Residential mortgages

Residential mortgages are one of most common forms of credit. The average home in the UK now costs around £216,000, so it’s highly likely that you will need to take out a mortgage to afford to purchase your own property.

What is a residential mortgage?

Whether you’re a first-time buyer or looking to move house, a residential mortgage is the type of mortgage you will need to take out. A residential mortgage is a mortgage for a house that you live in. It is a long term loan which helps to fund the purchase of a property. The mortgage is to be paid back to the lender over approximately 25 years or more with additional interest.

With this type of mortgage, you must be living in the home yourself. You cannot rent the house out to tenants or use the property for any commercial purpose.

Residential mortgages typically require a cash deposit of between 10 and 30% of the total property value. For example, the deposit you would require for a £200,000 home would be somewhere within the region of £20,000 and £60,000.

Loan to value ratio (LTV)

Every mortgage has an LTV ratio. This is the amount you borrow set against the total value of the property.

If you are looking at buying a house with a value of £200,000 and you have a deposit of £40,000, then you will need to borrow £160,000 to afford the property. This would give you an 80% LTV mortgage with your deposit making up the remaining 20%.

The lower the ratio, the lower the risk to the lender and the better the interest rate you will be eligible for.

Mortgage Rates

Mortgages with the lowest available interest rates typically have an LTV of 60%. The highest rate mortgages typically have an LTV of 85% or more. Higher loan to value mortgages are popular options for people buying their first home as it allows them to save less for a deposit and get onto the property ladder much quicker than they would otherwise.

Your Mortgage Options

As well as your deposit amount, lenders will also consider your individual financial circumstances when applying for a mortgage. Your credit rating plays a huge role in your mortgage application. If you have a poor credit rating then it’s likely you will only be eligible for mortgages with high-interest rates. You can find out more about our bad credit mortgage options here.

How much could you borrow

Enter your total earnings before tax to find out how much you could borrow for a mortgage. If this is a joint application include your total yearly household income.

Household income

You could borrow:

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Why Clever Mortgages icon

Why Clever Mortgages?

At Clever Mortgages we can offer you the support and advice required to ensure you get the right mortgage for your first home.  We provide access to a comprehensive range of mortgages from across the market. We are also authorised and regulated by the Financial Conduct Authority (FCA) and adhere to the Treating Customers Fairly (TCF) guidelines, so you can be confident that we will treat you with integrity and only recommend products that meet your needs.

Mortgage types

A fixed rate mortgage is where your interest rate stays the same for a set time period (usually between 2-10 years). As a result your repayments are exactly the same each month, regardless of what happens to other mortgage rates. These types of mortgages are popular with first time buyers and people looking to budget each month, especially those who have suffered from a poor credit history.

The main downside to a fixed rate mortgage is that if mortgage rates go down you can be paying a higher amount than you would on a variable rate mortgage. However, this can also go in your favour and if interest rates increase you can be paying less than you would on a variable rate.

Every lender will have their own standard variable rate (SVR), which is considered their basic mortgage. This interest rate goes up and down, usually in line with the Bank of England’s interest rates but the lender is free to raise this at any time.

This means that your monthly payments can go up or down depending on what the interest rate is at a given time. Some months you could be paying more whilst other months you could be paying much less.

A discount mortgage is when a reduction is applied to the lenders Standard Variable Rate (SVR) for a certain length of time (typically 2-3 years). Discount mortgages are attractive as they can allow you to pay slightly less than the bank's standard rate. However as the SVR can still fluctuate they are not ideal for people who are looking to stick to a strict long term budget.

A tracker mortgage is basically a type of variable rate mortgage.  What makes them different from other variable rate mortgages is that they follow – track – movements of another rate, the most common rate that is tracked is the Bank of England Base Rate.

A capped mortgage is the same as a variable rate mortgage; however the interest rate can never rise above a set “cap”. These mortgages can work well for people who can budget for different mortgage repayments each month but want the reassurance that their payments will never go above a certain amount.

Offset mortgages are linked to a savings account as well as your current account. Your savings will be 'offset' against the value of your mortgage, and you'll only pay interest on your mortgage balance minus your savings balance. These types of mortgages work well for higher earners or people who have a good amount in savings that they want to use towards paying their mortgage.

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