Mortgages are one of the most popular ways of availing finance by borrowers in the UK. The lending institutions are professionally managed without any market intervention by the government. Due to financial deregulation, there is increasing competition between banks, building societies and online mortgage lenders. The financial deregulation has also led to an increasing range of new mortgage products.
Among them, current account mortgages are becoming very popular because they offer homeowners the opportunity to combine their current account with their mortgage debt. They are particularly useful for people with large current accounts and who pay the higher rate of income tax. Savings in the current account are automatically used to reduce the mortgage capital. Therefore, this leads to lower interest payments.
Another popular type is interest only mortgages because it is very useful to first time buyers who usually find it difficult to get a conventional mortgage, Interest only mortgages offer an option for making mortgages more affordable, especially in the short term. Also, most UK mortgages operate on a variable interest rate. This rate is usually determined by the Bank of England. Lenders usually charge a valuation fee for mortgages. This pays for the chartered surveyor who will visit and survey the property to ensure that the value of the property is enough to secure the amount of mortgage.
Lenders sometimes offer borrowers a fixed interest rate for a certain period of time before they will have to start paying the variable rate. Another common incentive is a discount rate. A discount rate is a rate that is lower than the variable rate. Discount rates apply for a certain number of years established by the lender. Some lenders offer capped rates. This is the maximum interest rate that the borrower would be required to pay at any time during the term of the loan.
Another common UK mortgage is a self-certification mortgage. A self-cert mortgage is for people who are self-employed with no means of proving their income. As long as the borrower has a down payment and borrows an amount substantially lower than the value of the home, a lender will offer them a self-cert mortgage. Self-cert mortgages usually have higher interest rates than normal mortgages because of the amount of risk involved for the lender. 100% mortgage is another type that is attractive to certain selective borrowers. Under this scheme borrowers can avail the full amount of the value of their home. However, due to the risk involved, the lenders charge higher rate of interest than other type of mortgages.
Some of more common mortgages in UK are repayment, endowment, individual savings account, and pension mortgages. In repayment mortgages, monthly payments pay off a portion of both the principal and the interest. In endowment mortgages, a life insurance is taken to pay off the loan at the end of the term. On the other hand, in individual savings account mortgages, the loan is paid off at the end of the term from a savings account opened for such purpose. In pension mortgages, the loan is paid off at the end of term from a tax free pension account established for the purpose.
Most of the lenders operate online, and so it is easier to get quotes and compare them sitting at the comfort of home or office. Borrowers usually make use of the internet facility to log on to online lending sites to shop around for suitable deals that suit their particular circumstances.
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