The (Everything) You Need To Know Guide
- 0.1 The (Everything) You Need To Know Guide
- 0.2 Financing Your House Buy
- 0.3 Schemes for low deposits
- 0.4 Everything you need to know about Help to Buy
- 0.5 What you need to know about shared ownership properties
- 0.6 What do you need to know about Right to Buy?
- 0.7 Other ways of financing your new home
- 0.8 Choosing the best first-time buyer option
- 1 Buying a New vs Old Property
- 1.1 Buying an Old Build Property
- 1.2 Final Thoughts
- 2 Finding the Right Property
- 3 Credit Status and Its Role in Buying a Home
- 3.1 Another Reason Why it’s Important to Check Your Credit Score
- 3.2 How Your Credit Score Affects Buying a Property
- 3.3 Credit Score Mistakes: How to Put Them Right
- 3.4 Why Work With a Mortgage Broker?
- 3.5 A Guide to Agreement in Principle
- 3.5.1 What is an AIP?
- 3.5.2 Does the Lender Check Your Credit History?
- 3.5.3 Soft Check vs a Hard Check
- 3.5.4 How Your Credit Affects the Outcome of the AIP
- 3.5.5 What Internal Checks Do Lenders Make for an AIP?
- 3.5.6 How do Lenders Create AIP’s?
- 3.5.7 I Had an AIP From a Lender but My Mortgage Application Was Declined
- 3.5.8 Can First-Time Buyers Get an AIP?
- 3.5.9 Should I Get More Than One AIP From Different Lenders?
- 3.6 The Benefits of Working with a Mortgage Broker
- 3.7 Applying for a Mortgage
- 3.8 Types of Mortgages
- 3.9 Make an Appointment with a Regulated Mortgage Broker
- 3.10 What’s in the Full Mortgage Application?
- 3.10.1 Common Mistakes on Mortgage Application Forms
- 3.10.2 What Documents Do You Need?
- 3.10.3 What Income Can be Used to Support My Mortgage Application
- 3.10.4 Maintenance
- 3.10.5 Overtime
- 3.10.6 Bonuses
- 3.10.7 Pension
- 3.10.8 Employment Income
- 3.10.9 Self-Employed Options
- 3.10.10 Personal Income
- 3.10.11 Ltd Company Net Profits and Personal Income
- 3.11 Insurance Cover and Your Mortgage Application
- 3.12 How Long Does a Mortgage Application Take?
- 3.13 What Happens if My Mortgage Application is Not Approved?
- 3.14 Why Choose Sterling Capital Group?
Financing Your House Buy
One of the key challenges for first-time buyers is how to get the finances together and take that initial step onto the housing market.
The size of deposits required just to qualify for a mortgage today have increased considerably over the last 20 years and today’s new buyers face more obstacles than their predecessors. Having said that, there are incentives including Help to Buy and Right to Buy that are designed to make a big difference.
Here we look at a range of different ways to finance your new home, the pros and cons of each and why thinking outside the box can sometimes be a good option if you want to get on the market sooner rather than later.
Schemes for low deposits
Ask most new house buyers and they’ll say that finding the deposit for their first home is probably their most challenging task. The good news is there are several different ways to reduce that initial financing requirement of the deposit including the Help to Buy initiative, shared ownership and the Right to Buy scheme.
Everything you need to know about Help to Buy
One of the key changes in recent years has been the Government’s Help to Buy scheme which is specifically aimed at first-time buyers. The current scheme runs from April 2021 to March 2023 and is invaluable for those who are struggling to save for a large deposit.
In many cases, finding a decent deposit is key to getting a good mortgage for a property in the UK. The average deposit request is about 15%. If you are buying a property worth £200,000, then you will need to find a deposit of £30,000 just to get started.
The Help to Buy scheme is designed to give new homebuyers more leeway in collecting that deposit and a chance to get on the housing ladder more easily.
What is Help to Buy?
Help to Buy is an equity loan scheme that was introduced by the Government in 2013 and has been renewed several times over the intervening years. The scheme is open to first-time buyers and only applies to the purchase of new build properties – in other words, you can’t use the scheme to purchase an existing home or an older one.
The government will provide an equity loan for up to 20% (40% in London) of the value of the
property which will be interest-free for the first 5 years. This loan can be paid back at any time over the term of the mortgage but can also be paid when you come to sell your property in the future.
How do I qualify for Help to Buy?
Apart from only applying to new builds and being available to first-time buyers, there are a few other stipulations with the scheme. You will need to find a minimum of 5% deposit to qualify and the scheme only applies to homes between £186,100 and £600,000 depending on regional rules and the average price of properties in the area.
You will need to be able to secure a 75% mortgage for the property. The scheme is open to new home buyers in England and Wales – similar schemes are being run in Scotland and Northern Ireland.
The government equity loan is interest-free for the first five years. From year 6, 1.75% interest will be charged, rising by inflation each year. You can pay back the loan at any time during the term of your mortgage. If you decide to pay back the loan on selling your property, you will need to cover not just the additional interest but add on a certain amount for the increased value of your property.
One of the clear benefits of the Help to Buy scheme is that it allows greater flexibility in accessing mortgages with a 25% deposit.
Another important option is shared ownership. This can help new homebuyers afford a property by joining forces with a homeowner such as a housing association. They only have to find a relatively small deposit together and access a mortgage for their share.
Aimed at first time buyers who want to buy their own home, shared ownership helps them to buy a property by offering a share in either a new build or a resale property. It can also be known as part buy/part rent, which helps to explain how it works even more.
You will buy only a share of your property, and the rest of it you will rent from those who own it. The percentage of the house that you buy will depend on how much money you have to spend. This could be as low as 25% or as high as 75%.
You will buy the property share by raising a mortgage on that share, and you will then pay rent (at a below market value) on the rest of the share, usually from an organisation such as a housing association. You will also need to pay related service charges and ground rent for the property too.
The good thing about shared ownership is that you will need a much lower deposit than you would if you wanted to buy an entire property.
The answer to this is yes. Buyers can increase their share during their time living at the property. This is known as staircasing.
Depending on the terms and conditions of the particular housing association that your shared ownership property is part of, you can keep buying shares until you 100% own the property, as you would if you bought it through the traditional route. After this, you won’t have to pay any more rent for the property.
Of course, if you do not think that staircasing will work for you or you can’t afford it, you are not obliged to go down this route.
Here are some of the key points that you need to meet to be able to apply for a shared ownership property.
- You must be at least 18 years old
- Your household income must not exceed £80k (or £90k if you live in London)
- You cannot purchase a home that is suitable for your particular housing needs through the usual open market
- You do not own a home already, or if you do own a home, you will sell it before you make a purchase
You may also find that some local authorities will prefer (or may even require) you to live or work in the area where you want to buy a property. It’s also important to note, if several applicants are being considered for a property, the local authority will prioritise those within certain criteria.
There are a variety of plus points to buying a property through shared ownership. The main one is that it helps you get on the property ladder. You can buy a property and gain that long-term stability that you may not have been able to do otherwise—all without worrying that you will be overstretching or putting yourself in a difficult financial situation.
Another benefit is that you have security. Whilst private renting is a consideration for many people who find it hard to buy a property, it comes with the worry that your home could be sold on at any point. Shared ownership gives you security and peace of mind. So long as you pay your rent and mortgage when you need to, you can stay living in your home.
