How do I get a mortgage?
Getting on the property ladder is a huge financial commitment - probably one of the most significant purchases you’re ever likely to make. To do this, you’ll need a mortgage.
The process of applying for a mortgage involves lots of parties; from mortgage brokers, to surveyors, to solicitors, to the lenders themselves. The time involved in getting a mortgage very much depends on your circumstances, and can take anything from weeks to months. We’d generally recommend allowing yourself three months to complete the process.
To avoid any difficulties, it helps to do your homework and familiarise yourself with the factors that could affect your eligibility for a suitable mortgage deal, which will include:
- your employment status and salary
- how long you’ve been employed
- how much you spend each month (it’s advisable to have a record of your expenditure over the last few months)
- whether you’ve saved a large enough deposit (lenders normally require a minimum deposit of 5%)
- if you have any existing debts
- the strength of your credit rating
Some lenders can be cautious about lending to those who are self-employed, but there’s every chance of successfully securing a mortgage if you have a decent sized deposit, a strong credit rating, and have had a steady income for the last two years. When applying for a mortgage, you may be asked to produce an SA302 (an HMRC certified document providing evidence of your self-employed earnings). It’s a simple way for lenders to verify the income figure you’ve declared on a mortgage application.
With your finances in order, you’ll need to decide who’s able to find you the most suitable mortgage deal with the best terms. You might consider going directly to a lender, visiting a traditional mortgage broker, or using an online mortgage broker such as Trussle.
Online mortgage brokers have certain advantages that other lenders don’t. For example, while some mortgage brokers can charge fees of up to £500, Trussle offers a completely fee-free service. There’s no paperwork. And, because the entire mortgage search and selection process is conducted online, you can check-in on the progress of your application whenever it suits you - safe in the knowledge that help is just a click away.
Once your broker has provided you with a mortgage recommendation, you’ll need to seek advice from the right professionals and instruct a conveyancer or solicitor to handle the legal aspects of the process, although it’s helpful to have one already lined up before you reach this stage.
How does a mortgage work?
The average UK house price was £226,000 in May 2018 - almost ten times the average full-time salary of £26,000.* It’s unlikely you’ll be able to buy a home outright, which is why getting a mortgage is most people’s method of funding the bulk of their purchase.
A mortgage is a loan that you use to purchase a property and steadily pay back to the lender over a number of years. You pay a deposit, which represents a chunk of the property's price and the lender agrees to fund the rest over a set period of time, charging you interest. The mortgage is secured on the property and if you don't make the monthly repayments, the property can be taken back off you - this is known as repossession.
If you’re unable to buy the home you want with a normal mortgage, a guarantor could help you get accepted or borrow more. Guarantor mortgages can help you buy a property if:
- you have a low income
- your credit record means most mortgage lenders would reject you
- you want to buy a home that costs more than lenders believe you can afford
Not many lenders will accept a guarantor. Those that do will only accept a parent, grandparent, or stepparent to be a guarantor.
With a fixed rate mortgage, the interest rate stays the same for a set period of time - usually between two to five years. When the term expires, you're automatically switched to the lender’s reversion rate (often called a Standard Variable Rate or SVR).
A variable rate mortgage is where the interest rate is not fixed. This includes Tracker mortgages, Discounted Variable Rate mortgages, and Standard Variable Rate mortgages. Lenders can offer borrowers variable rate interest over the life of a mortgage loan. They can also offer an adjustable rate mortgage which includes both a fixed and variable rate.
Mortgages are lent on a capital repayment basis or interest-only basis. With a repayment mortgage, monthly repayments include the capital amount borrowed as well as the accrued interest, so that the amount borrowed decreases throughout the term and by the end of the period, has been fully repaid.
An interest-only mortgage requires you to only pay back the interest on your loan, meaning your monthly payments are much lower, but you’ll still need to pay off the loan at the end of the term. You’ll have to show the lender how you intend to pay back the loan - ‘repayment vehicles’ include cashing in on stocks, shares, ISAs or savings, selling other properties, and via pensions. Failure to settle the loan could result in having to sell the property in order to pay the mortgage off.
