What can you afford to pay and how much do you have for a deposit?
You should consider your income and monthly outgoings as well as any savings you might have. Most mortgages will need a deposit so consider how much of a lump sum you can pay towards the mortgage.
Mortgage lenders will pay a multiple of your annual income, usually around 4 or 4.5 times the amount your salary. Lenders will also consider any existing debt you might have.
The amount you can borrow might differ for single and joint mortgages.
Online mortgage calculators can give you an idea of how much your monthly payment will be for different mortgage deals.
Check your credit score
Lenders will do a credit check to help make a decision on lending to you. It lets them see your payment history to date on things like credit cards, loans and mobile phone bill. This will help lenders decide if they can rely on you to repay your mortgage.
What is a Decision in Principle, also known as an Agreement in Principle?
You can speak to a mortgage lender and ask them how much they might lend you for your mortgage - this is known as a Decision in Principle, or Agreement in Principle. It's important to know that this is only an indication of what you could borrow and isn't guaranteed by the lender. Do your research and look at the different mortgage deals available to you.
Finding a solicitor
Once you’re ready to look at properties, you’ll need a solicitor to deal with all the paperwork and legalities. Any offers you make on a property need to come from your solicitor. Do your research and consider the fees and charges involved and make sure you have the funds to cover these costs.
What to consider when looking at properties
It’s not just your monthly mortgage payments you need to think about. You’ll need to consider other expenses, such as how much your monthly bills will be. The seller can usually give you an indication of how much these bills could be.
The price the property is advertised for isn’t necessarily how much you’ll pay. You might have to pay more if other people are interested in the property too.
Applying for a mortgage
Once you’ve found a property and your offer has been accepted you can apply for a mortgage. This can be done directly with a bank or building society, or you can do it with a mortgage broker. Brokers will search for a mortgage deal that’s suitable for your needs. This can save you time and give you peace of mind, but they’ll usually charge a fee for their services.
There are different types of mortgage rates you can choose, such as a fixed mortgage rate or a variable mortgage rate. It important to compare mortgages to find one that suits you best
Fixed rate – the interest charged stays the same for a number of years, typically 2, 3 or 5 years. This is known as the fixed rate period.
Variable rate – the interest and monthly payments can change.
All product rate types have different risks and you need to understand the risks and benefits associated with the product you choose and be comfortable that it’s right for you.
Your mortgage offer
Once a lender offers you a mortgage, you’ll get confirmation of this and then your solicitor, along with the seller’s solicitor, will work with your lender to do all the paperwork and complete the purchase. This whole process could take anything from 6-12 weeks. Your solicitor will confirm all the costs involved for their services.
What is a Residential Mortgage loan?
A residential mortgage is for the purchase of a main residence for you and/or your family.
You might be able to repay other outstanding debts such as credit cards or personal loans by borrowing more than the purchase price of the property you’re buying.
You might also be allowed to take additional loans, usually termed ‘further advances’, to upgrade or maintain your home.
The money you borrow for your mortgage is called the capital. Depending on the type of mortgage you choose, you can choose to pay off both the capital and the interest or pay the interest only. The section below explains what this means.
Understanding different types of Mortgage loan
Repayment Mortgage
This is where you gradually pay off the amount you borrowed (capital) over the term of the loan as well as the interest.
You make one payment each month and as long as all payments are made on time, the mortgage will be repaid at the end of the term.
Interest Only Mortgage
You only pay off the interest that’s charged on the capital each month - you don't repay any of the capital.
This means you need to have other arrangements in place for paying back the capital such as an investment, pension plan or other repayment vehicle, which should be reviewed on a regular basis.
There’s an element of risk that the repayment vehicle you’ve chosen to build up the funds may not be enough to repay the loan amount at the end of the term. It’s your responsibility to ensure that the repayment vehicle remains on track to repay the capital at the end of the mortgage term.
Part and Part
A part and part mortgage is a combination of the two methods above - you pay back part of the capital over the term along with interest. When the term ends, you repay the remaining capital with a suitable repayment vehicle mentioned above in 'Interest Only Mortgage'.
Different Mortgage Products
Scottish Building Society mortgage products fall into two main categories.
Fixed interest rate
The interest rate you pay will stay the same throughout the length of the fixed rate period that you choose for your mortgage, no matter what happens to interest rates - such as a change in the Bank of England (BoE) Base rate or the Society’s Standard Variable Rate (SVR).
A fixed rate gives you the assurance that during the fixed rate period, your monthly won’t change. This could be suitable for you if you want the certainty of knowing exactly what you’ll pay each month and don't want to be at risk of future interest rate rises within the fixed rate period.
It’s important to note that even if interest rates go down, you’ll still pay the same monthly payment for your mortgage.
Variable interest rate
A variable interest rate can change at any time and tends to be affected by changes in external rates, such as the BoE Base rate. The Society’s SVR is influenced by the BoE base rate and, while it’s not directly linked to it, our SVR may go up or down as the base rate changes.
This means that your monthly payments can rise and fall as interest rates change. The level of the interest rate change can also vary, from a small rise or fall to a large rise or fall.
As the level of rate change and how often these changes happen are unpredictable, you need to be comfortable that you can cover the monthly payments if the rate increases.
Discounted mortgages are variable rate mortgages set at a certain percentage (usually 1% or 2%) below our SVR for a specified term.
