If you want to take out a mortgage in order to buy a property, the key to success is preparing early. We strongly advise getting your research done, your finances in order and gathering the required documentation ahead of time, which will make the whole process a lot less stressful and give you a better chance of your mortgage loan being approved.

It’s easy to be forgiven if you don’t know where to start with your mortgage application, which is why we’ve prepared this easy to follow guide so you know what you need to do and when in advance of your mortgage application.

 

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The first step is to establish the size of your deposit.

The minimum deposit you must have in order to apply for a mortgage is 5%. With a 5% deposit, you will be applying for a loan to cover 95% of the purchase price of the property – this is referred to as 95% Loan To Value.

Each time your Loan To Value goes down by 5%, you will move into a new interest rate band and unlock a lower rate of interest. Ideally, you will want to save as much of a deposit as possible to take you into the next Loan To Value band available.

If you are close to moving into the next Loan To Value band then it is probably worth saving up a little more money or negotiating a slightly cheaper price on the property you want to buy.

For example, by moving from 90% to 89.9% Loan To Value, you will likely save thousands of pounds in interest repayments over the next few years.

The remainder of the loan is still subject to your affordability and the lender will need to be satisfied you are able to repay the remaining value of the property.

Help To Buy

If you are interested in purchasing a brand new home, it’s worth a mention here about the Government help-to-buy incentive – with a 95% Loan To Value mortgage, you could increase your purchasing potential by using the assistance of a Help to Buy loan, using a little as just a 5% deposit.

Gifted Deposits

This is the term for when a family member is in a position to contribute to your deposit.

Both your lender and solicitor will want to be able to trace the source of the deposit. Your solicitor has a legal obligation to complete money laundering checks.

Your lender will require a letter signed by the person gifting the deposit confirming they are gifting the money and they will not hold a financial stake in the property you are purchasing.

Gifted monies can either be transferred directly into your bank account or sent directly to your solicitor when the time comes.

Our best advice is to inform your mortgage broker of your intent to use gifted funds for your deposit so they can advise the best course of action.

 

Additional Costs

The first and most important thing you need to do when you are thinking of applying for a mortgage, is to make sure you have enough money saved for all the additional costs associated with moving home. Your lender will be keen to see that extra money is in place to pay for the other associated costs, such as:

Stamp Duty

Stamp Duty Land Tax (SDLT) is paid in the same way as income tax thresholds i.e. SDLT is paid on increasing portions of the property price above £125,000 when you buy residential property as follows:

• Up to £125,000 Zero
• The next £125,000 (the portion from £125,001 to £250,000) 2%
• The next £675,000 (the portion from £250,001 to £925,000) 5%
• The next £575,000 (the portion from £925,001 to £1.5 million) 10%
• The remaining amount (the portion above £1.5 million) 12%

 

There are exceptions to this, for example First Time Buyers pay zero SDLT on the first £300,000 of the purchase price.

Solicitor Costs

You will need to pay for the Search Fees and the Land Registration Fee as well as conveyancing costs. Investigate which conveyancing solicitor you want to use ahead of time and find out the costs upfront so you know which solicitor you want to instruct by the time you apply for the mortgage.

Surveyor Costs

Optional, but knowing the exact condition of your purchase could save you money long term.

Removal Costs

These should be investigated early and can be affected by location and time of move.

Estate Agent Fees

These are applicable only to those selling a property as well as applying for a mortgage for their onward purchase. Estate Agent Fees are typically paid upon completion as a proportion of the sale price.

DOCUMENTS REQUIRED TO APPLY FOR A MORTGAGE

Collate all the necessary documentation as early as possible. This will help your mortgage broker to provide you with an accurate picture of the mortgage options available to you:

• 3 Years of Address History
• 3 Years of SA302 / Tax Calculations
• 3 Months of Payslips
• 3 Months of Bank Statements
• Full details of any Credit Cards or Personal Loans in your name
• Passport

 

Your Credit Score

Your Credit Score is a number that reflects the likelihood of you paying the credit back. Lenders will look at your credit file when they calculate your Credit Score, which will show them the level of risk in lending to you.

