UK mortgages are funded solely by banks, credit unions, or other financial organizations. There is no market intervention by government entities. This means that the mortgage market in the UK is very competitive. This had led to a variety of types of mortgages available to UK borrowers. Most UK mortgages operate on a variable interest rate. This rate is usually determined by the Bank of England. However, because the market is so competitive, lenders often offer the borrower terms when they can pay a rate that differs from the variable rate. Lenders sometimes offer borrowers a fixed interest rate for a certain period of time before they will have to start paying the variable rate. Another common incentive is a discount rate. A discount rate is a rate that is lower than the variable rate. Discount rates apply for a certain number of years established by the lender. Some lenders offer capped rates. This is the maximum interest rate that the borrower would be required to pay at any time during the term of the loan. Some lenders even offer a cash-back incentive. Cash-back incentives are based on a percentage of the principal borrowed amount. Borrowers who borrowed $100,000 with a 5% cash back incentive would receive $5000 in cash at the closing of the mortgage. Because of the need for lenders in the UK to offer competitive rates, they usually have pre-payment penalties. This means that the borrower would be charged a certain dollar amount if they were to pay the mortgage off prior to the end of the loan term. Another common UK mortgage is a self-certification mortgage. A self-cert mortgage is for people who are self-employed with no means of proving their income. As long as the borrower has a down payment and borrows an amount substantially lower than the value of the home, a lender will offer them a self-cert mortgage. Self-cert mortgages usually have higher interest rates than normal mortgages because of the amount of risk involved for the lender. Other lenders allow certain borrowers to borrow the full amount of the value of their home. This usually presents a significant risk to the lender should the borrower default on the loan, so 100% mortgages are usually reserved for borrowers with great credit histories. |
