Tips for getting a Mortgage on a Small Property

Getting a mortgage on a small property is pretty similar to getting a mortgage on a larger property, except for one additional challenge. That challenge is finding a lender who is prepared to offer a mortgage for an amount less than 25,000 (equivalent of $50,000).

A quick bit of research revealed quite a range of approaches by the main UK lenders:

Halifax: No minimum limit
Nationwide: 5,000 minimum
NatWest: 15,000 minimum
Alliance & Leicester: 25,000 minimum

A similar situation also exists in other financial jurisdictions, such as the US.

So what are the key tips to get a mortgage for a small property?

Tip 1: Shop around.
What my research on minimum thresholds reveals is that it pays to shop around. Just because one bank has a minimum mortgage threshold that’s too high, doesn’t mean that they all will.

Tip 2: Speak to your own bank.
If you’re struggling to find a lender who will give you a mortgage, due to minimum thresholds, then it may be worth speaking to the bank that you have your main accounts with. Ask them if there is any way that they can make an exception to their rules. It’s in their interests to retain you as a valued customer, so they may be prepared to override the usual restrictions. It has to be said however that a lot of the discretion that branches used to have has been eroded, so they may have their hands tied.

I think, though, that it’s fair to say that this threshold element shouldn’t be a problem. Firstly, there aren’t many people who require a mortgage for amounts as low as 5,000. And, secondly, even then my research shows that there are mainstream banks who would be prepared to offer a mortgage. In any case, for that amount of money, a personal loan would be another valid option. Personal loans can usually be obtained for amounts between 1,000 and 25,000 (c. $2,000 – $50,000).

The main tips that you will need to be aware of then are the general tips that apply to all mortgages, namely:

– Aim to pay off the mortgage as quickly as possible to minimise the amount of interest that you pay over the mortgage term.

– Determine whether you want a fixed or variable rate mortgage. A fixed rate mortgage is generally good whether you believe that interest rates are likely to increase and you want the certainty of knowing that your monthly payments will remain unchanged. A variable rate is good if you believe that interest rates are currently high and that they are likely to go down.

– Check whether you are allowed to make lump sum payments and/or vary the payment amounts. Again, it’s all about paying off the mortgage in as quick a time-frame as you can afford, to minimise the overall cost of the mortgage.

– Check that you’re getting a good rate, and that you’re not being charged more than the standard rate because of your credit score. Shopping around is always a good idea, even if your choices are limited to minimum thresholds.

– Check whether there are any fees, should you wish to switch provider. Having taken out a mortgage, you are not obliged to stick with them for the whole of the term. If you find a better deal elsewhere, you are able to switch. However, lenders will sometimes charge a fee, so it’s worth checking the mortgage terms and conditions.

– Make sure that you can cope if interest rates go up. This only applies on variable rate mortgages but is a vital consideration. You need to be confident that you have a bit of spare capacity to pay more should interest rates go up during the term of your mortgage.

If you follow these steps, you should be able to secure a mortgage and ensure that you get value for money. And the fact that you’re buying a small property may mean that you are able to pay the mortgage off within quite a short time-frame, leaving you as the 100% owner of your own property! Good luck.