How to secure a £150,000 mortgage

Summary

• The average monthly cost of a £150,000 mortgage is around £877 as of March 2024, but this can vary.

• Different mortgage repayment methods will affect your monthly costs.

• An annual income of £35,000-£40,000 is usually needed to secure a mortgage of £150,000.

• Homebuyers can benefit from seeking assistance from a mortgage broker via Unbiased to boost their chances of a successful mortgage application. 

What is the monthly cost of a £150,000 mortgage?

The monthly cost of a mortgage primarily depends on three factors: the loan amount, the interest rate, and the mortgage term.

Traditionally, homeowners have mortgage terms of 25 years. Today, people have the option to lengthen the term to 35–40 years. 

Lenders use a complex formula to determine repayments on 150,000 mortgages. However, if mathematics is not your forte, an online calculator can give you an immediate answer. 

You enter your loan amount (£150,000), term (25 years), interest rate (for example, 5%), and any additional fees you would like to include in the final loan amount.

In this case, your monthly 150,000 mortgage repayment would be £877. 

The lower your loan-to-value (LTV) ratio, the more likely your lender will give you a lower interest rate. 

Lenders calculate the LTV by subtracting your deposit from the total property value, expressing the difference as a percentage.

The greater your deposit, the lower the LTV will be.

Below are some examples.

1. Home value = £200,000. Deposit = £50,000. Mortgage requirement = £150,000. 

150,000/200,000 = 0.75 x 100 = 75% LTV

2. Home value = £250,000. Deposit = £100,000. Mortgage requirement = £150,000.

150,000/250,000 = 0.6 x 100 = 60% LTV

These two £150,000 mortgage repayments will likely have different interest rates, with the second example having a lower rate.

What factors affect repayment costs?

Various factors play a role in determining repayments on a 150,000 mortgage, including the type of mortgage, the term, and interest rates.

What mortgage repayment methods are available?

• Interest-only mortgage: This refers to a loan where you only repay the interest to the lender on a monthly basis. You pay the capital at the end of the term in a single lump sum, so saving or investing money for the final payment is essential. Although monthly repayments are lower, you will pay substantially more interest over the period.

• Repayment mortgage: Here, you pay a small amount of the capital in addition to a portion of the interest every month. In the initial years, the bulk of your repayment goes to interest, with a small portion towards the capital amount. As time passes, the situation eventually swings in the opposite direction.

• Hybrid mortgage: This balanced approach combines elements of both interest-only and repayment mortgages. You pay interest-only for a set period, typically ranging from five to ten years, before switching to a repayment structure for the rest of the term. The initial interest-only phase offers you lower monthly payments, giving you flexibility for your financial planning. Transitioning to repayment later ensures gradual capital repayment.

How long is the mortgage?

Home buyers can choose mortgage terms of up to 40 years.

Their monthly repayments will be more affordable over a longer term, but by the end, the interest paid will be substantially more than a loan paid over a shorter period, making a 150,000 mortgage far more expensive.

What are the interest rates?

It’s essential to compare the interest rates various lenders offer when purchasing a home. 

It’s a long-term expenditure, so every fraction of a percentage will compound the amount payable monthly and in the long run.

It’s wise to save as large a deposit as possible before securing a 150,000 mortgage to lower the LTV, which will encourage lenders to offer a lower interest rate.

What income do you have to be on to get a £150,000 mortgage?

Lenders base their mortgage affordability assessments on several factors, including your income.

According to L&C, mortgage income requirements are usually between 4.5 and 5.5 times your annual salary.

To secure a £150,000 mortgage, you should earn £30,000-£40,000 a year.

How do I get a £150,000 mortgage?

When buyers apply for a home loan, lenders usually require a 5%-10% deposit. For a £150,000 mortgage, that would mean £7,500-£15,000.

The larger the deposit, the less your home will cost you in the end. 

The first step in applying for a 150,000 mortgage is to complete an agreement in principle. The mortgage provider will then decide whether to lend you the amount you need.

Before applying for a mortgage, check your credit report for outdated information and inaccuracies.

You must gather the necessary documents, including your ID, proof of income (typically your last three payslips), bank statements for the previous three months, proof of address and deposit amount, and your latest P60.

After you submit your application, the lender will conduct a property valuation and issue a mortgage offer detailing the terms and conditions.

You must hire a conveyancer or solicitor to handle the legal aspects of the property purchase, including contracts and the transfer of ownership. 

Once all parties are satisfied, the lender will release the mortgage funds to complete the purchase.

Do you need advice from a mortgage broker?

While not mandatory, working with a mortgage broker is beneficial, especially for first-time buyers.

Brokers have access to many mortgage products from various lenders and can help navigate the application process, provide tailored advice, and secure competitive deals.

Seek expert advice

When you've found your new home and need a £150,000 mortgage, you will have to start calculating to determine whether you can afford the repayments.

Interest rates, mortgage terms, and the type of mortgage you choose will affect your monthly payments. 

Let Unbiased match you with a mortgage broker or financial adviser who can offer expert financial advice and help you navigate the home-buying process successfully.