What is a Mortgage In Principle (MIP)?
A MIP (sometimes referred to as an Agreement in Principle, AIP, Decision in Principle or DIP) is a certificate or statement that can be issued by either a lender or broker (such as Trussle), usually before an application has been made.
The document declares that, ‘in principle’ they would be able to lend you a certain amount in order to enable you to buy a home. If you choose to go directly to a lender, the information you provide will allow the lender to check your credit file, helping them to establish whether you are mortgageable and if they’re happy to lend you the requested amount.
The document will show an estate agent that you’ll be able to obtain a mortgage and meet the required monthly repayments, on top of your deposit. By showing that you’re a serious buyer, you’ll be in a better position to make an offer which is more likely to be accepted and, stand you apart from other prospective buyers.
A MIP is not a guarantee that you’ll be able to borrow that amount - when you go through the full application process and the lender examines your earnings and credit history in more detail, they’ll make a final decision.
How long is a MIP (or mortgage offer) valid for?
A Mortgage In Principle (MIP) is valid for between 30 and 90 days. If it expires before you need it, you can always re-apply, but be careful about requesting too many MIPs if you know that your lender is carrying out hard credit checks - too many of these could damage your credit score. Not all lenders and brokers will credit check at this point, but many do.
A MIP shouldn’t be confused with a mortgage offer which is based on several factors, such as the value of the property and credit checks. As a general rule, a mortgage offer is valid for up to six months, which is more than enough time from exchange of contracts (which makes the sale legally binding between the seller and the buyer) through to completion (the date on which the parties physically move and transfer legal ownership of the property).
The length of validity can vary from lender to lender. For example, NatWest Bank specifies that if you’re a first-time buyer, your mortgage offer is valid for six months, yet if you’re moving home or remortgaging, your offer will be valid for three months.
Like a MIP, a mortgage offer can be renewed and is dependant on the lender who’ll need financial proof.
What is a first-time buyer?
Typically, a first-time buyer is someone who’s never owned a home previously - either in the UK or abroad - and therefore has no property to sell. This doesn’t include owning or having owned a commercial property, such as a shop, a restaurant, or a pub, as long as there’s no living space attached to it.
In other words, anyone getting a mortgage who isn’t a homemover, homeowner, buy-to-let owner, or is remortgaging, is classed as a first-time buyer. The property you’re buying also needs to be one you’re going to use as your own main residence, not as a buy-to-let or a second home.
The number of ‘first-time buyers’ by this definition are generally higher than the number of pure first-time buyers in the market.*
The Government’s definition of a first-time buyer is very tight - to qualify for the stamp duty perk on properties worth up to £300,000 (£500,000 in London), you must have never owned a property anywhere in the world, shared ownership properties with housing associations, or jointly owned a property with someone else at some point in your past. This even applies to caravans.
As of October 2018:
- the average first-time buyer in the UK is 30 years old
- the average first-time buyer has an average income of £41,000
- there were 24,500 new first-time buyer mortgages in January 2018 (7% higher than in January 2017)
- in 2016, there were over 300,000 first-time buyers in the UK
The good news about being a first-time buyer is that you won’t need to pay any stamp duty – a tax that goes towards the verification of legal contracts – on the first £300,000 of any property worth up to £500,000.**
What surveys are carried out when buying a home?
There are three main types of surveys that can be carried out by a surveyor:
A mortgage survey or valuation (mandatory): Carried out for the benefit of the lender, a valuation is designed to give them sufficient information to decide whether the property is safe to lend on and up to what amount. It can also give you a rough idea of whether you’re paying the right amount for a property. It’s limited in scope and only likely to uncover obvious visible defects and is based on the surveyor's knowledge of comparable prices in the locality.
A home-buyer’s valuation (optional): A more detailed survey which can alert you to potential problems before you buy, such as structural defects, shabby brickwork, or a broken down boiler. It can pay to invest in a full home-buyer report before you put in an offer. The cost generally ranges from £250 to £400.*
A building survey (optional): This is the most comprehensive of the surveys available, providing a detailed evaluation of a property’s condition and construction. Especially useful for older, larger buildings, the report will identify the property’s defects, their apparent cause, the urgency of repair, and maintenance options. It’s a good choice for the discerning buyer who wants that extra peace of mind. You can expect to pay around £1,000 for a survey of this kind.**
Do I need to appoint a solicitor when buying a house?
