Whether you are selling or buying a house, or maybe you are just curious, mortgages can be a tricky subject. However, they are something that the majority of us are all going to have to deal with at some point, so getting your head around it sooner rather than later is the best option.
Today we will be looking at all things mortgage-related, from whether or not you need a mortgage adviser, to how to get mortgage advice and how to apply for a mortgage and much more.
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Before we get into our mortgage advice, it is important to first look at what a mortgage is.
A mortgage is a loan that buyers apply for in order to finance a property. However, unlike most loans, a mortgage is a ‘secured loan’.
This means that the borrower will promise collateral to the lender in the event that they stop making their payments. This will usually mean that if you do not keep up repayments on your mortgage, your property may be repossessed.
The first step of your mortgage application process is to work out your budget. You do not need to have found a property or even have one in mind, but you should have an idea of a price range that you can afford.
Using property websites such as Zoopla and Rightmove can help you to find how much property in your desired area may end up costing you.
In order to secure a mortgage, you will need a deposit worth 5% of the property value.
The next thing you will need to do is to decide if you are mortgage ready. Lenders will have a criteria when it comes to who they will lend to.
The majority of lenders will expect you to have a good credit score. If you are a would-be-buyer with a poor credit rating or no history of using credit you will need to improve this before you apply for a mortgage.
There are three main credit agencies within the UK. These are Equifax, Experian, and TransUnion. You will be able to get a statutory credit report from any of these companies for free. You can also get this report from websites such as Credit Karma and ClearScore.
There are a few ways that you can go about improving your credit score. One of the most popular ways is through credit cards.
If you borrow money using credit cards and pay off the loan in full and on time, it proves to lenders that you have experience with handling money and paying it back responsibly.
Another way that you can improve your credit score is by making sure that you are on the electoral roll whenever you move somewhere new.
Mortgage lenders are also more likely to lend to you if you are in steady employment and you also have a regular income. If you have changed jobs within the last 6 months it may be a good idea to wait until you have settled more before applying.
Most mortgage providers will consider lending you 4 or 4.5 times your annual income, so long as you meet their affordability criteria. Very few mortgage providers have a minimum salary requirement.
Yes, you can get a mortgage while earning £20,000 a year as most mortgage providers do not have a minimum salary requirement.
However, you will only be allowed to borrow 4 – 5 times your annual salary, and must meet affordability requirements which will vary depending on the provider.
People who take out 2-year fixed mortgages will benefit from the lower interest rates, a short term commitment and an opportunity to remortgage sooner but, there are extra fees to remortgage, the interest is only fixed for a short time and new mortgages may not be so attractive due to rising interest rates.
People who take out a 5-year fixed mortgage will benefit from long-term financial stability, avoid the hassle of remortgaging and beat rising interest rates but will face higher upfront interest rates and be unable to take advantage of any falling interest rates.
If you believe that you have received poor mortgage advice then you will be able to take action. If the advice you were given turned out to be unsuitable, then the first thing you should do is complain in writing to your mortgage lender.
If you do not receive a response within 8 weeks then you will need to take your complaint to the financial ombudsman service.
Once you have completed the previous steps and have decided that you are ready to buy a home, you will now find the right mortgage.
When you are finding a mortgage, there is plenty to consider, including what type of mortgage will work best for you and how long of a term you should go for.
If you are unsure of what your next step should be, or if you are unsure about what kind of mortgage you are looking for, it is a good idea to use a mortgages advisor.
A mortgages advisor will be able to guide you through the entire process, from helping you apply for mortgages, advising you on what type of product would be the best fit for you as well as answering any questions you may have about the process.
They are able to offer impartial advice and will know which lenders are most likely to accept you for a mortgage.
You will be able to consult with your mortgages advisor throughout the mortgage process and get advice on mortgages from them.
They will be able to calculate the total cost of your mortgage and explain all the costs and charges for you as well as any early repayment charges you may face.
However, if you do not wish to use a mortgages advisor then you will be able to find mortgage deals for yourself by shopping around and speaking to a variety of lenders.
Whilst it may be tempting to apply for a mortgage with your current bank, you will be incredibly unlikely to give you the best deal and it could end up costing you thousands in the long run.
When you apply for your mortgage, you will need the following documentation:
You have to be careful about the documents you use as only certain documentation will be approved. Often originals are required unless you have bank statements, in which case printouts and PDFs are accepted.
Mortgages advisors will often ask to see either a passport or a photo driving licence. However, you must make sure that the ID that you use is up to date as having an old address on your documentation can lead to complications and you may end up having to provide even more documentation in order to prove your address.
As proof of address, a mortgage advisor will request to see two pieces of documentation. These can be a bank statement, utility bill, credit card statement, or council tax bill. Any document you present must be from within the last 3 months, anything older will not be accepted.
As well as proof of identity and address, your mortgage advisor will also ask for proof of your outgoings alongside bank and credit card statements from the last 3 to 6 months and any car finance or hire purchase agreements, details of any loans, and any other payments and expenditures.