You will also find that the deposits for a shared ownership property are much lower than if you buy a house on the open marketing. Mortgages designed for shared ownership properties are also usually more accessible than others. This means that you can be approved even if you are on a lower wage.
These mortgages are also designed to allow you to pay out lower monthly payments than if you got a mortgage outright and the price is generally lower than if you were renting privately.
Shared ownership properties also do not require you to pay stamp duty on the initial purchase, only when you own over 80% or intend to buy the property outright by increasing your share.
What about the cons?
Of course, whilst there are lots of positive points to consider when it comes to shared ownership properties, there are also some considerations that you need to keep in mind.
The first is that not every single mortgage lender will be able to offer a shared ownership mortgage. That said, the number of mortgage lenders who provide this is on the increase.
Another thing to consider is that all the properties you can buy are going to be leasehold. Once you get to 100% ownership, using the staircasing method, you may find that you can transfer it into a freehold. However, you will need to check this with your chose housing provider first as it is not always possible.
When it comes to ground rents and service charges for your property, you will need to pay 100% of your share in addition to rent and your mortgage.
Stamp duty is another charge that you will need to think about. Whilst there is no need to pay for shares bought up to 80%, once you exceed this level, you will need to pay stamp duty on the value of the property as a whole, even though you do not own the entire property.
One final thing to keep in mind is that you can’t always make any home improvements to the property. You can decorate it and make internal changes to how it looks, but to do anything more long-term or to change the property’s structural set-up you will need to get permission from the home provider.
Shared ownership allows you to buy a property that you can live in for the rest of your life and call your own despite your financial circumstances or living on a low wage. It also helps people who are single and want to buy a property or those who have just left home and want to live an independent life.
What do you need to know about Right to Buy?
When it comes to securing a mortgage and buying a property, there are plenty of things to decide on and consider. This includes whether or not you can apply for a property within a set scheme designed to help you get on the property ladder.
One of the most common schemes out there that you can choose from is Right to Buy.
What is the Right to Buy scheme?
The nature of a Right to Buy scheme allows those who live in council or housing association houses to buy the property. It is available throughout England and applies to a range of housing types which are offered at discount prices.
If you are located in London, the discount that you may receive on your property can be as much as £112,800 in London or as much as £84,600 outside of the capitol.
Not everyone or every property is eligible within a Right to Buy scheme. However, there is lots of information online that can help you work out whether it is the right option for you.
Am I eligible for the Right to Buy scheme?
To qualify for the Right to Buy scheme:
- You need to have been a council or housing association tenant for at least three years, although this does not need to be continuous.
- The property you wish to buy has to be your only home or your main home, and it should not be a sheltered housing property.
- It is essential that you do not have any serious debt problems that have built up over time, and there should be no outstanding possession orders against you.
As well as these factors, you also need to make sure that you match with the affordability criteria. You should speak to a mortgage advisor about this before you take the step to apply for the scheme and make a formal mortgage application.
What other things do you need to know?
When it comes to a Right to Buy mortgage, you need to make sure that you are only planning on purchasing the property you currently live in. You cannot buy another property, which means you need to be happy where you live.
You need to think about your long term plans:
- If you sell your property within five years, you will be asked to pay back some or all of the discount that you received on your purchase.
- If you sell it within ten years, you need to make sure that you offer it to your old landlord or another social landlord at the market price before it goes onto the usual property market.
What is the Right to Buy process?
After you have considered whether or not Right to Buy is going to be a viable option for you, it is time to think about the process that you will need to go through.
The first step is to find the Right to Buy application form which is also known as a RTB1 notice. This can be downloaded from the gov.uk website and contains everything that you need to complete in order to make your request.
This form needs to be sent to the landlord of your property and they have 4 weeks to say yes or no to your request. This goes up to 8 weeks if they have been your landlord for less than 3 years.
They are fully within their rights to say no. However, if they do say no, they must give you a reason why.
If they decide to agree to sell the property, the next step will be for them to send you an offer. This step of the process must be completed within 8 weeks of saying yes if you live in a freehold property and 12 weeks if you live in a leasehold property.
There are a number of things that will be contained in the offer from your landlord. It will have:
- The price they think you should pay for the property (and how they got to that figure)
- The discount on the property that you will receive, including the calculations for this
- How much service charges are estimated to be for the first 5 years (this only applies if the property is a flat or maisonette)
- Any problems that have been identified within the structure of the property; an example of this is subsidence
Once you have received your offer you need to think about whether or not you still want to buy. You have 12 weeks to decide. If you do not reply then the landlord can remind you that you need to respond.
You may decide not to agree with the offer that you were provided with, which means that you need to contact your landlord and tell them why you feel this way. If you feel that the price is too high, then you should write to them and request that they arrange an independent valuation.
This valuation will be carried out by the district valuer from HMRC. They will visit the property and assess it and send you the quotation. Once you have this, you have 12 weeks to accept their valuation of the property, or decline to buy the property altogether.
If you do decide to accept the property then you can start to look forward to owning your home and looking to the future with your family. If you decide not to go ahead, then this is your choice and it should not impact on you continuing to live in your house in the long-term, albeit renting rather than owning.
The pros and cons of choosing Right to Buy
Much like any financial decision you may make in your life, it is important to ensure you weigh up the pros and cons.
The advantage of Right to Buy is that it allows you to own a home, even if you thought it was something that you would never get to do. This is particularly true as the cost of just getting on the property ladder stops it being a viable option for many people. Because it offers up a property at a discounted price, you also get the opportunity to buy a home that is the right fit for you.
If you were to buy a property without the Right to Buy scheme, then there is a very good chance that you would not be able to buy the same sized property for the money that you have.
Another reason that people may choose Right to Buy is because it allows them to stay in the home that they already live in. It also means you are comfortable in a place that you have already settled into.
Of course, one final plus point to Right to Buy is that it helps families to be able to pass a property down to their children, which gives certain parts of society the opportunity to feel more financially secure.
On the negative side, if you do buy your council or housing association home then you will find that any issues that crop up are going to be down to you to fix. Before you could call the council and report your issue, ready for them to resolve. But when you are the owner of the property, you need to make the arrangements and pay for this yourself.
Another thing that you are going to need to remember is that you are making a financial agreement to pay the mortgage each month. It means that you need to make sure that you are going to be able to do this. If you default and can’t afford payments, you could find yourself with no-where to live and not in a very good position.
There are some important things to think about within the Right to Buy scheme, but if it works out to be the right choice for you, then it could be just the helping hand you need to get on the property ladder and secure something great for your future.
Other ways of financing your new home
Help to Buy, Shared Ownership and Right to Buy are all popular ways to afford the deposit and mortgage for new home buyers and each has its advantages and disadvantages.
Here we look at some alternatives to these that may help you get onto the property ladder sooner rather than later.
A vendor gift is where the person or organisation acting as seller covers part of the cost of the deposit for the property. A vendor funded deposit can only be 5% of the value of the property so you will still have to find the rest before you can get the full deposit together.
The benefit of this is that it provides people who are unable to access the full deposit to buy the property.