Whether purchasing, selling, or remortgaging a property, you’ll require a solicitor or conveyancer (a specialist property lawyer) to handle the legal work both for you and your mortgage lender. They’ll help you from the time that your mortgage offer is accepted by the lender, through to the completion of the sale and beyond (if there are any loose ends that need tying up).
It’s helpful to have a solicitor in place before you receive a mortgage recommendation, as they need to be specifically approved on the chosen mortgage lender’s panel.
The solicitor will:
- conduct appropriate searches and enquiries
- prepare a contract for the sale
- complete the legal transfer of ownership
- transfer funds
- register the interests of relevant parties (you and the lender) on the property you’re buying
Does a student loan affect a mortgage?
Lenders consider a student loan to be an outgoing so it could affect the total amount that you can borrow. However, it won’t automatically lead to a black mark against your application in the way a large credit card debt or personal loan might. The key deciding factor is the effect of the student loan on your debt-to-income ratio and whether the debt pushes you past the lender's debt-to-income threshold. If it does, this could affect your ability to meet your mortgage payments. Due to the way student loans are repaid, people who have larger incomes are likely to see a larger impact from their student loans.
While a student loan is not necessarily a concern when you’re applying for a mortgage, you may want to consider clearing other types of debt before making an application.
What is mortgage protection and do I need it?
Mortgage Payment Protection Insurance (MPPI) is designed to help you pay your bills and stay in your home if you’re unable to work due to accident, illness, or losing your job, for a set period of up to two years. Whilst it isn’t a legal requirement, it’s generally recommended to consider taking it out.
Generally speaking, there are three different types of MPPI, the costs and terms of which can vary:
- Unemployment only, which covers your loan repayments in the event that you’re made redundant.
- Accident and sickness only, which covers you only if you have a long-term illness or serious injury. Critical illness cover pays out a lump sum if you develop one of a range of serious medical conditions, such as types of cancer, stroke, and heart attack.*
- Accident, sickness, and unemployment, which covers you if made redundant, if you have long-term illness, or suffer a serious injury.
Can I get mortgage protection at a later date?
You can opt for Mortgage Payment Protection Insurance (MPPI) at any point during your mortgage term, but more often than not, it’s taken out at the same time as your mortgage. It can be organised through your mortgage adviser or broker, otherwise you’ll need to shop around and compare quotes from insurers, in order to find the most suitable mortgage protection product for your requirements.
It’s worth noting that MPPI doesn’t pay out if you’re made unemployed with the first 60 days of the policy start date.
How long does it take to get a mortgage?
Depending on your circumstances, it generally shouldn’t take longer than three months to get a mortgage, and can often be much quicker.
To allow your mortgage broker to complete their side of things quickly, you’ll need to have the necessary documents in place to support your application. It’s then up to the lender to approve your application. This involves performing a credit check, a valuation of the property, and a review of that valuation. Everyone’s circumstances differ and some will be more complex than others, impacting the speed of this process.
Applying for a mortgage online tends to be quicker than using a traditional broker. For example, using Trussle you can provide your information in just ten minutes, and on receipt of your documents your application will be submitted to the lender. The lender’s processing time varies - some applications can be accepted on the very same day, while other offers can take up to several weeks to be processed.
What information do I need to provide?
When you apply for a mortgage, you’ll need to provide information about your finances to your lender. This will enable them to assess your reliability as a borrower and identify how much you can borrow.
You’ll need to provide the following information:
- How much your outgoings are, including expenditure on any dependants, holidays, and pension contributions.
- Bank statements showing what goes out of your account each month.
- What your income is, including any bonuses or overtime – the lender will want to see your payslips as proof or your accounts if you’re self-employed.
- Proof of deposit.
- ID to prove your identity and current address.
- Details of the property you want to buy.
- Contact details for your estate agent and solicitor.
