Banks & Building Societies

A generation ago Building societies were the place to go to obtain a mortgage. During the 80s banks moved into the mortgage market in a big way offering mortgages that were very competitive with the established building societies. Before this banks only offered personal loan products. Building societies responded to this by offering many of the services that banks offered. Since that time there has come to be less to distinguish the larger building societies with banks. Indeed, many of the larger building societies have now converted to banks or have been bought out by banks.

Building societies have close relationships with life assurance companies and are keen to offer the endowment or pension type mortgages. About 80% of building society mortgages are now on an endowment basis.

The attraction of building societies is their mutual status, having no shareholders to pay. This means they have a tendency to offer more competitive interest rates compared to banks. Banks, on the other hand, offer a greater range of services and are more flexible to deal with.

Applying for a mortgage

The amount you can borrow depends on the value of your property and your ability service the mortgage repayments.

Banks and building societies are willing to lend somewhere between 75% to 95% of the value of your property. If you are a first time buyer or you have very good income cover it is possible to obtain a 100% mortgage.

A typical measure of what you can borrow from your salary is: three and a half times your salary and, if you have a partner, one times your partner's income. Most reputable lenders go by this rule with only slight variances. There are lenders who are willing to lend up to six times your annual salary. This is very dangerous, and you should only consider this level of borrowing if you have no doubts whatsoever about being able to service your mortgage.

When applying for a mortgage, the bank or building society will want to do their own survey on the property you are buying. This is simply a valuation survey to ensure the property is worth the amount you are asking to borrow.

A useful service banks and building societies offer is to provide you with a mortgage agreement in principle. This is a written notice of what the lender can allow you to borrow. Nowadays, it is highly recommended that you obtain an agreement in principle before making any offers. Your offer will be taken more seriously if the seller can see some evidence that you can obtain the appropriate finance for your property purchase.

Life Assurance Companies

Life assurance companies are a little known source of property finance. The vast majority of mortgages are taken out at banks and building societies. Life assurance companies are able to offer endowment and pension mortgages themselves and may be surprisingly competitive. It pays to shop around. To investigate offerings from Live assurance companies, ask a reputable in dependant insurance or pension broker who will have knowledge of the market. They may be able to come up with some attractive deals.

Local Authorities

If you are a council tenant looking to buy your dwellings, the local authority is a potential source of a mortgage. It is compulsory for the local authority to offer you a mortgage. In reality, it is better for you to shop around since local authorities don't really specialize in lending and you are likely to get a much better deal elsewhere.

Local Authorities may be the only source of a mortgage if your circumstances make it difficult to obtain a mortgage elsewhere. As long as you can service the mortgage repayments and you have a definite need, local authorities will be willing to consider your application.

Finance Companies

Finance companies do not generally offer mortgages but are useful for short term-loans. They tend to charge higher interest rates than banks and building societies. If you are in desperate need of a short term loan for renovations, the may be worth considering.

Private Mortgages & Private Finance

It is entirely possible to arrange a private mortgage with another person. This may be a friend, a member of, the vendor of the property you are buying or simply someone you know. With large sums involved, you should have a special mortgage deed drawn up by a solicitor.

This is a little known and little used source of finance but has many potential benefits. The terms of borrowing can be far more flexible than those offered by banks and building societies and you can avoid the fees and penalties that banks or building societies impose.

If you are considering this option, do seek legal advice before making any firm commitments.