Residential Mortgage Frequently Asked Questions

What’s a mortgage?

A mortgage is a type of loan designed to help you buy a property. A mortgage is ‘secured’ on your property. This means that if you don’t keep up your contractual monthly payments or repay any outstanding amount at the end of the mortgage term, we can sell it to repay what you owe us. This is called ‘repossession’.

What’s a joint mortgage and how do they work?

A joint mortgage is a mortgage with more than one borrower. If one person can’t keep up with their part of the contractual monthly payments, the other borrowers must cover that person’s part, so the full contractual monthly payment is made. When you borrow with other people, you’re each responsible for the entire loan as individuals, and you’re also responsible as a pair or a group. All borrowers on a joint mortgage are legally responsible for paying the full amount owed to us, even if the relationship between you ends or any of the borrowers aren’t named on the title deeds of the mortgaged property.

What is a mortgage term?

This is the length of time you’ll be making contractual monthly payments and you’ll need to have repaid your mortgage in full by the end of it. Your mortgage term is set out in your Offer Letter.

How can I repay my mortgage?

How you repay your mortgage will depend on the repayment type, there are three different repayment types. Your Offer Letter explains whether your mortgage is a:

• Repayment mortgage

• Interest-only mortgage or

• Part repayment and part interest-only mortgage.

What is a repayment mortgage?

This is where your contractual monthly payment is used to pay off some of the original amount you have borrowed, (sometimes we call this capital), and some of the interest. In the early years of the mortgage, the amount you owe is higher, so more of your contractual monthly payment goes towards paying the interest. This is because the more you owe, the more interest you’re charged. As you repay what you owe, more of your contractual monthly payment will go towards paying off the capital. Assuming you have maintained your capital repayment mortgage for the full mortgage term, you will have repaid the full amount at the end of the term agreement.

What is an interest-only mortgage?

This is where you only pay the interest each month. Your contractual monthly payment doesn’t reduce the original amount we lent to you. 

What is a fixed interest rate?

A fixed interest rate will stay the same for a set length of time. This is called a ’fixed-rate period’.

Your Offer Letter confirms when your fixed rate ends – this will be a set end date that isn’t determined by when you take your mortgage out. When the fixed-rate period ends, you’ll move to a variable rate. Your mortgage adviser (and your lender) will contact you before the end of the fixed-rate period to let you know your options. 

What is a variable interest rate?

A variable interest rate can change at any time. The most common form of variable rate mortgage is called a tracker rate, and closely follows the changes in the Bank of England base rate.

Variable rate mortgages are usually used when it is expected that there will be a period on consistently low, stable interest rates, or when the base rate of interest is expected to consistently decrease. The decreases in this interest rate will be passed on to the borrowers in the form of lower monthly repayments.

This works both ways, however, and interest rate increases will mean an increase in your monthly mortgage repayments. Borrowers choosing a variable rate mortgage need to demonstrate that they can afford to fund an increase in their mortgage repayments.

What’s a tracker rate mortgage product?

Tracker rates are a set interest rate (called a ‘margin’) plus the current Bank of England base rate. If the base rate changes, your interest rate will change too, because your interest rate is linked to it.

Some tracker rates have a ‘floor’ or 'collar' which means the interest rate you’re charged won’t fall below a minimum rate. Some products will also have a 'ceiling', or 'cap' rate of interest, meaning that the interest rate cannot continue to rise beyond this maximum interest rate. This is to product borrowers from sharp increases in interest rates making their mortgages unaffordable.

Can I change my interest rate?

You can apply to change your interest rate to another one that’s available to you at any time. If we agree, we’ll confi rm when the change will happen and what your new contractual monthly payment will be. You might have to pay an early repayment charge if your new interest rate starts before your current rate period ends.

What’s an early repayment charge?

If you make a lump sum repayment, repay your mortgage in full, or change your interest rate before your current rate period ends, you might have to pay a charge. This is called an ‘early repayment charge’. Unless your Offer Letter states otherwise, an early repayment charge is usually a fixed percentage of the amount you repay, and the percentage doesn’t change during the period that it applies. Your Offer Letter will explain when an early repayment charge applies and will confirm any limits to the lump sum repayments you can make each year before you’d have to pay one.

