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All you need to know about mortgages in one helpful Q&A

Protection & Investment Ltd (PIL) has over 25 years’ experience of giving our clients high quality, independent financial advice across all stages of life, including insurance, savings and investments, mortgages, pensions and later life planning.


We pride ourselves on making finance straightforward, talking our clients through everything they need to know in a friendly and approachable way. We never forget that you are unique. We listen carefully to your individual needs and plans, and our advice is always personally tailored to you and your circumstances.


Here, we’re focusing on mortgages. Our expert team at PIL Southampton answers all the key questions we’re asked every day. What types of mortgage there are, how much you can borrow, the deposit and the overall process start to finish. 


If you have any questions about any of the content covered here, please contact us using the details below. We would be delighted to help you.

Types of mortgage


What are the different types of mortgage?

There is a mind-blowing range of mortgages on the market today. Fixed rate, standard variable rate, buy-to-let, capped-rate, discount, flexible, guarantor, help-to-buy, joint, offset, tracker, 95%… it’s quite the list.

We can help you to work through your options and make the right choice for you and your circumstances.


What is a repayment mortgage?

Most types of mortgage fall into the category of repayment mortgage, which means that you are repaying some of the capital amount that you borrowed, as well as paying off some of the interest on that loan, every month. At the end of the mortgage term, you own your home outright. If you move house before your mortgage term is complete, you can either transfer your mortgage to your new property (known as ‘porting’ your mortgage) or pay it off as part of the house sale process.


What is an interest-only mortgage?

As its name suggests, with an interest-only mortgage your monthly mortgage payment is only paying the interest on the loan you took out to buy your property. The advantage of an interest-only mortgage is that your mortgage payments are lower as you’re only paying the interest. However, it’s essential that you have the funds in place to pay the original capital amount back at the end of your mortgage term otherwise you may have no choice but to sell your property to repay your debt to the lender. 

It is worth noting that, because your original loan amount never decreases during your mortgage term, an interest-only deal will cost you more in the long run than a repayment mortgage. This is because, with a repayment mortgage, you’re paying interest on an ever-decreasing capital amount as the mortgage term goes on.


What is a variable rate mortgage?

With a variable rate mortgage, the interest rate is affected by the Bank of England’s base interest rate and fluctuations in the market and can go up and down at any time. The different types of variable rate mortgage, like the standard variable rate, tracker, discount and capped-rate, each have their own advantages and disadvantages. Our expert team at PIL Southampton can discuss the differences between each of these options with you.


What is a fixed rate mortgage?

In complete contrast to a variable rate mortgage, with a fixed rate mortgage you know exactly where you stand which is really helpful for your budgeting. It typically covers the first two, three or five years of your mortgage term, locking in your interest rate. There are downsides, though. Protecting yourself from any interest rate rises also prevents you benefiting from any interest rate falls. Also, when you sign up to your fixed rate mortgage, the interest rate will likely be higher than variable interest rates available at the time, as you are paying a premium for certainty. Another factor to consider with a fixed rate mortgage is that you are likely to be hit with a substantial penalty if you would like to switch your mortgage rate before the fixed term period ends. 


How long should I fix my mortgage for?

Whether you choose to fix your mortgage for two, three or five years will depend on a combination of your own personal financial circumstances and the advice you are given from financial experts like our team at PIL Southampton. Our job is to consider the state of the economy at the time and do the best we can, without a crystal ball, to predict which way rates are going to go in the future. A lot will also depend on whether you anticipate moving before the fixed rate term ends as, if you are unable to port your mortgage, you may have a large redemption penalty to pay in order to exit early. 


What is the term of a mortgage?

A mortgage term is the lifespan of your home loan. In the case of a repayment mortgage, this will be until the mortgage is paid off in full. If you have an interest-only mortgage, this will be when you have paid off all the interest on the mortgage and now need to repay the amount you borrowed in full.

The standard length of a mortgage term is traditionally 25 years but can be as long as 40 years – most lenders now offer this longer length term to younger buyers. The minimum term for an individual’s standard mortgage is five years. The longer the mortgage term, the smaller your monthly repayments will be, and vice versa. Bear in mind, however, that you’ll be paying more in the long run for a longer-term mortgage as you will be paying interest for longer.

Your mortgage term is expected to remain unchanged if you stay with that lender for the full term of your mortgage. However, it could reduce if you make overpayments to your mortgage along the way or if you change your mortgage lender during the term you would have the opportunity to change the length of your mortgage term.



Generally speaking, how much can I borrow for a mortgage? 

Your income and the size of your deposit – or the amount of equity that you have already got, will have the biggest impact on the amount of money a mortgage lender might allow you to borrow. Your outgoings and financial commitments will also be a big factor. 

How do banks assess how much you can borrow for a mortgage?

Lenders used to just multiply your income (or joint income if you are applying with another individual) to work out the maximum amount they would lend you. It’s more complicated than that now, as the lender has to check the affordability of the mortgage repayments. 


