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Introduction to mortgages

What is a mortgage?

A mortgage is a financial instrument used to complete the purchase of a residential or commercial property. Normally the purchaser, whether that be a private individual or business, is required to pay a percentage of the property purchase price as a deposit with the balance covered by a mortgage.

Mortgages are offered by large financial institutions, such as banks and building societies, with terms typically ranging from as little as 5 years up to 35 years. Over this term the purchaser is required to repay the loan underlying the mortgage normally by way of regular payments of at least the interest. The purchaser is the rightful owner of the property but should they stop making the regular payments as required under their mortgage terms the mortgagee (bank or building society) has legal recourse to sieze the property and recover the outstanding loan underlying the mortgage.


It is important that before entering a mortgage agreement you are satisfied you can maintain the agreed payments throughout the term of the mortgage. This is termed affordability. The lender will help you with this by making some or all of the following checks,

  • Employment status
  • Income amounts
  • Income types, such as PAYE (employment income), self-employed income, dividends, rental, etc. The lender will insist on proof of income, such as P60's, for employed persons, and accounts or SA302 for self employed individuals or businesses.
  • Credit history, covering loans, credit cards, etc and how you conduct your bank account.

Once the lender is satisfied you have passed their affordability checks they will offer you an agreement in principal which will give you and any seller confidence in any purchase offer you make.

Mortgage deals

A lender offering a mortgage will assess the interest rate they charge for the loan underlying the mortgage based on the perceived risk. So, normally, the larger the deposit you put towards the property puchase the lower the perceived risk. This will lead the lender to offering a lower interest rate.

There are many mortgage deals available with rates dependent on the deposit (or, put another way, the loan to value) and the buyer status. First time buyers get an number of incentives from both financial institutions and government to make their first purchase (all buyers to the mortgage have to be first time buyers to qualify).