When we refer to ‘each year’ here, we mean the 12-month period from the end date of the interest rate. For example, if you have an interest rate that’s fixed until 30 April 2025, ‘each year’ runs backwards from 30 April 2025 to 01 May 2024, 30 April 2024 to 01 May 2023 and so on. Your Offer Letter will also explain how we calculate the early repayment charge and the maximum that you’d pay. If you have any doubt about your early repayment charges, speak to you Mortgage Adviser.

Can I pay more than my contractual monthly payment?

Yes! You can pay as much extra as you want to, on top of your contractual monthly payment. How much you pay is important because a lender will treat the payment differently depending on how much it is and you may have to pay an early repayment charge. If you do make extra payments, you’ll pay less interest overall. A lender won’t return any extra payments to you, and you’ll need to keep making your contractual monthly payment as usual.

Can I make regular overpayments?

Yes, and if you regularly have excess finances available I would encourage you to do so!

In most cases, you can make overpayments of up to 10% of the remaining mortgage balance EVERY YEAR without incurring an early repayment charge! Additionally, these are usually comprised of pure capital repayments, so the speed in which you repay your mortgage (and subsequently the amount of interest you pay) will reduce dramatically. You can also usually choose to either reduce the overall mortgage term or your monthly repayments accordingly.

To illustrate the power of making overpayments, use Martin Lewis's excellent repayment calculator here: -

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Fees, costs, charges and expenses

As well as paying interest, you might also have to pay certain fees, costs, charges and expenses. You might need to pay fees when you take out your mortgage. You will need to pay these fees upfront, other than the product fee (if there is one) which can be added to your mortgage. If you choose to add a product fee to your mortgage, your lender will charge interest on it. Your mortgage illustration or offer letter will explain the fees payable and confirm if a product fee has been added to your mortgage.

You may have to pay a mortgage exit fee if:

• Your mortgage is repaid in full

• You transfer the loan to another lender

• You transfer borrowing from one property to another

• You add or remove a borrower from the mortgage.

You’ll also have to pay any fees, costs, charges and expenses we reasonably incur in connection with the mortgage. For example, if you don’t make your contractual monthly payments and a lender has to take steps to take possession of and sell your property.

We may also pay costs, charges and expenses on your behalf, which you’ll need to repay to us. If you don’t, we’ll add them to the amount you owe, and you may have to pay interest on them. Your contractual monthly payments won’t cover these fees, costs, charges or expenses and you’ll need to repay them separately or at the end of your mortgage term.

You’re free to repay them whenever you like, to reduce the amount of interest you’ll pay on them.

What if I’m worried I can’t afford my contractual monthly payments?

If you haven’t taken out the mortgage yet and your circumstances have changed, or you believe they might, contact your Mortgage Adviser immediately. If you’ve already taken out the mortgage and you’re worried you can’t afford your contractual monthly payment, contact your Mortgage Adviser or lender directly as soon as possible to discuss your options.

Do I need buildings insurance?

Yes. A lender will insist that you have suitable buildings insurance for your property in place.

If anything happens to the property, you’ll still need to repay the full amount you owe the mortgage lender. The insurance policy must meet the Mortgage Conditions to make sure it covers a claim for the property to be fixed or rebuilt. The cost of rebuilding the property is called the 'reinstatement value'.

You may need to pay any money you receive from a claim to your lender. If your property is leasehold and your landlord is responsible for insuring it, you must make sure they do this.

Can I rent my residential property out?

Before renting your property out, you’ll need a lender's ‘consent to let’. Sometimes we call this ‘permission to let’. You can request this speaking to your lender directly and filling in a form. If the lender gives this consent, it will reduce the range of interest rates and services available to you. If you’d like to let all or part of your property on a short-term basis, which means for no longer than 30 consecutive days, and you meet all the short-term occupancy conditions from the lender, then it's likely you don’t need their consent. If you’re thinking about renting out your property and want more information, speak to your Mortgage Adviser.