Home and neighbourhood - In England

This information applies to England, Wales and Northern Ireland

If you're thinking about taking out a mortgage, there are several different options available. You should look into all the different options carefully to make sure you choose the right one for you. The most common types of mortgage are:

Repayment mortgage

This is a mortgage in which the capital borrowed is repaid gradually over the period of the loan. The capital is paid in monthly instalments together with an amount of interest. The amount of capital which is repaid gradually increases over the years while the amount of interest goes down.

Interest-only mortgage

With this type of mortgage, you pay interest on the loan in monthly instalments to the lender. Instead of repaying the loan each month, you pay into a long-term investment or savings plan which should grow enough to clear the loan at the end of the mortgage term and, in some circumstances may even produce an additional lump sum. However, there is also a risk that it will not be worth enough to pay off the loan at the end of the mortgage term. This means you will have a shortfall and you will need to think about ways of making this up.

There are three main types of interest-only mortgages. These are:

• an endowment mortgage
• a pension mortgage
• an ISA mortgage.

Islamic mortgage

With an Islamic mortgage, none of the monthly payments include interest. Instead, the lender makes a charge for lending you the capital to buy your property which can be recovered in one of a number of different ways, for example, by charging you rent.

Where to get a mortgage from

A mortgage could be available from a number of different sources. Some of the available options are:-

• building societies
• banks
• insurance companies. They only provide endowment mortgages (see above)
• large building companies might arrange mortgages on their own new-build homes
• finance houses
• specialised mortgage companies.

For some groups of people, such as first-time buyers and key workers, it may also be possible to borrow some of the money you need to buy a home from other, government-backed sources. You will usually need to borrow the rest of the money from a normal mortgage lender such as a bank or building society.

For more information about government-backed schemes to help you buy your own home, in England see HomeBuy in Finding accommodation and, in Wales, see HomeswithinReach in Finding accommodation.

Using a broker to get a mortgage

Instead of going directly to a lender such as a building society for a mortgage, a broker could be used. A broker may be an estate agent, or a mortgage or insurance broker. They will act as an agent to introduce people to a source of mortgage loan to help them buy a home.

You may want to use a broker if you find it difficult to get a mortgage directly from a lender.

There are rules about how much a broker can charge for their services.

For more information about mortgage brokers, go to the Financial Services Authority (FSA) website at: www.moneymadeclear.fsa.gov.uk.

For more information on mortgages, see Buying a home.

Can you afford a mortgage

If you're thinking about taking out a mortgage you should first make sure that you only borrow what can afford to pay back. If you do not keep up the agreed repayments, the lender can take possession of the property.

The Financial Services Authority (FSA) has produced a helpful guide to mortgages called 'No selling. No jargon. Just the facts about mortgages'. You can view the guide on the FSA's Moneymadeclear website at: www.moneymadeclear.fsa.gov.uk.

You can also use their mortgage calculator to help you work out how much you can afford to borrow.

If in doubt, you may want to consult an independent financial adviser. For help with finding a financial adviser, visit the FSA's website at: www.moneymadeclear.fsa.gov.uk.

Bookmark and share

What are these?

Page tools

Other Housing FAQs:

• I've received a Claim for possession from the county court because I have not paid my rent. What can I do?
• I own my home but have fallen behind with my mortgage payments. I’ve heard about companies that can clear your debts, buy your home and then rent it back to you but I want to know more. Can you help?
• I paid a deposit when I moved into my rented house. I have now moved out but the landlord will not return the deposit. What can I do?
• I had to leave my last home and now I have nowhere to live. Do the local council have to re-house me?
• I have been on the waiting list for a council house for ages. What can I do to speed things up?
• The house I rent is very damp. I told the landlord but she has not done anything about it. What else can I do?
• I am a leaseholder and I pay an annual service charge. The freeholder wants to increase his charge to cover repairs to the building. Do I have to pay?
• I rent my flat privately and the landlord wants to increase the rent. Can he do this?
• I'd like to have more of a say in the running of the block of flats I live in.  How can I do this?
• I have an endowment mortgage and have been told that there won't be enough money at the end of the mortgage term to pay for the house. What can I do?