How do I show proof of address?
It’s worth noting that proof of identity and address verification can’t be from the same source.
Acceptable forms of proof of address include:
- Recent utility bill – gas, electricity, water, telephone (not mobile phones)
- Current council tax bill
- Current full UK driving licence (paper document)
- Current UK / EU photocard driving licence with counterpart
- House or motor insurance certificate
- Current state pension notification letter
- Current benefits agency letter
- Bank / building society statement
- Credit card statements from main provider (a credit card statement can be used as a second proof of address only by these providers: Royal Bank of Scotland Group, Barclays, Lloyds TSB, Halifax Bank of Scotland Group, HSBC, Abbey, Nationwide, Woolwich, Alliance and Leicester, Citibank, Morgan Stanley)
- HMRC Tax notification documentation (excluding P60’s), account, investment, or insurance documents
- Written correspondence from the Council to confirm electoral roll listing
Do I need to find a property before getting a mortgage?
You can’t buy a home without a mortgage, but you can’t get a mortgage until you're ready to buy a home. If you’re looking at properties to buy before starting to arrange your mortgage, you’ll need to take a step back and secure a Mortgage In Principle. Arranging your mortgage as early as possible and having a Mortgage In Principal can give you an advantage over rival buyers who haven’t done the same.
Knowing how much you can afford will ensure there’s one less possible delay that could derail the home buying process. If you’re thinking about buying jointly with anyone - be it a partner, friend, or parent - then this will affect the kind of mortgage you can get and how much you can borrow. Just another reason to sort this out before you start looking for a home.
I’m looking for a home and need a Mortgage In Principle - how do I get one?
If you choose to go directly to a lender, they may conduct a hard credit check. Others will conduct a soft check. Banks are increasingly moving to soft checks for MIPs and usually only carry out a hard check when the full mortgage application is submitted. Trussle won’t conduct a credit check when generating a MIP.
In order to speed up the buying process, you’ll need to find a deal that suits your circumstances and make the application to the lender. You can do this before you find a property in order to speed up the buying process, either directly through a lender or via a mortgage broker. Trussle prefers to do a lender MIP once you’re ready to proceed with your recommended mortgage - lots of credit checks can be detrimental.
Once you have the MIP, you usually have three months before it expires. If it takes you some time to find the home you want to buy, then you may find that there are newer more competitive mortgage deals on the market since you arranged the MIP. You can let the pre-arranged mortgage lapse, should you want to look around for a better deal, but you may need to go through another credit check. However, if your broker has charged you a fee for their services, you usually won’t be charged again.
Once you’ve decided on the mortgage deal you want, you’ll need to apply for it. Depending on whether you apply directly with the lender, with a traditional broker, or an online mortgage broker, you may be able to do some of the paperwork online, but you’ll usually need to send or upload proof of your income. This will come from:
- three years of accounts if you’re self-employed
- three months' worth of utility bills as proof of your current address
- form of photo ID, such as a passport or driving licence
The lender may stipulate certain conditions about the MIP, such as specifying what type of property it can and can't lend against.
In order to ascertain how much you’ll be able to borrow, your lender will ask you a few questions around your personal details and income. If you’re using an online mortgage broker like Trussle, an automated MIP can usually be produced in around five minutes.
My mortgage application has been accepted. Can I relax?
Once your mortgage has been approved, you’re still at the early stages of the property purchase and will be able to pull out without facing a financial penalty. Additionally, the seller can still decide to take a higher offer from somebody else (known as ‘gazumping’) or choose to not move at all.
The mortgage offer will be sent to you and your solicitor for review. It will confirm how much the lender is willing to let you borrow and the proposed repayment plan. If the mortgage offer meets your needs, your solicitor - in agreement with the seller’s solicitor - will set a date for completion. Once you exchange contracts, you’ll pay the deposit and you’ll enter a legally binding agreement to buy the property. Completion can happen the same day as you exchange, but usually takes between one week and a month.
Upon completion, the lender will release the mortgage funds to your solicitor, who will transfer them to the seller’s solicitor. The house is then legally yours and your mortgage is ready to start.