Your monthly repayments will rise and fall as our SVR rises and falls.
Our mortgage advisers can help decide on which type of rate is suitable for your needs.
European Standard Information Sheet (ESIS)
The European Standard Information Sheet details all the associated rates, features and fees related to a particular mortgage contract. The Financial Conduct Authority, one of bodies who regulate financial services firms, requires that all mortgage product information should be provided in a consistent manner in order that consumers can compare different mortgages easily.
You may find the explanations below useful in understanding the ESIS related to your mortgage contract.
Mortgage Term
This is the number of years over which you decide to repay your mortgage.
The term you choose is determined by several factors, such age, income and monthly outgoings.
There could be a range of terms which may be appropriate to your individual circumstances and needs. It’s important to ensure that you consider other factors such as budget, life events such as retirement or other foreseeable changes which will influence which term is right for you.
Repaying you mortgage into retirement should only be considered if you’re sure that you’ll have the funds to pay your mortgage and cover the cost of living from your retirement income.
Terms may be any length from 5 years to 40 years dependent on individual circumstances.
Purchase Price
This is the price that you have agreed to pay for the property you’re buying.
Loan to Value (LTV)
This is the amount of the loan that you wish to borrow compared to the value of the property you wish to purchase. The value is based on the opinion of a professional valuer and not the price you actually pay unless the purchase price is lower than the value. LTV is expressed as a percentage.
For example:
You borrow £80,000 against a property valued at £100,000 then the LTV is 80,000/100,000 = 80% LTV.
If you pay more than the property value, this doesn’t count as part of the LTV calculation.
For example:
You borrow £80,000 against a property valued at £100,000, but actually pay £120,000, then the LTV is still calculated at 80% LTV.
Depending on which mortgage you chose, we could offer you up to 95% LTV.
Annual Percentage Rates (APR)
The APR can be found in our literature, on our website and also in the documents you receive as part of your mortgage illustration or application. These rates include the cost of the mortgage together with other associated costs such as fees and charges and it is this rate that should be used to compare different loan offers.
Initial product rates may appear attractive but there could also be high fees and charges. APR gives the overall cost for a mortgage, including any associated fees and charges.
You should consider the APR when comparing mortgages rather than just the interest rate alone.
Flexible Features
All mortgage products offered by Scottish Building Society have the same flexible features such as overpayment and underpayment facilities and payment holidays. You might not want to use these features immediately, but it’s good to know you have the option if needed in the future.
These features are all subject to certain terms and conditions. For instance, if you want to either underpay or take a payment holiday, you need to have made sufficient overpayments to your account to accommodate any request. The period of any holiday or underpayment period will be limited to the value of overpayments in your account.
If you have a fixed or discounted variable rate you may have certain limits on the amount you can overpay within a specified period.
The specific terms and limits on overpayments to your mortgage, if any, will be detailed on your personalised illustration.
Valuation
If you are taking out a mortgage to buy your home, a Home Report valuation will normally be available. In Scotland it is the current homeowner, i.e. the seller, who must instruct and pay for a Home Report by an independent surveyor. The Home Report will show the current condition of the property and its market value. This report must be provided to any prospective buyer and is used to assess the property’s value as security for a mortgage loan as part of our underwriting process.
If you're applying for a re-mortgage or additional borrowing, for example to carry out home improvements or repairs, we may require a professional opinion of the property’s value.
We'll arrange for a property assessment or revaluation for our own use – you won’t need to do this yourself. We might arrange for someone to inspect the property or use a database that considers the value of properties similar to yours. You may be asked to pay the costs of the valuation.
Your Mortgage Illustration
We’ll provide you with a mortgage illustration when you apply which give the details of the different monthly payments, you’ll pay on the mortgage loan dependent on the product selected.
Monthly costs
Other than any fixed rate payments quoted, all other payments are based on an assumed future rate. For instance, the illustration will assume that any discounted variable rate will remain the same during the period of the discounted rate and that the SVR quoted will remain the same for the remainder of the mortgage term. It’s important to remember that discounted variable rate and SVR could change at any time.
Your illustration is not a guarantee of future interest rates and will only provide you with an indication of the costs.
Overall costs
This part of your illustration demonstrates the costs if all the illustrated rates were to stay the same in the future. It also assumes that you won’t make other changes to your mortgage, for example changing to a different product, or making overpayments to reduce the mortgage loan amount.
Mortgage Fees & Charges
Details of general mortgage fees and charges are outlined in the Fees and Charges section.
Other charges which may apply to your mortgage contract are explained below:
Account fee
This is a charge for creating and managing your mortgage account. This might also include closing your mortgage account when your mortgage ends – the illustration will tell you if this is the case.
Porting
Porting a mortgage is the process of moving your mortgage product across from one property to another. There are terms and conditions that will apply when porting and you should speak to us for details before you consider moving.
Other Considerations
You must take out buildings insurance. Scottish Building Society doesn’t provide buildings insurance so you should get quotes from other insurance providers.
Many mortgages will have early repayment charges which come into effect if you repay your mortgage before your deal ends. These charges will be detailed in your mortgage offer.
Need to Know
All mortgage contracts comply with the European Mortgage Credit Directive (MCD).
Compliance with the terms and conditions of an MCD regulated contract does not ensure repayment of the total amount of credit.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGES
