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Guide to applying for a mortgage

  • A complete guide to getting a mortgage
  • In step-by-step actions you need to take
  • From application to completion and beyond…

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    If you are considering applying for a mortgage, the volume of work ahead might seem overwhelming. You’ll need to provide lots of information and fill in multiple forms.

    Mortgages are the largest, most considered financial commitments most of us ever make.

    It’s imperative you know what to expect, the information lenders will ask of you, and what kind of mortgage is right for you.

    Being prepared, then, will help your application move as smoothly as possible. In this guide, we’ll take you through the process, explain the key stages and help you understand your options.

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    First port of call: get a professional broker on board

    Your first port of call should always be an independent mortgage broker. Get the lowdown from a professional even before you start viewing properties. The feedback you get will help you both remain realistic and prepare you for any hidden surprises.

    Especially if you’re a first-time buyer, even the littlest thing may seem like a mountain to overcome. A professional broker will help you see that most things are common sense, even if they’re wrapped up in jargon. They’ll cut through the noise so you can get on with living, and leave the heavy lifting to them.

    Calculating how much you can borrow

    The first thing you need to know is how much you can borrow. Knowing your purchasing power is key to starting your mortgage application process on the right footing.

    Most lenders use a generic calculation to give borrowers an estimated guide to what they might be prepared to lend. The norm is up to four and a half times (4.5x) earnings.

    Imagine you earn £45,000 a year, your partner, £35,000. Your combined approximate borrowing would be, as a guide, £360,000. This is the basic calculation to get to that figure:

    » £45,000 + £35,000 = £80,000, × 4.5 = £360,000.

    That said, some lenders offer higher income multiples. Depending on your circumstances, they might lend 5-, 5.5- and (in certain circumstances) 6 times your annual income for a mortgage. Our mortgage calculator will give you a basic understanding of your borrowing power:

    First applicant:
    + Add second applicant

    Other factors besides your income will affect how much you can borrow, e.g. your:

    • Deposit
    • Credit score
    • Outgoings/disposable income
    • Existing credit commitments

    Understanding how a lender might see you is key to getting the best mortgage deal. This is why it’s critical you speak to a mortgage advisor before making offers on properties.

    Checking your credit score and history

    You must have a clear understanding of your credit score and credit history. Lenders will always take these into account when considering your mortgage application.

    Your credit may also determine which lenders will be most amenable to your situation. Knowing this in advance, a broker can give you the best chance of avoiding mortgage rejection.

    If your credit score is poor, you may need to raise a larger deposit (15%, maybe more), or accept a higher interest rate.

    Which credit agency do lenders use?

    Lenders in the UK mainly use two credit agencies to assess your credit rating: Experian and Equifax.

    We recommend that you check your credit report routinely in the time leading up to applying to your mortgage application. If any information in your credit report is incorrect, contact the agency in question. They can amend any errors to give a true reflection of your mortgageability.

    The higher your credit rating, the more mortgage options you’ll likely have. Keep your credit report accurate, up-to-date, and in the best shape possible.

    The size of your deposit (it matters!)

    A mortgage deposit is the cash amount you ‘put down’ upfront when buying a house. The least deposit you’ll typically need is 5% of a property’s total value.

    In mortgage terms, ‘5% deposit’ is represented as 95% loan-to-value (LTV). 10% deposit is 90% LTV; 15% deposit is 85% LTV; 20% deposit is 80%, and so on.

    Before you even make an offer on a property, you’ll need to prove that you have your deposit, or at least where it’s coming from. All other things being equal, the larger your deposit, the better the deal a lender will offer you.

    As well as the deposit, there are other costs to budget for. You’ll need to pay for solicitor’s and surveyor’s fees, stamp duty, and set a sum aside to cover anything you’ll need to furnish the house with. Set funds aside at the outset to cover those; your broker will give you the full outline based on your situation.

    What should I look for in a mortgage deal?

    You can do a little research of your own before approaching a mortgage broker. This will give you a baseline from which to compare what a mortgage broker has to offer.

