The purpose of this mortgage article is to provide factual information that will enable you to understand this particular type of financial product at a higher level. We understand you may have reached this page with the desire to find the cheapest current secured property mortgage offers. To this end, we have listed some of the best current mortgage offers alongside this page. For those of you who would like to understand more about this financial product, please read the following text.

A mortgage simply represents a charge on an asset. This is the formal legal method of communicating that a loan taken as a “mortgage” will have an asset pledged as security or “collateral” should the loan foreclose. The very fact that a mortgage has collateral pledged reduces the risk to the mortgage lending institution that it will be unable to recoup the loaned capital and any accrued interest charges.

A very simple way of explaining this is to consider a situation where a 90 percent mortgage has been approved by a bank. In this instance, the bank will only run a risk of not recouping the outstanding capital and accrued interest on the mortgage loan if the property fell in value by an amount greater than 10%. This is a stylised example that excludes the impact of liquidity and transaction costs which are very real costs in the property market.

Up until the time the effects of the credit crunch of September 2007 started feeding through into reducing property prices, there had been a long and sustained period of increases in property values in the United Kingdom. Banks had become very relaxed with regards to mortgage lending, frequently accepting the issuance of 90 percent or even 100 percent mortgage debt.

Given the current state of the UK property market (written as of May 2009), banks and other mortgage lending institutions will only be prepared to lend at high loan to value ratios (LTVs) if the borrower represents a strong covenant. By strong covenant we mean that they earn a strong and stable income (proportionately to the loan value of the mortgage). Many people are currently finding it very hard to borrow at high LTVs as banks have little confidence they will be able to recover their outstanding capital in the event of a foreclosure as they used to. 90 percent mortgages have all about gone for now (as of May 2009) and we are increasingly seeing 75 percent mortgages as the new upper limit.

We hope this information on mortgage based loans has helped increase your understanding of this financial product. Please feel free to contact us via our online contact form if you are after any specific advice in searching for the most suitable mortgage product.