Homes are expensive. Even the smallest tend to reach past the £100,000 threshold, and a lot of people simply can’t afford this in absolute terms.
In order to buy a home then, people usually have to take out a very large loan from a lender.
This loan is called a mortgage, and it usually has to be paid off within 25 years, and requires a deposit to be set down when it is taken out.
The loan is most often secured against the property itself. This means that if the borrower/homeowner defaults on their mortgage payments, and fall into arrears and stop being able to pay the lender, the lender has the right to take possession of the property and sell it to get their money back.
How long does a mortgage last?
This is not a simple question to answer, because every mortgage is different.
Some mortgages will last longer than others, and some may come with an option to pay it off earlier. Remortgaging will also change the length of time for which you will be paying off your home.
In general, however, a mortgage will last around 20-25 years. Some may be shorter, and some may extend up to 40 years.
How much money can I borrow? Loan to Value mortgages
Lenders will almost never give out a loan for 100% of the value of a property. Instead, they will offer to lend a certain percentage of the value of a property.
The borrower then puts down the remaining percent in the form of a cash deposit, making, in total, 100% of the property value.
For example, if a lender offered a 85% loan, the borrower would need to put down 15% of the property value as a deposit. So for a £200,000 house, the deposit would be £30,000.
The percentage that the lender offers is known as the loan to value (LTV).
Raising a deposit is one of the more difficult aspects of buying a home, especially for first time buyers. To try and get the housing market moving, there are some government schemes available, such as the Help to Buy schemes which try to reduce the size of the deposit that people have to pay. Follow the links below for more information on these schemes.