    No matter how much research you undertake, a lender is always going to try to sell you their mortgages. An independent broker won’t face those limitations. They’ll have access to many lenders’ deals, and can advise which offers might make the best sense for you.

    Your finances and individual situation will help determine the best mortgage deal for you. A mortgage broker can help you compare different types of mortgages, including:

    • Fixed rate
    • Tracker
    • Discounted
    • Offset
    • Variable

    The type of mortgage you take out will dictate your monthly payments. Fixed, tracker or discount rates come with a preferential fixed period of two, three or five years. Once that period has run its course, your interest rate will revert to the lender’s SVR.

    Don’t confuse that initial rate period with the actual ‘mortgage term’. The ‘mortgage term’ is the total length of your mortgage, which, for most borrowers, is 25 years.

    Remortgage before you slip onto your lender’s SVR

    Never feel you’re obliged to pay the lender’s SVR* once your initial period expires. It is often much more expensive than your introductory rate and is tempting to slip onto if doing nothing seems the easier option.

    You can remortgage at a more competitive rate (if one’s available), either with the existing lender (product switch) or a different lender.

    You don’t have to start from 25 years again once you remortgage. You can reduce the length of the new mortgage each time you switch to stay on track for your initial 25-year term. Or, you can even overpay and reduce the overall length of your mortgage term.

    Mortgage repayment options

    How you repay the mortgage is another important factor you’ll need to agree with your broker.

    Repayment (Capital & Interest) mortgages

    For residential mortgages, most borrowers take out a ‘repayment mortgage’, known in the trade as a ‘Capital & Interest’ mortgage.

    The monthly payments pay off both the interest and a percentage of the initial mortgage loan. In the early years, most of the monthly repayment goes towards paying off interest. In later years, that scenario flips and you pay off more of the mortgage balance.

    Interest-only mortgages

    With interest-only mortgages, you only pay off the interest (none of the mortgage loan itself) every month. The monthly repayment is cheaper, but you’ll need to pay off the mortgage in full at the end of the 25 years.

    You will need to prove to a lender that you have a viable plan for finding the money at the end of the term to be considered for interest only. The initial deposits are typically higher, too. This type of borrowing is often the best option for people considering [investing in Buy-to-Let](link to B2L guide).

    What fees will I have to pay?

    There are several fees to consider when you take out a mortgage. Some lenders offer fees-free mortgages, but these are mainly for remortgages. Fees can vary from small to substantial, depending on the deal being offered. Types of fees may include:

    Lender arrangement/booking fees vary considerably from one lender to the next. Some mortgages come with no arrangement fee, while others run to several thousand pounds. Most lenders give you the option to add this fee to the mortgage, but will charge you interest on it over the mortgage term.

    Valuation fees pay for standard checks your lender will carry out to value your property. This check ensures that the property is worth the price you are paying for it (and to safeguard their investment). They usually cost several hundred pounds.

    The mortgage broker fee is what brokers charge for arranging the mortgage.

    Legal fees are charged by property solicitors or licensed conveyancers to cover the legal and administrative work required in buying a property. Expect to pay between £600 and £1,600 including VAT (at 20%).

    Stamp Duty fees are applicable on properties above £250,000, or over £425,000 for first-time buyers. n.b. this is the property’s value, not how much you borrow.

    Mortgage Fact Find: the key to getting you the right mortgage

    To act as your mortgage broker, we need a snapshot of you. This includes your personal circumstances and your financial situation.

    To build an accurate picture, we’ll need to assess your income and expenditure, plus other elements lenders want to see. Once we’ve collated and appraised the information, we can make our recommendation and submit your application to the right lender for you.

    What documents will you need to provide for your application?

    When you apply for a mortgage in the UK, the lender will need to verify who you are and whether you can afford to repay your mortgage based on your earnings and financial commitments.

    You must therefore provide evidence of your identity, income and finances.