What is an affordability assessment for a mortgage? 

The affordability assessment is the lender’s process for carrying out a thorough evaluation of your income, assets and expenditure, to help them to calculate how much they are willing to let you borrow and if they think you will be able to keep up with repayments. Expect them to go over your finances with a fine-tooth comb. Not just your big bills, but your recreational spend, too. They also need to ‘stress test’ you to best guess whether you would be able to keep up with your repayments if interest rates go up, so it’s important that you’re realistic about how much money you can afford to borrow.


What criteria do lenders consider in their affordability assessment for a mortgage?

Each lender has their own way to calculate mortgage affordability but the most basic starting point is the income multiplier. The average used is 4-4.5 times your salary, but it can vary from 3 times your income to 5 times or, in rare cases, even 6 times. Some lenders will also allow commission, bonuses and overtime payments, and income from investments (including other properties) to be taken into account. How you are employed can play a part, too. Some lenders have more strict criteria or different rules if you run your own business.

Of course, your income doesn’t tell the full story. You could be spending £3 of every £10 you earn, or £9! So, as part of their affordability assessment, lenders will look into your expenditure in a lot of detail – everything from utility bills to holidays and gym memberships. Even your regular morning coffee shop treats.

Part of this assessment will be working out your debt-to-income ratio (DTI). This calculation works by dividing the total cost of your monthly debts by your gross monthly income. Common monthly debt payments could include credit cards, rent or existing mortgage payments, child support, car finance, personal loans and so on. Ideally, to get lenders’ best deals, your DTI should be around 20-30%. 


How can PIL Southampton help me assess how much I can borrow for a mortgage?

We can work through your income and expenditure with you, using our experience to make sure you have thought of everything. This thorough exercise will give you an accurate position of how much you will be able to borrow for a mortgage.

The deposit

Why is a deposit needed for a mortgage?

A deposit gives your lender the assurance that they will have security on the loan you are taking out with them. The higher the deposit, the lower the risk of negative equity. One exception is a right-to-buy mortgage, which generally doesn’t need a deposit.


Generally, how much deposit do I need to put down for a mortgage?

How much deposit you put down will depend on the value of the property and your financial situation. It helps to pay as high a deposit as you can comfortably afford, to keep your repayments as low as you can, and to have a bigger share of equity in your home. According to the MoneyHelper, the national UK average deposit for first time buyers is around 20%.


What is the minimum deposit I can put down for a mortgage?

In the vast majority of cases, 5% of the value of the property is the minimum deposit a lender will accept. Very few lenders will accept less than this. 


What does LTV mean?

LTV stands for loan-to-value and it describes the relationship between your deposit and the amount of money you need to borrow on that property. For example, if you have a 20% deposit you will need an 80% LTV mortgage. 


How will increasing my deposit affect my mortgage payments?

Generally speaking, a deposit of up to 15% (85% LTV) will fall into the highest bracket of mortgage interest rates. 

A higher deposit will give you a lower LTV which will put you in the bracket of lower mortgage interest rates. This is because the more equity you have in the property the more likely you are to be able to cover the rest of your mortgage if your property’s value falls. Consequently, this scenario makes you a lower risk to the lender and therefore they are generally more comfortable giving you a lower interest rate.

Because bigger deposits attract lower interest rates and therefore lower monthly mortgage payments, it’s tempting to put down as big a deposit as you can. However, you should make sure that you don’t stretch beyond your means and you need to factor in extra costs like stamp duty, legal fees, moving costs and so on, when you’re deciding how much to deposit.

The process

What are the stages of a mortgage application?

First, we arrange a meeting for you with one of our advisers who will assess your circumstances and calculate your affordability. 

Once our adviser has decided which lender will be the best fit for you, we will apply for a mortgage Agreement in Principle (AIP). In this part of the process, the proposed lender will review your credit score and assess your financial status before providing you with written confirmation of what they would be prepared to loan you. This is known as a pre-approval offer.

If the mortgage is to enable you to buy a new property, this is the time for you to put your offer in, showing the vendor that you are a serious buyer. 

When your offer is accepted, we start the full application process to convert your pre-approval into an official mortgage offer. Your AIP will already have covered some of the required documentation, but you will need to provide any other relevant documentation confirming your identity, address, source of income, etc.

The lender will carry out an independent valuation survey on the property, to make sure that its value can cover the mortgage amount.

When you receive your formal mortgage offer, it is important that you read the contract carefully and understand exactly what you are signing up for. After all, a mortgage is likely to be by far the biggest financial transaction you ever make.

Finally, your monthly mortgage payments will start in the calendar month after your completion date.

How PIL Southampton can help you

We can guide you through the mortgage process every step of the way, using our extensive experience to help you find the right mortgage and get the best deal for you.

How you can contact PIL Southampton

Our friendly, knowledgeable team is here to listen to your needs and take you through your options in a clear and straightforward way. You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.