There are some caveats to consider, however. Some vendors will increase the value of their property to compensate for the gift, which means you’ll end up paying for a bigger mortgage over time. Some mortgage lenders are also becoming reticent about this sort of arrangement and you may need to shop around more to find a good deal.
Mortgages are often stated as a percentage. A bank or building society, for example, will offer a 75% mortgage which means you will need to find the other 25% of the asking price for a property.
Unfortunately, 100% mortgages are a lot less common than they used to be, mainly because of the 2008 financial crisis, the increase in the value of properties and the disparity between average incomes we are increasingly seeing.
While they can seem attractive, there are certain things to consider when opting for a 100% mortgage.
- First of all, you will generally have to pay a higher interest rate for your mortgage which can a much larger cost over the term. You may also have to run your mortgage over a longer term to make it affordable.
- Secondly, 100% mortgages are often nowadays termed guarantor mortgages. You need to have a third party (for example, a parent or trusted family member) who will guarantee payments if you get into difficulty. This can be challenging to organise as the third party’s property essentially becomes collateral if you default.
Another option for getting onto the housing ladder is a gifted deposit. That means someone you know gives you some or all of the money to afford the downpayment on your new home. This can be a:
- Parent, brother or sister gifts: Gifts from family members are by far the most popular. The bank of mum and dad has become a byline for helping children get onto the property ladder.
- Close friend gift: If you have a close friend who is willing to help with your deposit, this is also a good way to get on the property ladder.
- Gift of equity: This is a fairly specific option where a property held in the family is sold to another member of the family at a much lower price than the market value. Although there is no actual money exchanged, when it comes to organising the mortgage, the gift of equity can be used as part or all of the deposit. A gift of equity can also be arranged between close friends.
If you are lucky to have access to a gifted deposit, there are still a few things to consider. First, each mortgage lender will have its rules about using gifted deposits. They will undoubtedly expect a written undertaking from the gifter to the house buyer that this is indeed a gift and there is no obligation to pay it back.
Mortgage lenders will also generally want to know if the gifter is expecting an equity share in the property and they may have to sign a declaration that they have any legal right on the new home.
The key to a gifted deposit is that it is not a personal loan and there is no legal responsibility for the new home buyer to pay it back.
Choosing the best first-time buyer option
It’s important when you decide to buy your first property to consider all the options available and work out which works best for you. That includes looking at the long term impact as well as the short term benefits. Where there is so much choice, it’s important to get the right advice at every stage of the process. If you’re searching for the right mortgage solution, contact the team at Sterling Capital Group tod
Buying a New vs Old Property
Buying your dream property is amazingly exciting if a little stressful at the same time. There are a lot of different aspects to consider throughout the purchasing process and things don’t always run to plan.
For first time buyers, it’s even more eventful.
One choice you will have to make is between buying a newly built property or an older one. While some of this will depend on where you intend to live and what is available there, for first-time buyers there’s one vital consideration.
If you want to access the Help to Buy scheme, then you will need to focus exclusively on buying a new property or one that is currently under construction.
Here we look at the pros and cons of buying an old property vs a new one and what you need to check off your list when you are trying to pick the best home for your needs.
Buying a New Build Property
First, we should come up with a definition: A new build house or a flat has recently finished construction and has NEVER been lived in. This is an important distinction when it comes to the Help to Buy scheme.
You may have a building site near you where properties are currently being constructed – the good news is that you do what is called buying off-plan which means you can purchase the property while it’s still being erected by the builders.
Another thing to consider is the availability of properties of this type. Despite promises to create more new homes, the housing market for the UK has often struggled to keep up with demand. In 2020, according to the National House Building Council, just over 123,000 new homes were registered (down nearly 40,000 on the previous year).
That may not seem a lot, particularly when you consider that there are generally around 350,000 first time buyers on the market each year, but not all people are looking for new build properties.
If you have found your new build, however, it’s important to do your homework and check out the property, including where it is located and whether it properly fits your needs.
Check the Builders
The first thing to do is look at who the builders are working on a particular development. What usually happens is that a developer will open a show home while the area is still under development. This gives you a chance to see for real what your new property is going to look like. You’ll also be given a whole host of marketing material that tells you how wonderful it is and why you should buy.
Our first top tip is not to take this at face value. Do your homework and research the developer in particular. There will be plenty of information online. Look for any complaints that new owners have had once their property has been finished. The vast majority of new build properties are excellent and well built but it’s best to do your due diligence and not leave it to chance.
It’s not unusual for new properties to have teething problems so one of the important issues is to find out how the developer deals with these. They have a legal responsibility to put any faults right and promptly.
Quality of Work
You might expect if you’re spending £150,000 on a new build property that it will be perfect. This is not always the case. That’s why it’s important to have a private survey done. This is normally called a ‘snagging’ report and it is usually carried out when the building has just been finished or is close to being finished.
It’s important to do this before your completion date if you have decided to buy a property. It’s also important to hire an independent surveyor rather than use the developers first choice.
The report will look at the quality of the work being undertaken and highlight whether there are any issues. Once finished, it can be given to the developer and they have to put any problems right before you move in.
Commonly, the things that a snagging report highlights are issues with poorly fitting doors or badly applied plastering but sometimes they can unearth major structural issues that could affect your decision to buy.
What to Look Out For
First, look at the location. Is it right for you? For example, you might be interested in the nearby schools or where the nearest supermarket is. If you commute, how easy is it to get to work?
It’s also important to look at the overall layout of the development. Sometimes builders will try to cram properties together to maximise their profits which can make some sites look and feel a little claustrophobic when they are finished.
One of the big advantages of new builds is they are generally much more eco-friendly and well insulated. Many also have smart technology added that allows you to control heating and lighting. It’s worth checking what you are being offered here and whether a reasonable amount is being charged for these.
It’s important if you are doing this to ensure that you have the agreement for a mortgage and have worked out how to access the Help to Buy scheme if you need it. Once you’ve arranged your mortgage, you can then put down a deposit on the house and exchange contracts.
The big challenge is that you need to wait until the property has been built which can take anywhere up to 6 months. Buying off-plan has another advantage if you get in early. Builders and developers are often looking for additional finances to finish their site and you may be able to negotiate a lower buying price.
Pros and Cons of Buying a New Build
There’s a lot to unpack here and there are plenty of pros and cons to consider before you opt for a new build:
- If you plan to access the Help to Buy scheme then you have no choice but to buy a new build property. The good news is that, even if you have to compromise on your dream home, it gets you on the housing ladder.
- The great advantage is that new builds come with all mod cons and you shouldn’t have to worry about maintenance or repairs for at least 10 years. They also tend to be a lot more energy efficient which will cut the cost of future bills.
- On the downside, you will be limited to the locations where new builds are being constructed. This could mean that you will need to move out of the area where you are currently living.
- Some mortgage lenders put limits on the amount they are willing to loan for a new build property. If your property is still being built, remember that mortgage offers are generally for around 6 months and you may need to negotiate an extension if there are delays.
Buying an Old Build Property
One of the key benefits of older properties is that there are a lot more of them to choose from. It’s easier to find a home near to where you want to live, whether you’re looking for a flat or a house. While there was a slump in houses being put on the market at the beginning of the Covid pandemic, these have recovered quickly and you should be able to find plenty of properties in your area.