    Here is a list of all the documents that lenders may ask for to help you prepare before you start the process:

    • Proof of ID, e.g. a passport or driving license;
    • Proof of address, e.g. utility bills;
    • Proof of earnings, e.g. payslips, contracts (if you’re a fixed term contract worker), P60, SA302 tax calculation and overview, accounts (if you’re self-employed);
    • Proof of income and outgoings, e.g. bank statements for the last three months;

    Obtaining a ‘Decision in Principle’

    A ‘Decision in Principle’ (DiP), ‘Agreement in Principle’ (AiP) or ‘Mortgage in Principle’ (MiP) are all the same thing. They represent a ‘soft’ agreement from the mortgage lender, namely that they’ll provide you a mortgage based on the most basic information you provide.

    To obtain a DiP, we provide the following information to the lender; your:

    • Address history;
    • Earnings;
    • Credit commitments.

    We provide this information to the lender online; usually, they either accept or decline your application within 12-24 hours.

    Please note: a DiP is not a firm mortgage agreement!

    A lender will issue one to you based on a simple credit check and the above basic, early information. DiPs don’t go into the level of due diligence that the lender will eventually undertake when we submit your mortgage application. It’s purely a statement of intent.

    It’s well worth getting a DiP, though. As well as giving you the confidence to proceed, it gives the vendor of the home confidence, too. If you have a DiP and any competition for the house doesn’t, it shows that you’re serious. On that basis alone, the vendor may look upon you more favourably.

    Making an offer on a property

    Once you’ve done the calculations and obtained your ‘Decision in Principle’, you’re ready to start viewing properties.

    If you make an offer on a property, make sure you put your offer in writing to the estate agent as well as over the phone. This is a double-check safety net on your part in case the agent misses anything during your phone call.

    What happens once my offer has been accepted?

    A mortgage offer isn’t legally binding until you exchange contracts. Once the vendor accepts your offer, insist that they take the property off the market.

    At this point, you need to enlist the services of a solicitor or conveyancer to handle your purchase. If you haven’t used a solicitor before, we are happy to make a recommendation. You also need to speak to your broker or lender to finalise the mortgage agreement.

    Key Facts Illustration

    The mortgage illustration, or ‘Key Facts Illustration’, outlines the mortgage your broker has recommended, along with details of the mortgage loan.

    If you’re happy to proceed with the mortgage illustration, they can submit your full application to the lender.

    The document will outline the following details of your mortgage:

    • The type of loan
    • The term of the loan
    • The initial rate period interest rate
    • Monthly repayment amounts
    • Any incumbent fees you have to pay

    It usually takes between four and 12 weeks to be in a position to exchange contracts, but can sometimes take a lot longer (see below). During that time, either you or the seller can still back out.

    How long does a mortgage application take through a broker?

    The mortgage application process itself is surprisingly quick. The application process typically takes 4-6 weeks between submission and for the lender to issue a mortgage offer.

    Much will depend on your unique situation, though. The volume of existing work at the lender, plus their administrative process can also affect the timeframe.

    Conveyancers and completion

    The entire house-buying process, though, can take months, especially if you’re in a property chain. The more people in that chain, the higher the risk that the property purchase can fall through.

    Once you’ve received the lender’s mortgage offer, your conveyancer can start the final phase of buying your property. That will include:

    • Organising the searches with respective bodies and departments;
    • Agreeing on a date to exchange contracts with the vendor’s solicitor;
    • Making arrangements to have your deposit in place to transfer to the lender.

    They’ll also be able to answer any specific questions you have about exchanging contracts.

    The contracts themselves set out your agreement in a legal framework. This will highlight everything the vendor has included in the purchase price, and any terms and conditions you and they have agreed.

    Once all those elements have been satisfied, and your deposit transferred to the lender, your solicitor will confirm when you can pick up the keys to your new home. Job done…

    *Never pay a lender’s SVR

    …or is that the end of our service? Actually, no.

    We know the value of building long-term relationships. As well as getting to know you first to get you the best deal, we think it’s our duty to protect you from often punitive flexible rates in the future.

    When your initial rate period is due to expire, we’ll send you a reminder. At that point, you can remortgage or product switch onto a competitive rate with a new fixed interest rate period. This process is much more streamlined, and you’ll hardly have to lift a finger.

    We’re in it for the journey. We hope you remain a passenger right to the end. Good luck!

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