Everyone dreams of getting onto the property and owning their own home.

Sometimes, all it takes to achieve that dream is taking out a mortgage on a property with a loan from a financial institution. But there are many different types of loans so it can be difficult knowing which one is right for you. And buying a property for the first time can be daunting. So I asked our expert Dinesh Shonchhatra about the A-Z on mortgages.

Quite simply, a mortgage is a loan you take from a bank in order to buy a property, and different banks have different criteria for the various types of mortgages.

Since the new government has come into power, there have been some changes to mortgages. One change that has come into place is affordability and the loan amount one can receive. Banks now look at three months of your bank statements, any loans you have already, your habits and social life and bring the affordability down accordingly.

This means that they have toughened up on the amount of loan they give out and that buyers receive a smaller loan than they previously would have been able to. But it is not all bad news because essentially this means that you will not borrow more than you can afford.

Another change is to the type of loan someone will receive. Less people will be able to get interest-only loans over repayment loans. And interest-only loan means you are only paying back the interest on the mortgage loan whereas a repayment loan means you are actually paying off the mortgage for your house so will own the house once the sum has been paid off. After paying off your interest-only loan, you will still have to pay off for the cost of the house and will not own the house.

I wanted to know why somebody would choose an interest-only loan over a repayment loan as surely people would want to own their house after all those monthly payments! Dinesh explained that repayments with interest-only loans are much lower than repayment-only loans so can seem more appealing. Dinesh explains that banks are transparent about the type of loan you are taking, so do not worry about getting the wrong type!

The third change that has been enforced is that the retirement age is around 65-70 years so if you are above the age of 70, you will not be able to take out a mortgage. This is because the government wants everybody to pay their mortgage off by the time they retire. It is bad for somebody around the age of 50 as they only have about 15-20 years to pay off their mortgage.

 With all these changes, how are first-time buyers affected? Well it is good news for first-time buyers because they are being encouraged by banks and the government to get onto the property ladder.

There are two government schemes to help first-time buyers get on their way to the white picket fence. The Help-to-Buy 1 gives buyers 5% off their mortgage rate, while the Help-to-Buy 2 gives 20% off the mortgage, is interest-free, with no payment for the first five years. But this only applies on new builds, and the bank is still an equity partner so if the property price increases so will the repayment.

Maybe you are a first-time buyer who is looking to rent out a property rather than own it. If this is the case, you can get the Buy-To-Let mortgage which is specifically for investors and people with money in the bank. The interest rate is low and the rent would be more than the mortgage in most cases. With property prices increasing, the value of properties are increasing too which means it is a win-win situation because the rent-income from tenants pays for the mortgage while the price of the property increases so you make a profit from that too.

You may be looking to invest but in a commercial property for business purposes rather than renting out a property or owning one. If you are looking to go into business, you can take out the Commercial mortgage which is more expensive than a normal mortgage but there are many other benefits. Banks will take into consideration your experience in business or the industry you are looking to go into.

As I mentioned, banks will take your experience into consideration if you are looking to take out a Commercial mortgage loan. In fact, the banks will assess various criteria for the different types of mortgages you can get. This means that if you are refused a loan from one bank, you may be eligible to take one out from another bank as the criteria at one bank may be different to another. So do not feel let down if you do not get a loan from the first bank that you visit!

Dinesh gave some advice on ensuring you do get that all-important mortgage so you are well on your way to getting the property you want:

  1. Make sure you are on the voters roll / electoral register which you can do at your local council if you are not already on it;
  2. Have a clean credit file;
  3. Do not have your name signed at too many addresses – put your parents’ address down on forms as opposed to your university address.

Having a good credit history is essential in getting a loan. Banks will not lend money if you have a bad credit history. To ensure you have a good credit history, pay your credit cards on time and if you owe money but it is not your fault ensure you tell the courts this.

Some people who are looking to retire and want to use the money from their house to enjoy their lives can take out equity release which is essentially using the money of the property. Dinesh explained that if you need money, it really is the only way of getting it.

There are different rates when it comes to mortgages, the two main types being fixed and variable rates. Variable rates mean the price of interest can fluctuate according to the bank and economy. Fixed rates mean that you will pay the same interest rate for a fixed period of time. Dinesh said that banks are currently offering a fantastic fixed rate so it is a good opportunity to go on the fixed rate right now.

And for those thinking of buying a property abroad, or buying a property here and moving abroad, Dinesh explained you cannot get a mortgage in the UK for a property outside the UK, but you can take out a mortgage in the UK as an investment and then move to another country if you are a British citizen.

I hope this information has been helpful and many of you will be taking out mortgages to get your foot on the property ladder! Good luck!