The UK has one of the biggest mortgage markets in the UK, with 11.1 million mortgages worth around £1.3 trillion. Home-ownership is more popular in the UK than in many countries across Europe. Although it has declined among younger age groups in recent years, buying a home in the UK and getting the best investment mortgage rates remains something that many young families plan for. There are different types of mortgages in the UK available through banks and building societies and most of them run for around 25 years, although they can be for longer or shorter durations.
Should you buy property in the UK?
There has been uncertainty regarding the UK housing market since the European Union referendum in 2016. Brexit undoubtedly has implications for the UK housing market, but it’s difficult to say what those will be with much certainty at this early stage. House prices in the UK did take a knock in the year following the referendum everywhere except Scotland, but the average house price across the UK has remained fairly high and is currently around £228,000.
If you are moving to the UK and wondering whether to buy or rent a home, there are pros and cons for each. The best choice for you depends on your own personal preferences and circumstances. Generally, renting offers greater flexibility but less stability as renting costs can be high, especially in the bigger cities, but is often a more viable option earlier in life before you have decided where you want to settle.
Who can get a mortgage in the UK?
There are no legal restrictions on any adults getting a mortgage in the UK and foreigners can take out mortgages in the UK whether resident or non-resident, although exact terms will vary depending on individual lenders. Each bank or building society will have its own set of requirements, but in general, the main factors that are taken into consideration are:
Age: As mortgages are essentially home loans that are paid off over a long period, it’s more difficult for older age groups to take out a mortgage in the UK. Because of this, they are unlikely to get the best investment mortgage rates. Most banks and building societies won’t flat-out refuse older applicants, but they will probably ask for a bigger initial deposit and limit the amount of time given to repay the mortgage.
Income and job security: Lenders will need to be confident that mortgage payments will be met and will therefore calculate the risks when offering mortgages. This can put self-employed workers and freelancers in the UK at a disadvantage. You’ll need to show proof of earnings and the amount you can borrow depends on the amount the mortgage lender feels you can pay back.
Credit score: As with loans and other forms of credit in the UK, your credit history will be checked to determine whether you are eligible for a mortgage. If you have bad credit or a low credit score, lenders may be reluctant to grant you a mortgage. The best thing to do in these situations is to spend a few months trying to boost your score by paying off any outstanding debts, making sure you’re listed on the electoral register, etc.
Getting a mortgage as a foreigner in the UK
Foreigners, both resident and non-resident, can legally buy property and obtain a mortgage in the UK. However, for non-residents and non-EU/EFTA nationals, the process for mortgages in the UK can be a bit more complicated. It’s a lot easier to get a mortgage in the UK if you:
- Have been a UK resident for at least two years.
- Have a permanent job in the UK.
- Have a UK bank account.
These requirements are generally in place to ensure that the applicant has built up a good credit history in the UK. Non-residents and those who don’t meet these requirements still have the option of taking out a non-status mortgage, also referred to as a self-certification mortgage, for which you have to pay a deposit of at least 25%.
Types of mortgages in the UK
The variety of mortgage products available in the UK may be overwhelming to those unfamiliar with mortgages, but there are only two main types of mortgages in the UK; fixed-rate mortgages and variable mortgages. There are also a few specialist types for different circumstances. Here is a brief overview of the main types of mortgages in the UK:
Fixed-rate mortgages
These mortgages come at fixed-rate interests for periods of normally two or five years. The interest rate will usually then move onto the lender’s standard variable rate at the end of the fixed-rate period. Fixed-rate mortgages are popular with UK home-buyers, with around 75% of mortgages in the UK granted as fixed-rate mortgages. The standard variable rate can be much more expensive, so homeowners often remortgage their property at the end of the fixed-rate period. Lenders usually offer mortgages for terms of around 25 years; however, shorter mortgages (e.g., 15 or 20 years) and longer mortgages (e.g., 30 or 35 years) can be negotiated.
Variable-rate mortgages
Variable-rate mortgages can fluctuate and are dependent on the general interest rate. This makes them riskier than fixed-rate mortgages in the UK, but they can be beneficial if interest rates suddenly drop. Many variable-rate mortgages are standard variable rate (SVR), which is a rate set by individual lenders and can change at any time, such as, after a rise or fall in the base rate set by the Bank of England.
Discount mortgages
This is a form of SVR mortgage but with a discount applied to the SVR for a limited period of time (usually for around 2–3 years). When you shop around for mortgages in the UK, you’ll need to calculate the discount as well as the SVR mortgage rate applied by the lender.
Tracker mortgages
These SVR mortgages track the interest rate from another source, usually the Bank of England, and can be beneficial in terms of avoiding a sudden hike applied by your individual lender.
Capped rate mortgages
This means that the interest rate is capped on a variable rate mortgage and can’t rise above a certain amount. Some capped rate mortgages are only offered at a higher standard rate than other variable-rate mortgages in the UK.
