Residential Mortgages

Residential Mortgages Scotland

So, after weeks or even months of searching, you’ve finally found your dream home. Surely the hard part’s over? Unfortunately not.

Buying a property is never a small undertaking. Throughout the process, you’ll have many important decisions to make that will affect the way you pay for your home, possibly for decades. You’ll have to decide on the type of mortgage that works for you, put in a mortgage application and deal with stamp duty and surveyors. If you’re feeling overwhelmed and intimidated, it’s completely understandable, particularly if you are buying your first home.

The Lending Channel is here to make the process of buying a house as smooth and stress-free as possible. 

So, what happens after you put that offer in? Should you secure a mortgage beforehand? How long will the buying process take? And what’s the deal with a first-time buyer mortgage?

What is a residential mortgage?

A residential mortgage is a mortgage given to a person or group of people looking to purchase a home for themselves. The residential mortgage loan stipulates that the property has to be used as a home for the same person who took out the mortgage. The property cannot be bought and then let out to other tenants.

You may be allowed to sublet your property with a residential mortgage, but it could incur a higher interest rate. Residential mortgages are among the most common mortgage types and have a relatively basic set of rules and principles.

When should I start applying for a mortgage?

Generally speaking, it’s never too early to start looking into your options. This means even before you’ve started looking for a house to buy. This is important because:

• It’ll let you know how much you can feasibly afford before you begin to set your sights on potential homes.
• It helps create a smoother buying process down the line if you have a good idea of what is within your remit.
• Having a mortgage agreement in principle makes you a more attractive buyer. This gives you an advantage over other buyers when you put an offer in on a property.
• If you’re planning shared ownership with a partner, family member or friend, you’ll be able to understand precisely what kind of mortgage you’ll need before beginning the search.

You could also use an online mortgage calculator to give you a vague indication of how much you might be able to borrow. However, it won’t be until you’ve had an offer accepted that the details would be firmed up, and you can officially start the application process.

Where do I start?

If you’re considering buying a home, looking at your credit rating is a great place to start. This is an important component of the mortgage application process because your credit score will let the lender know how you handle your debt. Your mortgage lender will look at your credit history to determine your reliability as a borrower and decide what kind of product and interest rates they’ll offer you.

It’s important to raise your credit score as much as possible to give a positive impression to the mortgage lender and give you the best chance of being accepted. However, it’s important to note that each lender has its own criteria for its borrowers; no universal rating will provide a blanket guarantee of a mortgage. Every lender is different.

How do I raise my credit score?

We’re often told that debt is a bad thing, but having well-managed debt records will improve your score significantly. Without any debt on your record, the lender has no evidence that you’re a reliable investment for a mortgage. Both a poor history and little to no history are both very off-putting to a lender. Lenders are all about managing risk - and the more reliable you seem, the better.

Therefore it’s a good idea to build your score before applying for a mortgage. A few steps you can take to improve your score are:

• Registering to vote
• Taking out a credit card and keeping up with monthly payments (always use an eligibility calculator first so failed applications don’t impact your score)
• Always making sure you pay your bills on time
• Check addresses on old bill accounts
• Use a credit rebuild card if you’ve got bad credit
• Avoid payday loans 
• Cancel unused credit and store cards

If you’re looking for further advice on raising your score, please get in touch, and we can certainly help you.

What is a decision in principle?

Although you can’t be officially accepted for a residential mortgage until you’ve had an offer accepted, it is possible to request a decision in principle from your preferred lender. Lenders are permitted to give you an indication of what they’d be willing to lend you, taking all your circumstances into account.

This gives you evidence to supply the seller of the property that you have the financial means to afford it, making you a more attractive buyer. In the process of providing you with an agreement in principle, the lender will check your credit score and ask questions about your income.

What is the mortgage application process like?

Once you’ve had an offer accepted, you’ll have to submit an official application to your mortgage lender. If you’ve already got a mortgage in principle, you’ll have likely gathered most of the information required.

You’ll have to provide proof of your identity, residency and income. Your credit will be checked, and they may request references from your bank and employer.

It's important to remember that the mortgage application process can often be quite pricey due to extra fees such as; stamp duty, layer fees, admin fees or even mortgage agent fees. Remember that you will need to have enough cash left over to buy furniture for your new home, especially when buying your first home. 

People often save up enough cash for the deposit but then leave themselves strapped after these extra fees are added on. Be prepared for all eventualities when it comes to mortgage applications, and try to put some extra money aside for any unexpected charges or fees that may occur.

What is a fixed-rate mortgage?

A fixed-rate mortgage allows you to pay a fixed rate of interest for a set time. This time period can vary from 2-10 years, depending on your lender. Fixed-rate mortgages are attractive because the monthly repayments will remain the same each month, making it easier to budget and plan your finances ahead of time. 

What is a variable-rate mortgage?

A variable-rate mortgage is a mortgage where repayments will fluctuate based on the lender's discretion. You will pay what is known as a lender's standard variable rate (SVR) of interest, meaning the interest rate will change based on the current economic situation and the lending market. 

Variable-rate mortgages are a less attractive mortgage to most people because they can be unpredictable, and in a poor economic downturn, you can be left strapped for cash whilst still expected to pay a high monthly payment.

What is a Tracker mortgage?

Tracker Mortgages are a type of variable rate mortgage. The interest you pay on a tracker mortgage will vary monthly; however, the amount you pay will be linked directly to the Bank of England base rate. Tracker mortgages track the base rate and stay a set percentage above it all times. 

The Bank of England base rate will significantly impact the changes in monthly repayments that you are expected to make on your mortgage, meaning you will find it hard to know in advance how much you will be paying back each month.

What is the current average house price in Scotland?

House prices have been rising steadily over the past few years in Scotland and across the UK. Over the last year, alone prices have increased by 8%, with the average house price sitting at around £207,000. 

Due to this high price, most people will need to take out a mortgage loan in order to afford a residential mortgage. It also means that you will need to save more money for a larger cash deposit to obtain your mortgage from the lender. 

However, don't let this discourage you from taking out a residential mortgage. There are a lot of government-led schemes in place to help individuals get onto the property ladder and purchase their first home.

If you are eager to secure your first mortgage, looking to take out a new mortgage or considering moving to a new property, speak to The Lending Channel to see how we can help.

Is there a special first-time buyer mortgage in Scotland?

A few exciting and helpful schemes are available for first-time buyers in Scotland. This includes a mortgage guarantee scheme, which is available from some banks. Some offer a special first-time buyer mortgage of up to 95% of a property’s value. You might want to look into other schemes such as the First Home Fund that help first-time buyers get on the property ladder.

The best piece of advice for a first-time buyer is to enlist help and advice from a trusted and experienced mortgage broker. With so many options out there, it’s easy to get overwhelmed and miss things that could have ended up saving you a significant amount of money and time. 

The Lending Channel has helped countless first-time buyers secure their dream homes at the best mortgage rates available to them.

Get in contact to see how we can help you find your first home!