One of the key issues with old build properties for first-time buyers is that you can’t access the Help to Buy loan scheme. If you have enough for your deposit and you are searching for a property, however, there is much greater scope.
Older homes tend to be roomier than modern ones and have more character as well as established neighbourhoods around them.
Condition of the Property
The first thing you will need to do is start identifying and viewing properties and it’s important to have a checklist for your ideal home and what you are looking for. That may include location and neighbourhood as well as the number of rooms, even whether the property has a garden or not.
At some point, if you are planning to buy a property you will need to have a survey carried out to check the structure. But during a viewing, you can also make simple observations on the condition of your potential new home. For example, you may want to look for signs of dampness, whether any repairs or changes might be needed and even which way the house faces.
Most viewings are staged to make the property look at its best, so don’t be afraid to look behind furniture and check nooks and crannies. Other things to consider are room size and whether you’ll need to update areas like the kitchen.
What to Look Out For
There are a hundred and one things to look out for when buying a property. For instance, don’t just check out the house or flat but look at the surrounding area – is it clean and friendly looking? Are the main amenities (schools, shopping, train station) nearby?
You should also be asking important questions such as how much the utility bills are. Older houses are sometimes less well insulated which can add to the cost of your gas and electricity. If tech is important to you check the mobile 4G/5G reception to make sure you’re not in a blind spot. Ask about the neighbours and look to see how the parking is.
The biggest thing to watch out for, however, is any structural defect or issue that may cost you additional money once you have moved in. The most common are sticking windows and doors, cracks in plaster and brickwork and uneven floors.
Quality of build
Older buildings are generally defined as those that have been lived in at least once. Properties over 50 years old are usually pretty solid in their structure but may have some minor issues that need to be repaired. It’s still important to check everything from the top down. Start with the roof and look at what condition it is in. If there’s an attic, don’t be afraid to get up inside and have a look at the structure.
For those of you who are buying a flat, there are other considerations to bear in mind because these are usually bought as leaseholds. It’s important not to just consider the quality of the build but what potential costs may be down the line.
For example, if there needs to be renovation work carried out on the outside of the block or in communal areas, you will be asked to pay for some of that cost. That’s why it’s important to look at the entire block and not just the flat you are buying.
Pros and Cons of Buying an Older Build
As with new builds, there’s a lot to think about here when deciding whether buying an older property meets all your needs.
- The biggest advantage is that there is the extra choice with older properties and you are more likely to find a home in the place where you want to live.
- Mortgages and financing are more readily available with older build properties than they are for new builds which often have a few more stipulations attached.
- Many people think that older builds have a lot more character than new builds which are often mass-produced and built with speed and maximising profits in mind. For a start, older homes tend to have much bigger rooms and higher ceilings.
- On the downside, if you are a first-time buyer, you can’t access schemes such as Help to Buy which is specifically designed for new builds.
- An older property may require work on different areas once you move in (such as replacing an old kitchen or updating the double glazing and doors) that you don’t get with a new build. It’s important to budget for this.
Whether you opt for a new build or an old one, taking your time and doing your due diligence is always going to be important. If you found your dream property and want to buy it, the next step is to organise a mortgage. That’s where the team at Stirling Capital Group can help save you time and money.
Finding the Right Property
It’s one thing deciding to get onto the property ladder when you’ve got the deposit and are ready to go. It’s another thing entirely to find the right home that fits your needs.
While there are plenty of things to consider, the good news is there’s also a lot of help out there. For instance, you can now easily view a lot of information about properties online.
Here we look at how to start your house hunt and some important things to consider.
Make a List
The first thing you should do is think about your ideal property and make a list of what you are looking for. How many rooms? What location? Do you want a garden? A quiet neighbourhood?
List everything you can think of and it should make your job a little easier.
You may not be able to achieve all your dream features and you’ll undoubtedly have to compromise but the list will act as a good benchmark for your decision making – especially when you’re sorting which properties to view.
Should I Use a Local Estate Agent?
Estate agents often get bad press but the truth is that a good one is worth their weight in gold and will certainly make hunting for that new home much easier. Especially if you are a first-time buyer, an estate agent will help guide you through the entire process and could stop you from making costly mistakes.
A local estate agent will have seen each property on their books in person, they’ll know the area well and will have a clear idea of how it fits your needs. They may also have properties that are not listed on other sites, and they can certainly help you sift out the right home for your needs.
Estate agents normally get their fees from selling a property so it’s in their interest to a) find buyers that are interested and b) make sure that they support you. Having said that, it’s important to shop around for the right estate agent and do your due diligence in checking out their performance.
How to Find Properties
Back in the olden days, the only way to find properties was to contact a local estate agent and see what they had on offer. This is still an option but if you want to find a wide range of properties it’s worth heading online. Nowadays, you have several websites that are devoted to selling properties including Zoopla and Rightmove.
These are a great place to start as they give you an idea of what sort of properties are available and what they are selling for. For each property, there is a form to fill in so that you can ask to view it and this normally goes through to the estate agent handling the sale.
You can also organise your searches depending on location and property size as well as individual estate agents. The big benefit is that saves you a lot of time and effort and you can do it from the comfort of your home.
What to Look Out For
So, how do you find the perfect property?
If you’ve got your list, then you’ll have a clear idea of whether you want a flat or house, detached or semi-, where you want to live and how much you ideally want to pay. With the property itself you might want to think about:
- Is parking on the road or is there a garage?
- What’s the phone coverage and broadband speeds for the area?
- Is there a garden?
- Is there scope for expansion, for example, building an extension?
- Is the building listed or in a conservation area?
- What’s the area like during rush hour – is it noisy or quiet?
A listing will have a lot of information such as the number of rooms, where the property is located, photos and most of the selling points the vendor and estate agent want you to know including a floor plan. It doesn’t contain everything, however.
For example, it may not include that there is a problem with damp in the basement or the heating is fairly antiquated. Size can also be difficult to judge without visiting the property personally but there should be enough for you to make up your mind whether you want to view it or not.
If you are buying a flat, one of the most important things to do is check whether it’s leasehold or freehold. If it’s leasehold, you need to know how much time is left on the lease and what additional, regular charges you are going to face after buying, including ground rent and service charges.
If you’re bringing up a family, another thing you will want to consider is where the schools are in relation to your property.
Schools will have different admission criteria (some may even have waiting lists) including how close your home is. Some parents want their children to go to a particular school, either because of its reputation or because they went there themselves.
Picking the right location for your new home, therefore, becomes doubly important.
Another aspect to consider is local transport links. If you live on the outskirts of a city, for example, and commute into your place of work, you want it to be easy as possible to get from A to B. Check out the road network and how busy it gets at rush hour, the nearness of the local train station and how often the buses run and from where.
Council Tax Bands
Council tax bands, which are based on the value of your home, can vary from location to location, even sometimes from street to street. When you’re looking at properties, it’s a good idea to check which band they are in if you want to save some serious money.
Once you spot your ideal property, you need to think about arranging a mortgage. At Stirling Capital Group Ltd, we provide free FCA approved mortgage advice – helping you to get the best deal for yourself and the property you intending to purchase.
Credit Status and Its Role in Buying a Home
Poor credit history doesn’t always mean that you won’t get a mortgage to buy your new home but it can certainly damage your chances in a variety of ways. If you show that you have made an effort to clear your debts and can manage your finances, for example, lenders will still often consider your application.