The higher your Credit Score, the better chance you have of getting approved for a mortgage.

We recommend using www.creditkarma.co.uk to check your credit file online, free of charge.

IMPROVING YOUR CREDIT SCORE

When you start thinking about saving for a deposit, it’s a good time to check your Credit Score to make sure it’s in order and that there are no hidden surprises. Doing this as early as possible when you start saving for a deposit, will also give you plenty of time to put right anything that is negatively affecting your credit score.  The ideal time to do this is 24 – 36 months before you intend to apply for a mortgage.

If you are applying for a mortgage jointly with another person, such as your spouse, it’s a good idea to check their credit score at the same time as both of you will be jointly assessed by the lender.

Home Address

Make sure important documents such as bank statements, payslips, utility bills, credit cards statements etc. not only have the right address but also the same address on them. This is important as these will be used to assess address history as well as verifying other essential parts of the application.

Go through all of your credit agreements and ensure they are all updated with your current address – remember that sofa you purchased on finance at your last address, the credit agreement will still be registered with your old address unless you advise them otherwise.

Voters Roll

Making sure that you are on the voter’s roll at your home address – a simple step but lenders use this as part of their identity checks.

Credit Cards

Ensuring that you do not have too much debt when applying for a mortgage can really impact the amount of money any lender will give you. With the majority of lenders, they will ask what your credit card balance is at the point of application and what the balance will be on completion, therefore timescale wise this could potentially be sorted at the point you complete. This is the solicitor’s job to inform the lender about things like this, which are conditions of the mortgage.

Another factor that could hinder a mortgage application is any unused credit cards. Lenders look at the available credit an applicant has.  Closing any unused credit cards will help improve your Credit Score.

Personal Loans

With any credit agreement or personal loans, a lender will take your monthly payment as a commitment. However, some lenders will ignore them should you be within the last 3 – 6 months of the personal loan.

Speaking with a mortgage broker right at the beginning will allow them to advise on what level of borrowing you will have based on current debt, but also how much extra could be borrowed should any loans or credit card debt be reduced or cleared.

Pay Your Bills On Time

Showing lenders that you are responsible with your finances is a good way to improve your Credit Score.  Consistently paying your bills on time and not falling behind with payments will

Correct Name

Making sure all documents have the same surname will make the application process easier. If you have recently married or changed your name you will need to have proof of the change as the lender requires this in order to match your new name to the application submitted. This will need to be in place prior to the mortgage application.

Your solicitor will also need the proof to ensure the mortgage deed and property deeds match.

AGREEMENT IN PRINCIPLE (AIP)

Once you have all the necessary documentation and your mortgage broker has helped you get your finances and credit report in order, you are now in a position to apply for a mortgage Agreement In Principle.

It is worth noting that when you apply for a mortgage, lenders calculate how much they’ll lend based on both your income and your outgoings – so the more you’re committed to spend each month, the less you can borrow. The more you can do to reduce your outgoings the better.

It is worth considering the following:

• Cut down on non-essential outgoings – do you still need that unused Gym membership?
• Reduce your income to debt ratio – less debt means lower essential payments each month
• Childcare payments – not all lenders take childcare payments into account
• Shop around for your energy bills, thereby lowering your monthly outgoings

Your Agreement in Principle will confirm how much a lender is prepared to give you (subject to a full application and underwriting), which means you now have a confirmed budget within which to start your property search in earnest.

Having an AIP in place when you start viewing properties will signal to vendors that you are a serious buyer and therefore help in getting your offer accepted.

YOUR MORTGAGE APPLICATION

Today’s strict lending regulations mean that mortgage applications are extremely detailed and require mortgage brokers to thoroughly research your recent financial history.

Additional to the documentation listed above, you will also be required to present the following information:

• Details of the property you wish to purchase
• Details of your employer (your business details if self employed)
• Contact details for your solicitor