What is a mortgage?
A mortgage is a loan from a bank or building society that is secured against a property.
Having a loan secured on your home means the bank has a legal interest in the property. This protects their interests as they have first right to the money if the property is sold. It also means they can take the property from you if you fail to make your payments. This is known as repossession.
The bank makes money from your loan by charging interest, which you pay monthly as part of your mortgage payments.
How do I pay my mortgage?
When you start your mortgage, you will agree to your lender’s Terms of Borrowing. This means you are agreeing to pay your mortgage over a set number of years, this is usually between 25 and 40 years for first time buyers.
With most mortgages, you pay back part of the capital and the interest on a monthly basis. This is a repayment mortgage.
An alternative is an Interest Only mortgage, where you just pay the interest due on the loan. With this type of mortgage, you need to make a separate plan to repay the loan.
What interest do I pay?
The two most common interest rates are Fixed and Tracker.
Fixed interest rates are fixed for a set period of time, normally 2-5 years. After this, the interest rate will change to a variable interest rate called the lender’s Standard Variable Rate (SVR).
A Tracker rate is linked to the Bank of England interest rate. This means that the rate can fluctuate in line with the economy. The interest rate you pay will normally be the Bank of England rate plus an agreed margin. This deal is normally set for a few years and then reverts to the lender’s Standard Variable Rate.
How much deposit do I need?
Your deposit is the amount you put down towards the purchase price of your property. Lenders usually want you to put down a deposit of at least 5-10%. The more deposit you put in the better deal the bank is likely to offer you.
If you put down a 10% deposit you will need a mortgage for 90%. This is the ratio of the mortgage to the property value and is known as Loan to Value (LTV).
How do lenders work out what I can borrow?
They look at 4 key factors:
- Your level of income
- Your existing outgoings
- Your credit history
- Your level of deposit
How do I get approved for a mortgage?
Here are some useful tips to help prepare you for your first mortgage…
Know your credit rating
Your credit rating is a system used by companies to see how reliable you are at borrowing and repaying money. You can check your credit rating free on sites such as www.checkmyfile.co.uk.
If you have kept up payments on things like loans and credit cards, then you should have a good credit rating. If not, there might be work to be done to put you in the best position to get your first mortgage.
Lenders also like to see a history of managing a credit facility, so it can be useful to use a credit card and clear it each month to build up a profile of good credit usage. Having a mobile phone contract rather than pay as you go can also help, as the contract will be recorded on your credit file.
Keep credit usage to a minimum
While we suggest you use credit facilities to help build your credit rating, it is important not to over commit yourself with high repayments for loans as this will affect how much of a mortgage you might be approved for.
Keep your payslips
The proof of income you’ll need to provide will depend on your type of employment.
If you receive variable pay, like overtime, bonuses or commission, then you’ll need to provide a history for these payments.
Similarly, if you’re not on a fixed income, such as a zero-hour contract or agency job, you’ll also need to keep a longer history of your income to be able to prove what you earn to a lender.
Prove your identity
Making sure you have up-to-date photo ID is important as you’ll need it to prove your identity to solicitors, your mortgage lender, mortgage adviser and estate agent. It’s also useful to keep a secondary proof of address in original paper form, such as a bank statement or utility bill. Making sure you’re registered on the electoral role will also help lenders identify you.
Get a Decision or Agreement in Principle
A Decision in Principle (DIP) or Agreement in Principle (AIP) is a provisional lending decision from a bank before you find a property. This certificate will prove to an estate agent that you’ve passed a credit check and will state how much you’re able to borrow.
Getting a DIP from a mortgage lender is no obligation, so if you decide to go to another lender or chose a different deal then you don’t lose out.
We can arrange for you to get a DIP in as little as 20 minutes. Following your call with our adviser we will provide you with your DIP certificate.
What do I need to do to apply for a mortgage?
Step 1 – Check what mortgage you can get
We recommend you get a Decision in Principle but at the very least you should know how much you can borrow/how much you can buy for, and what your mortgage repayments are likely to cost. We can help you do this. Use our Mortgage Eligibility Tool and then we’ll be in touch to discuss your options.
Step 2 – Find a property
Once you know the size of the mortgage you can get, you can start looking for a property. Browse your local estate agents or look on national sites like Rightmove, Prime Location and Zoopla.
Step 3 – Make an offer
Once you’ve found your perfect property, you can contact the estate agent for the property and make an offer.
Step 4 – Find a solicitor
We work with solicitor partners who deliver an outstanding service and we’d be happy to arrange a quote for you.
If you’re buying a new build property, then it’s likely the builder will have a preferred solicitor that will know the development. Ask them to confirm.
Step 5 – Apply for your mortgage
Use our booking link to get in touch and we’ll set up a mortgage application appointment with you. We’ll go through the details of the mortgage we recommend and collect any information required. You can find full details of the information we need for your mortgage application in this guide.
Step 6 – Arrange a survey
If you need a mortgage to buy a property, the lender will need the property to have a survey. The type of survey you choose to have should be based on the age and condition of the property and not on the price of the survey.
You have three options and should consider your choice carefully.
Mortgage valuation survey £
This is the most basic valuation and is often provided for free. This may be a physical inspection, or it could be a remote assessment. This valuation is purely for the benefit of the mortgage lender and does not give you any protection if there’s something the valuer has not informed you of. Often you will not receive a copy of the valuation report.
Homebuyer’s survey ££
This is a good option if your property is in a reasonably good condition and you want a professional opinion on it and any possible areas of concern. You’ll receive a report where items in the property are graded on a red/amber/green scale, with notes for items of concern and guidance on likely repair costs. This report also includes a property valuation.
Full structural survey £££
This is an in-depth survey and is often referred to as a ‘building survey’. It’s common for older properties or listed properties with extensions to have a full structural survey as it checks for major and minor faults, along with estimated repair costs. This gives you the ability to challenge anything with the buyer from a legal perspective.
New build snagging survey
If you’re buying a new build property it might not be complete when you apply for your mortgage. This means you might want to instruct a pre-completion snagging report if you have any concerns.
With new builds you have a 10-year warranty as well as an initial time period where the builder will complete any snagging requests.
Step 7 – Mortgage offer issued
Once your mortgage offer is issued this is confirmation that the lender has finished their checks and is happy to lend to you and happy with the property as security for the mortgage.
Your offer will have a set offer expiry date. It’s important to consider this when agreeing to exchange contracts and setting a completion date.
Step 8 – Exchange contracts
Exchange of contracts takes place when both the buyer and seller have signed their contracts and are ready for the sale to become legally binding. This takes place once you have your mortgage offer and all the legal checks have been completed by your solicitor.
When you exchange contracts, your deposit is payable and there are serious financial consequences if either party pulls out after this time.
Step 9– Get the keys!
Completion is the final stage of the process and the day you get the keys to your new home. The mortgage balance will be drawn down by your solicitor and all your funds transferred to the seller’s solicitor.
When do I make my first mortgage payment?
Your first mortgage payment is usually made the month after completion. Your lender will notify you of the date and exact amount of your first payment.
Most lenders allow you to change the date for your mortgage payments, so pick a date which works for you.
Your first mortgage payment will usually be much bigger than your regular monthly repayments. This is because it includes an initial interest payment, covering the interest for the days between the date you complete and the end of that month.
For example, if you complete on the 15th of the month, interest will be charged from that date to the end of the month, and then added to your standard monthly payment the following month.