A lot depends on the mortgage company, many of which have their own rules and acceptance processes. While banks and building societies can be a lot stricter, other lenders have a more open approach.
When considering whether you are suitable for a mortgage, there are other considerations besides credit score which lenders take into account. The first is obviously how much money you want to borrow. On top of that, there’s how much you’ve managed to save for your deposit.
Your employment status and income will also play a role as does your existing debt (even if you’ve always paid on time) as this will determine how easily you’ll be able to afford the monthly payments not just now but over the term of the mortgage.
This last point is by far the most important to the bank or lender. If they feel you have the means to pay them on time each month and you won’t struggle (for example, if there’s a sudden hike in interest rates) they are more likely to accept you.
Checking Your Credit
Before your potential mortgage provider does its research and checks your credit score, you must do so yourself first.
Your credit rating is based on accounts you may have opened, usually stretching back 6 years and it will include information on credit card payments, bank overdrafts, loans, previous mortgages and even your utility bills.
If you’ve had issues like default or late payments noted against you or county court judgements, then your credit score will be affected. Even if you had problems five or six years ago and now have resolved them, you may find you still have a low score.
At the end of the day, the quality of your credit status is something that you can’t avoid if you want to get a mortgage. Even if you do find a provider who is willing to lend to you, your credit rating can impact the deposit you need, the rate you will be offered and the term over which the loan is repaid.
Later on in this article, we’ll look at ways to maintain your credit score or get it back on track in preparation for applying for a mortgage. First, let’s look at credit agencies in more detail and their role, particularly for first-time home buyers.
Where To Go for a Credit Check
Not too far in the distant past, you would need to pay a credit search company if you wanted to find out how well your finances were operating. They now offer free online searches for the first month which is then followed by a monthly subscription. If you want a simple statutory credit report then this is normally free and includes a lot of basic information such as:
- The credit or loan accounts that you have.
- Your financial links to other individuals.
- Any defaults or missed payments and who has recently been searching your credit report.
- If you are on the electoral roll or not.
You may well be confident that your finances are in order but credit agencies do make mistakes from time to time so it’s worth doing a full, in-depth check before you start applying for mortgages. The good news is that there are ways to do this for free too.
Three main credit agencies will hold information about your finances. These are:
- Experian: The biggest credit agency and, if you are not checking all three, this is the one you should focus on. It tends to be used by a lot of lenders including mortgage companies and the good news is that you can get your report free with com which runs a credit club.
- Equifax: This is probably the second best-known agency although it’s not as big as Experian. Joining a site like com can give you free access to your credit report.
- TransUnion: This is a newbie credit agency and isn’t as widely used at the moment by lending companies but it is still worth checking. You can get free access to your full report by joining up with com.
What Credit Agencies Know About You (And What They Don’t)
Most mortgage lenders will access all three credit reports when doing a background check on you to decide whether they are going to accept your application. There is one thing to note here and that’s the difference between a credit score and a credit report.
A credit score is a numerical reflection of your status. The higher the score, the better your credit status. For Experian, a value between 881 and 960 is seen as good, average or fair is 721 to 880. Anything below that may be considered poor or concerning for any potential lender.
A credit report is a full listing of what you owe, who you owe it to, any defaults or late payments and other issues relating to your finances.
Your score can be affected in different ways, not just because you have defaulted on a payment here or there. If you are regularly late with your subscription payments, haven’t paid the monthly instalment of your council tax or you have a lot of credit currently being paid back it can have an impact.
Another Reason Why it’s Important to Check Your Credit Score
While one of the main reasons that you should check your credit status before applying for a mortgage is to find out if there are any potential problems further down the line, the other is also to ensure that what information these agencies hold is accurate.
If a report has an old address on file or is linking you with a person you once had a joint account or financial arrangement with, this can cause issues if one or both is now linked with ‘bad’ debt. There may also be unfair late payments or defaults noted on your file that are depressing your credit score. If you have unused credit or store cards these may count against you.
Can I Get a Mortgage With a CCJ?
Most people think that they’ll be unable to apply for a mortgage successfully if they have a county court judgement or CCJ against their name. This happens when you don’t pay your bill and the lender takes you to court to have an order made against you.
There’s no doubt that this will affect your credit score but there are some caveats to consider. The first is how long ago the CCJ came into effect. The older it is, the better for your application. Secondly, if the CCJ has been deemed ‘satisfied’, meaning that you have repaid the debt, you have an even greater chance although some lenders also prefer to have a period of 12 months where you have been clear of problems.
The amount of the CCJ can be a factor in whether your application for a mortgage is accepted or not. If it’s high, then lenders may not be prepared to take a risk. More than one CCJ is also detrimental as it points to a history of missed or late payments.
What About Default Payments and My Mortgage?
A default is where you miss payments or fail to pay back a loan or credit arrangement over several months. In the normal running of your daily life, this may not be a problem and simply means that you need to get back on track. However, if you are intending to apply for a mortgage, defaults are probably one of the biggest causes of rejection and they will be recorded on your file.
This shows, at least to the mortgage company, that you may be unreliable when it comes to paying back loans. The other point to remember is that defaults can stay on your credit file for up to 6 years.
In short, having many defaults on your credit file could mean that the range of different mortgages, including those from banks and building societies, available to you might be severely curtailed.
Late Payments and Your Mortgage Application
Late payments will also show up on your credit file and these can have an impact on your score and your eligibility for a mortgage with certain providers. If you have started to build up arrears then this can be even more problematic. As with missed payments and defaults, this type of thing stays on your record for up to 6 years.
Again, much will depend on how much the payment was, when it happened and how much time has passed since you resolved the issue. If it was for a small about two or three years ago and your record has been clean since then it may not be an issue for most mortgage lenders.
IVA/Blacklists and Mortgage Applications
A more serious problem for your credit score is if you have an Individual Voluntary Arrangement (IVA) or have been blacklisted by a lender because of your poor payment history. This can send big signals to mortgage lenders. As with late payments and defaults, the information stays on your credit file for 6 years.
An IVA happens when your debts are relatively large and have become so overwhelming that you need a formal, legally binding agreement to repay your creditors over a certain period. At the end of the repayment term, any outstanding debt is then written off.
How Your Credit Score Affects Buying a Property
There are several ways in which defaults, CCJs and other financial problems with your credit status will affect the ability to get a mortgage. Banks and building societies are generally wary of such issues but there are mortgage lenders out there that will take on what is considered higher risk. Even so, they may introduce stipulations such as higher deposits or limiting the amount you can borrow and the term as well as higher interest rates.
It’s important if you have issues with your credit status to first discuss everything with a reputable mortgage broker who will be able to advise on what steps you need to take to become more eligible and which lenders to approach.
Credit Score Mistakes: How to Put Them Right
We mentioned earlier in this article how credit score companies are not infallible. They do make mistakes and this can impact your status. That’s why it’s so important to check your score first and get a full report so you can see what information has been collected about you.
According to Which?, one in five people have at least one mistake on their credit file. Almost a quarter of those that do spot a mistake, don’t do anything about it.
So, what can you do if you find that there is an error on your credit report?
