The criteria for interest only mortgages have changed and lenders require homeowners to have enhanced incomes and equity before they can approve the application. There are fewer interest only mortgages available and these often requires equity in your property to be greater than 50% with household income exceeding £50,000.

For an interest only mortgage there is no guarantee that the original loan will be repaid as you are only paying the interest rather than any of the amount borrowed. At the end of the term you usually between 25 and 40 years, you would owe the original amount and would need some way of paying this amount.

Lenders would also expect you to provide proof you have a suitable capital repayment vehicle. You would need to save money such as using a tax efficient ISA invested over the long term to clear the debt and this would be a higher risk approach than a repayment mortgage.

A repayment mortgage combines both a capital and interest repayment and is calculated so at the end of the term the original loan is completely repaid.

For example, if you buy a property for £300,000 with a £50,000 deposit your mortgage will be £250,000. The most popular term is 25 years and if you pay an average interest rate of 1.95% the cost is £1,053.56 per month. This amount will stay the same as long as the interest rate remains the same but would increase if the interest rate rises.

From the payment of £1,053.56 per month initially £647.31 per month is the repayment of capital and £406.25 per month is interest. As each month passes the capital amount gradually increases and the interest amount decreases as you are reducing the size of the debt.

Deciding on whether you select a fixed rate or variable mortgage such as a tracker or discounted rate can be difficult and is often driven by the economy at the time or future expectations of interest rate movements.

The reason for this is that all lenders have a standard variable rate (SVR) which is linked to the base rate set by the Bank of England. As the Bank changes the interest rate in relation to economic activity lenders may also change their rates. Fixed rate mortgages are influenced more by the cost of borrowing between banks called the ‘swap’ rate and change up or down with market expectations.

The Bank of England reduced interest rates in March 2009 to 0.5% due to the financial crisis and again in August 2016 to 0.25% due to the Brexit vote and lenders also reduced their mortgage rates.

In the long term the Bank of England intend to increase interest rates and this expectation has seen 90% of people select a fixed rate mortgage. The main reason people opt for this route is the certainty of knowing their mortgage payments will remain the same during the term of the special deal, usually for two, three or five years.

A tracker mortgage is a variable rate and offers cheaper interest repayments of about 0.2% compared to a fixed rate but you will pay more if interest rates increase as this mortgage tracks the Bank of England base rate.

When you buy your property you will pay Stamp Duty Land Tax (SDLT) if your property is valued at £125,000 or more. How much tax you pay depends on whether it is residential, a buy-to-let or second home.

From April 2016 stamp duty for new buy-to-let properties has increased by 3% on the whole purchase value which also applies to people buying a second home. The following table shows how stamp duty is applied in England and Wales:

Stamp duty is paid on the proportions in the above bands. For residential properties up to £125,000 the SDLT is zero but landlords and second homes must pay an additional 3% or £3,750 on this portion.

For a property valued at £300,000 homeowners would pay £5,000 in SDLT whereas a landlord or second home buyer will pay £14,000.

From completion of the property purchase you will have 30 days to pay the stamp duty although your solicitor will usually collect stamp duty tax from you at completion and pay this on your behalf. Always remember it is legally your responsibility to pay the tax so you need to ensure you have paid the correct amount.