This page is designed to help you understand mortgages, in a similar way to how we would in person by drawing and explaining the bits you need to know.
Ideally, the advice you get from your mortgage adviser should make you feel confident enough to make an informed decision about your mortgage choices. If, after reading this, you still have questions on how mortgages work then click the contact us button and one of our mortgage advisors will contact you to assist further.
What is a mortgage?
Just as people often require finance to buy a car, a mortgage is a loan which helps people buy property, when they don’t have enough cash to buy the property outright. Unlike with a vehicle, where the value usually depreciates over time and where the bank may find it difficult to locate the vehicle if loan payments are missed, a property offers much better security for a bank, so they usually charge lower rates of interest by comparison, to reflect the lower risk involved.
What is Interest?
Mortgage and loan customers are usually charged interest, this is how the lenders make their money.
Robin, the Bank Manager, has lots of money to lend! But for Robin to lend you this money, you have to pay him interest for each month that you have it, and he doesn’t.
The actual Interest rate charged is the choice of the individual lender and is generally set by market conditions. E.g. Supply and demand for obtaining money and competition between the banks are the main factors which determine the cost of borrowing money.
There is another major factor that has a bearing on interest rates and that is the Bank of England’s Base Rate (BBR). The Monitary Policy Committee (MPC) meets monthly to review the state of the UK economy and decide upon whether the BBR should be altered to help control the economy. This in turn affects people who have mortgages with a variable interest rate – although those with a fixed interest rate will not be affected until the fixed rate expires.
Lenders will usually offer several different rates and incentives to entice clients into their products to enable them to make money. It is for this reason that we have such a wide selection of mortgages available in the market place today. Even more reason to speak to a specialist in this area before committing yourself to a mortgage deal!
For friendly, plain speaking advice contact one of our expert mortgage advisers today on 01271 346123.