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.
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.