giving you access to the best mortgage deals.  

Find out more about saving for a mortgage deposit.  

You’ll find mortgage deals from across the market, including some of the biggest providers in the UK, including Barclays, HSBC, TSB Nationwide, NatWest and Santander, as well as other lenders such as the Post Office. Some deals are available direct from the lender while others are only available through a mortgage broker, such as our trusted partner London & Country Mortgages Ltd (L&C)**.