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Mortgages

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Warning: Late repayment can cause you serious money problems. For help go to moneyadviceservice.org.uk

Mortgage jargon buster

  • Fixed rate mortgage - You pay the same amount every month for a fixed period, usually between 2 and 10 years.
  • Variable rate mortgage - The amount you pay could go up - or down - depending on movements in the lender’s standard variable rate (see below).
  • Repayment mortgage - The most common type of mortgage, this means you borrow an amount and repay it each month with interest. As the mortgage progresses, the interest will go down as the overall total goes down.
  • Interest-only mortgages - With these, you pay only the interest each month. It’s cheaper of course, but unless you pay some of it off you’ll be faced with paying the whole mortgage loan back once it’s over. Hopefully, the house has gone up in value so much that you can do that, but there’s no guarantee that will happen.
  • Agreement In Principle - the mortgage lender tells you how much you are able to borrow.
  • LTV - the loan to value is the most they will lend you in relation to the value of the property. For example if it’s worth £160,000 and the maximum LTV is 75%, then the most they will lend you is £120,000.
  • SVR - the standard variable rate is the interest rate the lender sets, and usually rises and falls with the Bank Of England interest rate. Most fixed rate mortgages switch to the SVR when they end.

HOW A REPAYMENT MORTGAGE TYPICALLY WORKS:

Let’s assume this scenario:
  • Property value: £160,000
  • Maximum loan-to-value: 75%
  • Mortgage loan taken out: £120,000 (no fee)
  • Initial interest rate: 4%
If we assume, for the sake of the example, that the interest rate remains the same, then:
  • the average monthly repayment is £633
  • the total cost over 25 years is £189,941
  • the total interest paid over 25 years is £69,941*
*source: https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator

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Is A Mortgages The Right Option For Me?

In a word, yes. Even if you have poor credit there are lenders who specialise in adverse credit or sub-prime mortgages.

Generally speaking, if you have bad credit, your choices are more limited. Any mortgage you find will have high interest rates and a high loan-to-value unless you can raise a large deposit, meaning that you will be borrowing almost all the property’s value.

The key thing is to make yourself as attractive as you can to the mortgage lender, as their assessments are based on risk - whether or not they think you will default. You may have a poor credit score, but if you can provide at least a 10% deposit, show that your income can cope with repayments, and show that you can manage your regular monthly outgoings, you have a much better chance.

Some mortgages have upfront costs that are added to the total amount you borrow.

Make sure you have enough funds for valuation fees, stamp duty, solicitor’s fees and conveyancing, as well as removal and other associated home-moving costs.

It depends on the lender, but usually they allow it up to £500 or so a month.

You can miss a payment date only if the lender has agreed to it first, and even then it may only be for one or two months maximum.

Some people like to pay off their mortgage when they get an inheritance or a major windfall - check with your lender first but you may have to pay a charge for early repayment.

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