Mortgage & finance introductions for Hampshire

Residential mortgages

A residential mortgage is a long-term loan specifically designed to help you purchase a home. The property itself serves as collateral, meaning the lender can repossess it if you fail to keep up with your payments.

Most mortgages last between 5 and 40 years, during which you pay back the amount borrowed (the capital) plus the cost of borrowing (interest).

The two main repayment types

1. Capital and interest (repayment), the most common type. Each monthly payment consists of two parts: a portion that pays off the interest for that month, and a portion that pays back a slice of the original loan.

• The result: your debt decreases every month.
• The end goal: as long as you make all your payments, the mortgage is guaranteed to be fully paid off at the end of the term, and you will own the property outright.
• Best for: those who want the security of knowing their debt is shrinking.

2. Interest-only, your monthly payments only cover the interest charges on the loan. You aren’t actually paying back any of the original money you borrowed.

• The result: monthly payments are significantly lower than a repayment mortgage because you aren’t “buying” the house yet; you’re just paying for the loan.
• The end goal: at the end of the mortgage term, you still owe the full amount you borrowed on day one. You must have a credible plan (like an investment or sale of another asset) to pay off the lump sum.
• Best for: sophisticated investors, landlords or those with fluctuating incomes, though lenders have much stricter criteria for these loans.

Buy-to-let (BTL) mortgages

A buy-to-let (BTL) mortgage is a specific type of loan intended for people who want to buy a property as an investment rather than a place to live. Instead of living in the home yourself, you rent it out to tenants.

Because you are effectively running a small business, lenders view these loans as higher risk than standard residential mortgages.

Holiday let / Airbnb

A holiday let mortgage is a specialised loan designed for properties that will be let out on a short-term basis to tourists or business travellers, think Airbnb, VRBO, or traditional seaside cottages.

While it shares some DNA with a buy-to-let (BTL) mortgage, lenders treat holiday lets differently because income is often seasonal and fluctuates throughout the year.

Equity release / lifetime mortgage

This is the most common type of equity release. You borrow money secured against your home, while being able to remain in your home. The mortgage does not require you to make monthly repayments as the interest will roll up and be added to the loan; however, some plans will allow you to clear all or part of the interest, rather than roll up. The mortgage is usually repaid from the sale of your home when you die or move permanently into residential care, and any remaining balance is passed back to your estate.

Home reversion plan

You raise money by selling all or part of your home to a home reversion provider in return for an income or lump sum, while continuing to have the right to live in it, until you die or move into permanent residential care. Sage Equity Release do not provide advice on home reversion schemes.

Bridging loan

A bridging loan is a short-term, high-interest loan. It is designed to “bridge” a financial gap when you need to buy a property or asset quickly but are waiting for funds to become available from another source (usually the sale of your current home).

It is essentially a sprint, not a marathon, meant to last weeks or months, rather than years.

How it works

Bridging loans are “asset-backed”, meaning the lender uses your property/ies as security. They are characterised by two distinct features:

• Speed: they can often be arranged in a matter of days, far faster than a traditional mortgage.
• The exit strategy: because these loans are short-term, lenders require a guaranteed “exit strategy”, a clear plan for how the loan will be repaid, such as the sale of an existing house or a related remortgage.

Two types of bridging loans

1. Closed bridge: you have a fixed date for repayment (e.g. you have already exchanged contracts on your house sale).
2. Open bridge: you have a clear plan to repay, but no firm date yet (e.g. your house is on the market but hasn’t sold). These are riskier and usually more expensive.

Common use cases

• Breaking a chain: you’ve found your dream home, but your current buyer pulled out and you don’t want to lose the new property.
• Auction purchases: auctions usually require payment within 28 days, too fast for most mortgage lenders.
• Renovation: buying a “fixer-upper” that is currently uninhabitable (and therefore unmortgageable) to renovate and then refinance.

Second charge mortgages

A second charge mortgage (often called a “second mortgage” or “home equity loan”) is a second, separate loan that sits on top of your existing mortgage. You are essentially using the equity in your home, the difference between your property’s value and your current mortgage balance, as security for a new loan.

It is called a “second charge” because your main mortgage lender has the first claim on your property if it’s sold, while the second lender stands second in line.

How it works

Instead of remortgaging (where you replace your entire original loan), you keep your first mortgage exactly as it is and take out a second, completely independent loan with its own interest rate and term.

• Security: like your first mortgage, the loan is secured against your home. If you don’t keep up with payments, the property is at risk.
• Consent: you usually need permission from your first mortgage lender to take out a second charge.
• Repayment: you will have two separate monthly payments: one for your main mortgage and one for the second charge.

Why choose a second charge over remortgaging? Most people choose a second charge when they need a large sum of money but don’t want to touch their original mortgage. Common reasons include major home improvements, debt consolidation or a deposit for another property; high early repayment charges (ERCs) on the current mortgage; a historically low interest rate they don’t want to lose; or credit changes that make a new, large mortgage harder to qualify for.

Development finance

How it works: the “drawdown” model

Development finance works in stages. You don’t get all the money at once; instead, the lender releases funds in tranches as milestones are hit:

1. Purchase (day one): the lender provides an initial sum to help you buy the land or the property to be converted.
2. Staged drawdowns: as construction progresses (e.g. reaching “golden brick” level, roof on, plastered, etc.), you draw down more funds to pay contractors and buy materials.
3. Inspections: before each new slice of money is released, the lender usually sends a monitoring surveyor to the site to verify that the work has been completed to a high standard.

Key terms to know

Lenders don’t just look at what the land is worth now; they look at what the project will be worth when it’s finished.

• Rolled-up interest: to help with cash flow during the build, you usually don’t make monthly payments. Instead, the interest is “rolled up” and added to the loan, with the total repaid at the very end.
• GDV (gross development value): the estimated market value of the property once the work is 100% complete. Lenders typically lend up to 60%–70% of the GDV.
• LTC (loan to cost): the percentage of the total project cost (land + build) the lender is willing to cover. This can often be as high as 80%–90%.

Protection & peace of mind

Securing your financial future means preparing for the unexpected. Our dedicated partners provide tailored advice to ensure you, your family, and your business remain resilient, no matter what happens.

• Life insurance, providing a safety net to ensure your mortgage is repaid and your loved ones are looked after in the event of your death.
• Critical illness cover, a tax-free lump sum payment upon the diagnosis of a serious illness, allowing you to focus on recovery without the burden of financial stress.
• Income protection, designed to replace a significant portion of your earnings if you are unable to work due to illness or injury, helping you maintain your lifestyle and meet your current expenses and commitments.
• Business protection, essential coverage for your business to safeguard the continuity and value of your company.

Estate planning, wills & trusts

Protecting your legacy and ensuring your assets reach the right people requires careful, professional planning.

Our partners provide expert guidance on drafting comprehensive wills, establishing trusts to protect family wealth, and navigating the complexities of estate planning.

We help you gain peace of mind that your future and your family are fully secured.