Sometimes an update such as paying a CCJ is not reported properly or the agency just fails to change their records. You have two options when you’ve spotted a mistake:
- First, you can contact the lender directly. If they agree with you once you’ve presented your evidence, they have a legal obligation to update the credit agency and get the incorrect information changed or removed entirely.
- Second, if the creditor does not agree with you and refuses to make the change, you can contact the credit reference agency itself and ask them to review the error.
For both, you will need evidence that you are in the right and be able to present this to both the lender and the agency. While the onus is on the consumer to fix errors, it’s still important to check all three agencies for the information they hold on you, before applying for any mortgage.
How to Improve or Repair Your Credit Score
If you are planning to buy a property and need a mortgage, managing and repairing or improving your credit score is going to be pretty important. Unfortunately, for more serious cases, this can take quite a lot of time. If you are also trying to get a deposit together it can also be very challenging.
Credit status and mortgage eligibility isn’t just an issue for those who have a poor history. If you are fairly young, you may not have much of a credit score at all and this can also be problematic. For a start, it means that lenders have little to go on to assess whether you are a risk or not. Two ways to manage this are:
- Put yourself on the electoral roll with your current address.
- Build your credit history as it makes it easier for lenders to assess you.
This second point requires you to be sensible – getting a loan and paying it back is the name of the game here, overstretching yourself and getting into debt is not. Having your name on a few utility bills, even if you still live at home, and paying them on time can also help build your credit score.
For those who have existing debt issues or poor credit history, while there are challenges, there are also things that can be done to repair the problem.
- Check your credit record for errors and get them fixed.
- Check for financial associations which are no longer valid. For example, if you were living with someone and had a joint account you may be affected by a poor score because of association if they have subsequently gotten into debt.
- Get yourself up to date with repayments. If you have overstretched yourself, cutting down on subscriptions that you can’t afford may be an option.
- Don’t ignore payment demands if you get them. Most lenders and utility companies are accommodating and can help reach an agreement that prevents delays and payment defaults from going on your credit record.
- Have a plan for paying off large debts including things like county court judgements. The sooner you get them paid, the quicker your rating will recover.
- Get rid of unsecured credit – this includes things like credit cards, store cards and overdrafts. It can often be a signal to mortgage lenders that you have difficulty managing debt and that you might struggle with a large loan.
Why Work With a Mortgage Broker?
Getting a mortgage is probably the biggest financial debt that many of us take on in our lives. Choosing the right product is essential and that’s why it’s important to work with a mortgage broker. There are a lot of different options out there nowadays and navigating them, finding which is best for you and buying your first home are all very challenging.
At Sterling Capital Group, we have access to thousands of different products and can provide the mortgage advice that you are searching for. Contact our expert and friendly team today to find out more.
A Guide to Agreement in Principle
An Agreement in Principle (AIP) is common when applying for any mortgage, whether you’re a seasoned home mover or a first-time buyer. It gives you an idea of how much you will be able to get from a lender and many estate agents ask that you have one in place before they even start showing you their properties.
In essence, though by no means a firm commitment, it’s an undertaking from the mortgage lender, after they’ve done their cursory checks, that they will consider lending to you. If this sounds a little wishy-washy, AIP does come with some important benefits.
What is an AIP?
AIP is also known as Approval in Principle, Decision in Principle, and Mortgage in Principle. It works fairly simply and can often be done online or, in some cases, over the phone.
Online, you sign into a mortgage providers site, give them details of your finances and they provide a fairly speedy (usually within 24 hours) decision of how much they are likely to lend if you meet the criteria of the final application process.
This AIP is usually valid for 90 days and it is NOT a firm offer nor a guarantee that you will be accepted for a loan – in short, you will still have to go through the full mortgage application process like everyone else.
There are a couple of reasons why this is beneficial to first-time buyers or anyone else looking to purchase a property. First of all, it confirms that you can afford to buy a property which means estate agents and vendors will pay attention to you. Secondly, it shows how much you are likely to be loaned and that can help narrow down and focus your house hunting.
Does the Lender Check Your Credit History?
The short answer is yes. While it’s not the only thing that can influence whether a lender decides to accept you through an AIP, it’s a fairly simple way to check out your financial security. Credit history checks are easily done online and many mortgage lenders link into systems like Experian, TransUnion and Equifax.
If you have issues such as default payments on loans or utility bills, payment delays or county court judgements (CCJs) these may act as a red flag for lenders, particularly banks and building societies.
For this reason, we advise anyone who is planning to get an AIP and is starting on their house-hunting endeavours, to check their credit files first. Ensure this is in as good a health as possible and everything detailed in your report is factually correct.
Soft Check vs a Hard Check
One thing you will need to be aware of when it comes to credit checks is that mortgage lenders will have different processes. Some will do a more rudimentary or soft credit check, others will go much deeper. The good thing about a soft check is that, if you are declined, it doesn’t go on your credit record for other lenders to see.
Even if a lender does a soft check at first, however, they will do a hard search later on when you are applying for the mortgage.
How Your Credit Affects the Outcome of the AIP
When a lender does a check of your credit file they’re essentially looking for indications that you’re likely to be a ‘safe bet’. As with any lender, they will want to maximise all the potential that you’ll pay every month and won’t run into problems further down the line.
Credit issues that can affect their decision will include whether you have missed payments recently or even defaulted on loans or had a county court judgement against you.
Even if you have a good credit rating, however, it doesn’t guarantee that you will be offered an AIP and then be able to apply for a mortgage when you find your ideal home. You need to also take into account the lender’s internal check – essentially their rules and regulations for accepting or declining you as a customer.
What Internal Checks Do Lenders Make for an AIP?
When you apply for an AIP, you will be asked a series of questions by your potential mortgage lender. These are designed to get further basic information including:
- Details of your income and the income of anyone else applying.
- Details of your regular incomings and outgoings.
- Details of your addresses over the last 3 years.
- The size of your deposit.
This information is used to create a score along with your credit rating or status. This will determine whether the company is prepared, at least in principle, to lend to you and how much they are willing to give.
Some things that can affect how they score your application include your current level of debt and how you pay those debts and your debt-to-income ratio. Issues that could raise red flags for lenders is if you have debt that is eating into your income along with your outgoings (bills such as utilities and subscriptions).
Debt-to-income ratio is particularly important. It’s all your monthly debts divided by your income – if the value is too high it can automatically mean that your application is refused.
One thing that can make it more likely for you to get a favourable AIP decision is if you have a sizeable deposit already.
How do Lenders Create AIP’s?
You won’t be surprised to learn that most AIP decisions nowadays are automated. You can generally go onto the lender’s website, fill in their form and answer the various questions and the decision will be given within 24 hours. Many nowadays give a response within about 15 minutes.
If there is a significant problem with your application because of debt issues, for example, you may not get an immediate response.
I Had an AIP From a Lender but My Mortgage Application Was Declined
An Agreement in Principle is not set in stone and does not commit the mortgage lender to accept you once you go through the full application process. Several issues can send a lender cold and lead them to refuse you at the application stage. These include:
- You recently changed jobs – this could mean your income has changed or that the lender is worried about you losing the job soon.
- There has been a significant change in outgoings or the money coming in, including once you have taken on extra debt.
- The details on your formal application for a mortgage do not match the information you initially provided for the AIP.
