If you’re thinking of buying a property with a mortgage, one of the first things that you will need to do is to get a Decision in Principle from a lender. If it’s been a while since you bought a property, or if you’re looking to take your first step onto the ladder, then knowing where to start when negotiating the mortgage market can be a bit of a challenge.
To help, we asked Dionne Ford from Mortgage Advice Bureau to answer some of the most frequently asked questions that she hears from potential buyers.
What is a Decision in Principle? In simple terms, a Decision in Principle (DIP) means that, in principle, the lender would be willing to lend to you. It’s a good idea to have this in place before you start making offers for properties as, without it, it’s hard for sellers to put much stock in your offer.
Having a DIP from a lender doesn’t mean that you are committed to using that particular bank or building society, and it may be that other lenders have better rates available when you ultimately come to buy.
How much of a deposit do I need to get a mortgage? The lowest deposit required is normally 5% of the overall mortgage loan. If you’re buying a property for £150,000, that means you’ll need a deposit of at least £7,500.
How much can I borrow for a mortgage? Lenders will need to see proof of your income and how much money you spend each month. This will include rent and personal financial commitments such as credit cards, car loans and childcare. They basically want to know that you can manage your money and afford the monthly mortgage repayments.
What is an average mortgage rate just now? There is no average mortgage rate, as the rate depends on your circumstances. For example, how much you’re looking to borrow, how big your deposit is, the property’s value and type of mortgage will all affect the rate you pay.
Who offers the lowest mortgage rates just now? It depends on the type of mortgage you’re looking for and your own circumstances. A mortgage broker has access to thousands of mortgage products from multiple lenders, so they can help find the right deal for you.
How long is a mortgage? Most people’s first mortgage is for at least 25 years, but can be as low as 5 years. Remember as with all loans, interest will be charged for the duration of the loan.
What is the difference between fixed and variable rate mortgages? As the name suggests, with a variable rate, the interest rate that you pay can change over the duration of the deal. It is driven by a number of economic factors, the most common one being the Bank of England base rate. These factors can be quite complex, however a mortgage adviser will be able to explain these to you in detail.
With a fixed rate deal, the rate of interest that you pay is constant for the duration of the mortgage. The most common type of fixed mortgage at present is two years, but you can get a fixed rate mortgage up to 10 years.
Who should I speak to about a mortgage? Most high street banks and building societies offer mortgages. Your other option is to use a mortgage broker. A broker has access to a range of lenders and products and often has access to exclusive deals. As the broker has no ties to a particular lender, they want you to get the right deal for you.