Short Term Mortgages in the UK
Mortgages generally represent a long-term commitment, i.e., a loan that takes several decades to repay. However, if you’re not keen on the prospect of being tied to such a lengthy financial obligation, then short-term lending will be a more suitable alternative.
Though, like any mortgage product, short-term loans come with their own distinct considerations and criteria. So, in order for you to make an informed decision, we’ve put together this piece which covers everything you need to know about short-term mortgages. We’ll go over:
What is a Short-Term Mortgage?
A short-term mortgage is a home loan that’s repaid much sooner than a standard one, specifically between six months to five years. The exact duration does vary between lenders, given that some have no minimum term while others want borrowers to commit to at least fifteen years.
This type of mortgage differs significantly from the traditional 25-year repayment period, and even more so from the increasingly common extended 40-year terms, which are aimed at helping first-time buyers get a foot onto the property ladder.
Why Would You Consider a Short-Term Mortgage?
A short-term mortgage makes sense in situations such as if:
1. You’re approaching retirement
If you’re over 50 and nearing retirement then getting a conventional long-term mortgage is more difficult because lenders view reduced or irregular income as a risk. In this context, a short-term mortgage means you can purchase a property over a repayment period which will be more manageable as you get older.
2. You want to pay off your mortgage quicker
Going for a shorter term implies higher monthly repayments, but it also enables you to become mortgage-free much quicker. As such, you’ll pay less interest overall and so reduce the total cost of borrowing since you’ll own your home outright sooner.
3. You want to build equity faster
With a short-term mortgage, a larger portion of your payments goes towards reducing the loan balance instead of paying interest. This, in turn, builds equity in your property at a faster rate, which is useful if you plan to sell in the near future or think you’ll want to remortgage to release equity at some point, whether to fund home improvements or otherwise.
4. You’re waiting to sell your current property
If you’ve found your next home but haven’t yet sold your current one, a short-term mortgage works in a similar way to a bridging loan, though with fewer fees and a simpler structure. This ultimately gives you the freedom to move forward without any delay.
What are the Benefits of Short-Term Mortgages?
Alongside what we’ve already mentioned, a standout benefit of short-term mortgages is found in how mortgage rates and the wider housing market tend to fluctuate over time. And, by choosing a short-term deal, you’re only committing for a few years, which therefore limits your exposure to rate changes and value shifts.
The same principle also applies to individual circumstances by how short-term mortgages are attractive to the self-employed and those whose income will vary in the future, like zero-hour contract workers for instance. This is due to how if you’re in a solid financial position now, then opting for a shorter mortgage term means you’ll pay off your home while your income is stable, rather than worrying about your ability to make repayments over decades.
What is the Eligibility Criteria for a Short-Term Mortgage?
When applying for a short-term mortgage, the most important factor lenders consider is affordability. Although these mortgages allow you to repay your loan more quickly, they likewise involve bigger monthly repayments, so lenders need reassurance that you’ll comfortably meet these higher costs via:
Your regular income, to ensure a stable source of repayment.
Your ongoing expenditure, such as bills and living costs.
A strong credit score, as opposed to bad credit, increases your chances of approval.
How much you already owe, to see if you can take on more debt.
A larger deposit lowers the lender’s risk while helping you secure better rates.
A major part of this assessment is your debt-to-income ratio, that is, the proportion of your income which goes towards repaying debt. For short-term mortgages, lenders will require a lower ratio than for standard loans, as the higher monthly instalments need to remain feasible relative to your budget.
Should You Get a Long or Short-Term Mortgage?
Deciding between a long and short-term mortgage depends on your priorities.
As we’ve established, short-term mortgages are cheaper in the long run, yet the trade-off is that repayments are significantly higher, which will put pressure on your wallet. Another drawback is that you’re more exposed to interest rate changes during the term, which is especially noteworthy if you’re on a variable-rate deal, since your expenses will go up if rates rise.
Long-term mortgages, on the other hand, spread the cost over many years which keeps monthly repayments more affordable. This makes them a good option for anyone who wants a bit more stability in their monthly outgoings. Then again, because the loan lasts longer, you’ll pay much more in interest, meaning the total cost of borrowing is higher. The upside is that with the right fixed-rate deal, you’re less likely to be affected by short-term market fluctuations.
How to Get the Best Short-Term Mortgage Rates
Despite paying off your mortgage quickly saving you money, a short-term mortgage is still a big commitment, so making a practical decision is essential, and getting the best rate requires careful planning as well as the right advice.
Before going for any deal, you should speak with a qualified mortgage broker who’ll assess your financial situation, explain the pros and cons of different terms, and find the most suitable rate available without you facing the risk of rejection.
At The Mortgage Genie, our team of experienced brokers have gotten countless clients both long and short-term mortgage deals at highly competitive rates by guiding them through every step of the process, ensuring they understand (and thereby get the most from) their mortgage options.
If you’re interested, then be sure to contact us today at 01915809890. And why not find out how much you could borrow up to today by using our mortgage calculator?
The above blog has information contained within which was correct at the time of publication but is subject to change.
FAQs
What is the shortest term mortgage you can get?
The shortest mortgage term you’ll find is six months, however this is considered a specialist product and isn’t widely available. The shortest standard mortgage term offered is two years, which is a bit more balanced regarding flexibility and affordability.
Is a short term mortgage better?
Short-term mortgages aren’t necessarily better for everyone. That said, because the loan is repaid over a shorter period, this allows you to clear your mortgage quicker. In this way, you’ll pay less interest and become the outright owner of your home much sooner.
Can you get short term buy-to-let mortgages?
Yes, short-term mortgages are available for buy-to-let properties, though they are called holiday let mortgages. In essence, buy-to-let loans are offered over a range of terms, including short-term options.
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.