- A deeper credit check finds previous issues with repaying debts or an ongoing association with a partner or former spouse who has financial difficulties.
- There may be other lender-specific criteria – this can be as varied as your marital status to the company’s credit to income ratio.
Because there are different checks for the AIP and your formal mortgage application, it’s important to make sure that you meet the lender’s criteria. Most do a good job of providing potential mortgagees with the information they are looking for. Working with a mortgage broker who understands the ins and outs of each company can also make a big difference and save a lot of time.
Can First-Time Buyers Get an AIP?
The short answer is yes. It’s probably more valuable to first-time buyers than anyone else. Other buyers will already have a mortgage and track record behind them.
As a first-time buyer, you’re not relying on using profits from your last home sale to make up for any differences, you’ll be getting a brand new mortgage (minus any deposit you might need). Certainly, if you are approaching an estate agent they will want you to have one in place.
Should I Get More Than One AIP From Different Lenders?
There’s no reason why you should not be able to do this but it’s not advisable. It can give you an idea of the scope of what lenders are likely to give you. However, if you apply to a lender for an AIP and they use a hard search system, it can go on your credit rating if they decline you. Most people settle on getting an AIP from one lender to give them an idea of what they can borrow and satisfy their estate agent.
Getting an AIP from one lender doesn’t then stop you from applying to other lenders once you have found the house that you want to buy.
The Benefits of Working with a Mortgage Broker
Particularly for first-time buyers, the world of AIPs and mortgages can be challenging and even confusing. Many make the mistake of going full-steam ahead rather than doing their research beforehand in individual lenders. That’s why it’s often useful to go through a mortgage broker that understands the landscape and can help you make the right decisions and focus on the most appropriate lenders for your situation.
At Sterling Capital Group, we have access to thousands of mortgage products and a wealth of experience both with first-time buyers and established homeowners.
Applying for a Mortgage
You’ve got an agreement in principle, and you’ve found the house that you want to purchase, now it’s time to apply for that mortgage. This can often be the most stressful time, particularly for first-time buyers. What’s the best mortgage product? Will your application be accepted?
It’s important to take your time and look at all the different options on the market. Securing the right mortgage is also a lot easier if you use a professional, regulated broker who can look at your unique circumstances and recommend the appropriate product.
Here we explore some of the different types of mortgages on the market today and what the application process involves.
Types of Mortgages
There are a lot of different types of mortgage available nowadays and it’s critical to find one that suits your needs. Most mortgages are either repayment or interest-only and they will run over a term of about 25 years. This is undoubtedly the biggest financial outlay that many of us will be involved in during our lifetimes.
Repayment vs Interest-Only Mortgage
A repayment mortgage is where you pay back a certain amount of your loan each month along with some interest. By the end of the term, you will have paid back the mortgage entirely and the property will belong to you.
An interest-only mortgage offers a lower monthly outlay because all you pay is the interest on the loan over the specified term. However, when the term is over, you will have to find the money to pay off the mortgage loan.
You may not be surprised to learn that the vast majority of products on the market are repayment mortgages. Interest-only products tend to be highly specific and available to only a narrow range of people.
Fixed-Rate vs Variable Rate Mortgage
These are both repayment mortgages and each has advantages and disadvantages. A fixed-rate mortgage gives you a guaranteed interest rate for a set period, usually up to about five years. This means you can be sure how much you will need to pay every month, at least in the short term. You can’t, however, change the mortgage or pay it off while you are in the period with the fixed-rate without incurring a penalty.
A variable rate mortgage means that your payments could change depending, for example, on the Bank of England’s base rate. While what you pay might change without much notice, a variable rate does give you a lot more flexibility if you want to move and sell your house or pay off the mortgage early without any penalties.
These are special variable rate mortgages that commonly ‘track’ the Bank of England base rate plus a standard rate added by the lender. For example, the base rate might be 0.5% with an additional 1.0% rate added by the mortgage company making an interest rate of 1.5% in total. Tracker rates are often popular because they have some of the lowest interest payments but you can end up paying more if the base rate goes up.
This is sometimes given as an introductory offer at the beginning of a term and allows you a set discount on the interest rate of 1 or 2%. After that introductory term is over, you revert to the lender standard interest rate.
This is another type of variable rate mortgage where there is a cap on how high the interest will go. For first-time buyers, in particular, this gives peace of mind that the repayments won’t suddenly hike to a rate that makes them unaffordable.
Other Types of Mortgages
Other products on the market include 95% mortgages. This type of product means you don’t have to find the large deposit normally associated with a mortgage – the downside is that they generally have high-interest rates attached to them.
There are also specific Help to Buy mortgages aimed at first-time buyers who are purchasing a new build. You can also find guarantor mortgages which are designed for buyers who can’t get a loan on their own – the guarantor (usually a parent or family member) agrees to pay if the person taking out the mortgage can’t meet their commitments.
Can I Take Out a Joint Mortgage?
Yes. Joint mortgages are often associated with couples who want to buy a house or flat together. More and more nowadays, however, groups of two or more people are getting together so that they can afford to buy a property.
Make an Appointment with a Regulated Mortgage Broker
When people are househunting, they often look to save money where they can. That includes not hiring the services of a regulated mortgage broker and doing the search themselves. Unfortunately, this is often a false economy, especially for first-time buyers.
There are several benefits in using an experienced broker:
- They understand that market. There are thousands of different products available in the UK today and finding the right fit will ensure that you have greater peace of mind in the years to come. With an independent broker, you get access to all the mortgage products and it will save you time and effort applying for the one that suits your needs.
- A good broker can save you money. There are often lots of little costs associated with getting a mortgage – a product that has a low interest rate, for example, may end up being more expensive when certain fees and conditions are added in. With a broker on your side, you can avoid the most common pitfalls that housebuyers face.
- A broker will also help you with the application process and make sure that you include all the information you need which makes it more likely you will be accepted. If there are any issues, the broker will also support you and liaise with the mortgage lender to get everything processed.
Regulated Broker vs Non-Regulated Broker
Mortgage brokers should be regulated by the Financial Conduct Authority and should have specific qualifications related to their profession. It’s important to check those qualifications and see if the broker is a member of a group such as the Association of Mortgage Intermediaries.
Some mortgage advisers can be restricted in the range of products they can offer – an example would be a bank that would only have available their branded mortgages. Other mortgage brokers, like the Sterling Capital Group, are fully independent and have access to a much broader range of products.
It’s also worth noting that many mortgage lenders will not deal with unregulated brokers so it’s important to check those credentials and do your homework.
What’s in the Full Mortgage Application?
People often think when they get an agreement in principle (AIP) from a mortgage lender that the application process is straightforward. An AIP is not a firm offer and the lender is not obligated to agree on mortgage terms once they have received your application.
You must take your time over the documentation and get it right before you send it to the lender. That’s why it’s a good idea to work with an experienced broker who knows what to look out for.
There are two types of application – execution-only where no intermediary is used and a broker supported mortgage application where you get advice from a qualified professional.
For the former, you will need to sign a declaration that you are making an application without professional advice and that you take full responsibility. Many lenders are also reticent about taking on a new client if they haven’t gone through an established broker.
