If you find buying a property in the UK is tempting you, then do check out our mortgage guide for expats as well as non-residents.
Before looking at properties for sale in UK, check out our guide to make a calculation of how much you can realistically borrow from the bank and what property prices you can afford.
There are no restrictions on foreigners applying for a UK mortgage, but UK mortgage conditions can differ depending on whether you are a resident or non-resident in the UK.
Here are some points we would advise you to take into consideration when taking a mortgage:
Interest-Only or Repayment Mortgage?
In the UK, there are many different terms and options available for mortgages. This can be confusing for borrowers, but luckily, we have the best mortgage professionals at hand that can help guide you through the process. With so many options available, it’s important to find the mortgage that best suits your needs.
One decision that buyers need to make when selecting their mortgage is whether they will be taking out an interest-only mortgage or a repayment mortgage.
Repayment Mortgage
If you are taking a repayment mortgage your monthly costs will be split into repayment of the debt and interest payments. In the initial years, the amount you spend on interest payments will be significantly more than paying off your debt. However, as you approach the end of your mortgage you will be paying the lion’s share of your debt and less interest.
Interest-Only Mortgage
Conversely, an interest-only mortgage provides significantly lower monthly costs, however, at the end of the term, you still owe the bank the same amount of money that you borrowed. The advantage of an interest-only mortgage is that whilst the property is rented out you will have some income that you can either save to pay off the property eventually or consider as your ROI. Once you sell the property and pay back the mortgage, you will have earned the income plus the capital gains of the property.
Typically, we find that end users prefer repayment mortgages for homes they wish to live in. Investors typically chose interest-only mortgages for their investment properties, so as to keep outgoings low and profits higher.
Fixed Rate Mortgages
Fixed-rate mortgages are becoming more and more popular these days due to uncertainty in the economic climate. As the name suggests the interest rate will be fixed for a certain number of years, typically between 2-10 years. The benefit of a fixed-rate mortgage is you will know your outgoings exactly for a certain number of years, despite changes in the economy. Once the term is finished the rate will revert to the lender’s standard variable rate. You also have the option to apply for another fixed-rate term at this stage.
Of course, on the other hand should interest rates fall you will be tied into the fixed rate term for the number of years you initially elected for.
Variable Rate Mortgage
Variable rate mortgages follow the Bank of England’s base interest rate as well as the bank’s lending criteria.
Tracker Mortgage
A tracker mortgage like a variable rate mortgage will follow the Bank of England’s interest rates, however, this will be set a certain amount above the Bank of Englands rates. So, when the rates go up so will the mortgage payments and when the rates come down the mortgage payments will do too.
Variable Rate Mortgage
A capped rate mortgage follows the same concept as the tracker however it will have a set cap which it will not increase above, this provides a certain amount of certainty for the client.