Your bank statements should show to your mortgage broker how you have built up a deposit. Lenders may also ask you to explain anything they deem to be an unusual transaction.
If you have been given money as a gift towards your deposit, you will need to make sure to include a letter from them.
A mortgage broker may also ask for your P60 from your employer as well as at least three months payslips.
If you are self-employed, then you will need details of your tax assessment and your accounts from the last three years.
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Now you have found a mortgage deal, it is a good idea to get a mortgage or agreement in principle. A lot of lenders will not deal with you until you have secured one.
A mortgage in principle, or decision in principle or agreement in principle as it is also known, is exactly what it sounds like. It involves a lender agreeing ‘in principle’ to give you a mortgage for a certain amount. This is often subject to final checks and is not a guarantee of how much you can gain.
Whilst they are not mandatory, if you do decide to go for a mortgage in principle you will more than likely have to go through a credit check. Because of this, it is a good idea to only do this when you are formally applying for a mortgage or if you are asked by an estate agent to check if you are a credible buyer.
If you are asked to do the latter, you should aim to procure the principle with a lender who runs a soft credit check as it is a good idea to keep the number of hard credit checks down to a minimum.
As every lender has different rules, a decision in principle can last for various amounts of time. As a rule of thumb though, the average DIP lasts around 6 months.
Now that you have secured a mortgage in principle, it is time to make a formal mortgage application. If you have decided to use a mortgage advisor, then they will arrange this for you.
Once you have chosen the property that you wish to buy, then the mortgage lender will conduct a valuation of the property that will confirm that the property is worth what you intend to pay for it.
They will also conduct a thorough check of the paperwork you have provided and your credit record. This search will appear on your credit file.
Should you be rejected by your lender at this stage in the process, you should try and find out why this has happened and take some time out whilst you wait for a different lender. If you make several mortgage applications close together then you can end up severely damaging your credit score.
The final step in your mortgage journey is to receive your formal offer. As long as your lender is happy with your application, you should get your offer around 4 weeks after applying.
For first time buyers it will be valid for around 6 months. If you are remortgaging, your offer will usually last around 3 months.
If there is an issue with the valuation or if more documentation is required, then the process may take slightly longer.
Your conveyancer will arrange for the funds for your mortgage to be transferred from your mortgage lender to the person you are buying from on the day of completion.
It is not a legal requirement to use a mortgage broker, therefore the choice to have a mortgage broker is completely down to the individual.
Finding the best mortgage can be a difficult task and with a range of mortgages available it can be daunting to navigate your way through them all.
For this reason, we would recommend using a mortgage broker. Even though they will more than likely charge you broker fees for their mortgage advice, they provide advice that is well worth paying for.
A mortgage broker is a mortgage expert who will be able to guide you through the process, even if it is not your first time doing so. They will also be able to help you with your application, take care of the paperwork where possible and advise on which would be the best mortgage deal for you.
A mortgage broker, or mortgage advisor, is a qualified professional whose job it is to find the most suitable mortgage for each buyer.
A broker can save you time by giving you advice on how to improve your application, inform you on which lenders are most likely to accept your application, recommend mortgages and products to you as well as dealing with a lot of the paperwork for you on your behalf.
There are two different types of mortgage brokers, independent mortgage brokers, and tied mortgage brokers.
An independent broker can source from the whole UK market whereas a tied broker will be restricted to certain providers so may be limited on the deals they can get for you.
By asking this question you are able to find out if your broker is able to source any UK mortgage. Not every mortgage broker can achieve this so it is vital to know who you are dealing with. Below are some of the possible answers to this question:
The main reason behind asking this question is to be able to find out exactly what your broker can offer you. In order to secure the best mortgage deal, you will need to check every deal and weigh up exactly what you are looking for in a mortgage broker.
This question will give you an idea about how much a broker will make on the deal. There are two possible sources through which brokers make their income. These are:
As long as your mortgage broker is upfront about the fees, then you can be charged for fees at any point. As a rule of thumb, you should avoid a mortgage broker who charges big fees before completion as if the sale falls through you may still be charged.
No broker that you can trust will charge you any more than around 1% of the mortgage value, even if you are a customer with a poor credit rating. If a mortgage broker tries to charge you any more than this then you should continue your search for a mortgage broker.
One of the most important questions you can ask your mortgage broker is whether or not they are qualified to advise you. If you are using a mortgage broker you should make sure they have the correct qualifications.
The most recognised qualification for a mortgage broker is called CeMAP. Your broker should always assess your eligibility and your needs before they recommend a product for you.
Should the advice that you receive from your broker turn out to be incorrect, the Financial Ombudsman will be able to investigate.
However, if you choose a product from an information-only service you would have no protection if you made the wrong choice.
It doesn’t matter if you are buying or selling, if you have any mortgage questions or queries, get in touch with The Property Selling Company today. We are here to help with all aspects of the mortgage process, no question too big or too small.
The Property Selling Company, you will benefit from our honest and transparent customer service. We are property professionals who offer an improved, streamlined service away from the traditional high street agent because we believe that selling a property shouldn’t be time-consuming, or complicated.
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