As you might expect, because the amount being loaned is rather large, the application form for a mortgage is fairly lengthy, stretching to some 14/15 pages. The main sections you can expect to encounter are:
- Personal Details: This covers not just your name, address and date of birth but details such as your National Insurance number, how many dependents you have and previous addresses.
- About Your Current Home: This includes things like your existing mortgage if you have one or how much you are paying for rent and the name of your landlord.
- Employment Details: This covers who you work for, whether you’re self-employed, whether you work on a fixed contract or full-time and who previous employers were. If you are self-employed then you will also need to provide details of turnover and contact details for your accountant if you use one.
- Credit Details: This looks at the type of loans and other credit you may have, including any late payments, CCJs or IVAs you may have had against you.
- Budget Planning: Most applications will have a section on how you plan to manage your finances in your new home, stating incomings and outgoings. On most forms, this is fairly detailed and is designed to give the lender a clear idea of whether you can afford the loan in the first place.
- Property Details: The next section looks at the property you are hoping to buy, whether it’s freehold or leasehold, flat or a house, and whether it’s going to be your main residence.
- Mortgage Details: This is the amount you are looking to loan and the deposit that you have for the property.
On top of these details, you’ll need to provide information on how the building is going to be inspected and which solicitors you have instructed to handle conveyancing.
Common Mistakes on Mortgage Application Forms
With such a large document it’s quite easy to make mistakes when filling in the application form. There are a few common errors that we see quite often. The first is not filling in all the appropriate sections. There can also be a tendency to bend the truth, especially when it comes to credit information – you should always be aware that the lender will do a comprehensive credit check so being open and honest is critical.
Another issue is applying for the wrong mortgage in the first place. That’s why it’s essential to work with a regulated broker who can keep you focused on the right products.
What Documents Do You Need?
In addition to the application, you will also be required to provide certain documentation to back things up. These include:
- 3 months bank statements: This allows the lender to properly assess your financial situation and compare it to the details you have provided in your application.
- 3 months of payslips and P60 form from your employer.
- ID such as current driving licence or passport.
- Address confirmation such as utility bill, council tax or bank statements, dated within the last 3 months.
- If you are self-employed, you will need to provide 2 to 3 years of accounts and SA302s. Some lenders may also require 3 months of business bank statements.
- Proof of your deposit from either a bank statement or a savings statement. If you are being gifted the deposit, you will require details and confirmation.
If you have stated on your application that you have additional income such as bonuses, overtime or non-earned income such as tax credits then you will need to provide evidence of this. Lenders may also ask for proof of residency.
What Income Can be Used to Support My Mortgage Application
It’s not just your income from employment that can be used to determine your mortgage application. If you have regular income from savings, pensions or even maintenance, it can all be added to build a clearer picture of your suitability.
If you receive maintenance payments, these may be considered by the mortgage lender but it’s not a given. Some lenders will say that you can include 100%, others 50% and a few will not consider it as additional income at all. If a couple have reached a private agreement on maintenance, it can make it difficult to prove to a lender compared to where there has been a court issued arrangement.
It’s important to work with an experienced mortgage broker if part of your income is through maintenance payments as they can help identify the lenders who are more open and accepting.
Many mortgage lenders accept overtime as income but a lot can depend on whether it’s guaranteed, fluctuating or regular. A lot of employees, particularly those in sales, work on a commission base and lenders may well ask for more detailed payslips.
As with working overtime, many employees may well have bonuses at different times of the year. This again requires careful documentation and supporting evidence.
Borrowing money into retirement can be problematic but some lenders will take into account pension income when offering a mortgage. A lot will depend on whether you are already retired or looking to borrow into retirement and if you have other income to support your application.
For most people, their employment income forms the vast majority of the money they earn and is the main indicator for lenders. In most cases, you’re looking at maximum lending of about 4.5 times your annual income. Of course, this will also depend on your outgoings and the amount of debt that you currently have.
Things are a lot more complicated when you are self-employed, especially if you only have a few years of accounts. Most lenders will look for at least two years and you will have to prove that you have a reliable income coming in. A lender might ask for more information such as detailed accounts as well as evidence of upcoming contracts.
Working with a mortgage broker can certainly make a big difference if you are self-employed and looking to buy a house.
If you are lucky to have personal income from savings and investment dividends or payments from an estate settlement, as long as you can prove that this is providing regular remuneration it can be used to support your application.
Ltd Company Net Profits and Personal Income
It’s important to use an experienced broker if you want to find the best lender to use your net profits with. Whether you’re looking for a mortgage as a director or a sole trader, there are a few lenders out there who offer what is called a net profit mortgage but a lot will depend on how long you have been trading for, your deposit and your age and credit history.
Insurance Cover and Your Mortgage Application
Several types of insurance can give you peace of mind when applying for a mortgage, though most are not mandatory. These include:
People tend to take out life cover so that if something unfortunate happens their family can afford the mortgage payments or, in some cases, pay it off entirely. It’s not something that lenders insist on but can certainly give you peace of mind – it’s also relatively inexpensive nowadays and there are some good products out there.
Building and Contents
One thing that you will need is building insurance cover. If there’s a fire at your home and it is damaged, the property will be devalued and that could disadvantage the lender so they will insist that you take out the right amount of cover. Contents insurance is not mandatory, however, but again can give you a good deal of peace of mind.
Income or mortgage payment protection insurance is also a wise idea if you are buying a property. Again, it’s not mandatory for applicants but can help protect you if you lose your job, for example, through illness or redundancy.
How Long Does a Mortgage Application Take?
While an agreement in principle or AIP can be reached in just a few short hours, the application for a mortgage can take anywhere between two and six weeks to process before your potential lender comes to a decision. In some circumstances, the broker can hurry up the process if the sale is urgent but in most circumstances, it’s best to be patient.
On average you’re looking at around a month before you get your decision. The lender will review your application form and do a full credit check and they may have follow-up questions. The lender will also organise a valuation of the property by a surveyor and check the price is fair and there are no defects or problems that could affect the value.
What Happens if My Mortgage Application is Not Approved?
If you’ve worked closely with your mortgage broker and they are good at their job, chances are you will have a reasonably clear idea of whether you’re going to be accepted or not. There can be several reasons why your application is not approved, however. These could include:
- You had a recent delayed or default payment on a bill or loan.
- You’ve had a CCJ in the last 6 years.
- You’ve made too many credit applications in the last few months.
- The lender thinks you won’t be able to afford the payments.
- You’re a self-employed or a contract worker but can’t prove your income to the satisfaction of the lender.
- There are errors in your application form.
Most of these mistakes or problems should be tackled when your broker works through the application process with you. It tends to happen more for borrowers who circumvent going through a broker and try to do things themselves. While this can mean a little less cost, it can also cause issues and delays.
It’s a good idea if you have been declined in this way to reach out to a local broker and find out what you can do. The good news is that mortgage brokers know the market well and may be able to recommend an alternative or rectify why your application was rejected in the first place.
Why Choose Sterling Capital Group?
There’s no doubt that applying for a mortgage can be highly stressful, particularly for first-time buyers. Working with a regulated broker can make a huge difference, ensuring that all the bases are covered and your application is properly filled out and sent in on time.
If you are thinking of buying a property and are now searching for the perfect partner, contact the team at Sterling Capital Group Ltd today