Getting a mortgage doesn’t have to be difficult – whilst it may look complicated, with all those different phrases (tracker, variable, interest rates, loan terms) applying for a mortgage is incredibly simple. It’s just a case of preparing everything you need and getting the right deal for you.
What is a mortgage?
A mortgage is a loan (usually from a bank or building society) that is used to help buy land or property. A mortgage is usually set up with monthly repayments over a long period of time (often over 20 years). The smaller the mortgage, the less you must pay back.
A mortgage will always have a LTV (lifetime value). This means the total value of the mortgage in comparison to the price of the property. For example, if a property was £100,000, a mortgage with an LTV of 90% would be a mortgage worth £90,000. This LTV can be decided based on the amount of deposit you initially put down (in this case, the deposit was £10,000 and the LTV covered the rest).
How do I get a mortgage?
To get a Mortgage, you can research different banks or building societies to see what kind of mortgages they offer. Once you have chosen one you are happy with, you can apply for a mortgage in principal to see If you qualify (There are no further commitments attached to a mortgage in principle). If you qualify, you can proceed with your trusted mortgage lender and they will help you with the rest of the process.
What types of mortgages are there?
There are several different types of mortgages. The main two being Fixed Rate Mortgages, and Variable Rate Mortgages.
A fixed rate mortgage has a fixed monthly repayment amount, which is good for managing finances, but if the interest rate on the mortgage drops then you are still paying the same amount. A variable rate mortgage can change depending on the interest rate of the mortgage. This means that you could pay higher monthly repayment fees some months, and lower fees other months. Deciding which to choose is usually based on how consistent you want your finances to be.
1. How to prepare for a mortgage
Know what you’re applying for
You need to find out not only what you need, but what you’re likely to be accepted for. This means knowing the price of the potential property, your annual income and the deposit size. As most lenders will only offer 4.5 times your annual income, you need to check that your expectations are realistic.
Know what you’re looking at
Once you know what you’re looking for you can start to consider different offers from banks and lenders. You could use comparison sites or a mortgage broker
You’ll want to assess how long you want a fixed rate for, what type of mortgage you require (tracker, etc) and how important the little extras are (cashback deals or fee-free mortgage arrangement) as part of the deal. The interest and the term length are likely to have the biggest impact on your choices
Know if you can afford it
Look at how much your mortgage repayment would be each month and add on council tax, utilities and other monthly bills. Is it as affordable as you need it to be, or would you be struggling to pay every month? If the repayment is too high, look at lower rates, or longer terms.
2. How to apply for a mortgage
When you go for a mortgage application, consider whether you just want a mortgage in principle, or a full mortgage application. A mortgage in principle
is something you use to show a lender is generally willing to lend to you – but it’s not a promise to do so.
A mortgage application is much more thorough and considers all of the factors in more detail. When you go for your mortgage application, make sure you’ve prepared for your accounts to be assessed and looked at. They want to see that you are in control of your spending and that your bank account looks healthy.
The mortgage advisor will go through the application with you. It will include proving your identity (form of ID, proof of address) as well as statements from your work to show your income (P60, payslips) and they will likely look at your credit score.
3. Waiting to hear back on your mortgage
Waiting to hear back on your mortgage application can usually take between 18-40 days. Don’t go and make loads of mortgage applications at the same time, and just hope one comes back positive – your credit score can be affected by the checks mortgage lenders make when assessing your application. This also means you may have to wait longer to get an answer and may get a disappointing response.
During this time, the lender is not only looking at your application and doing a credit check, but they’re doing stress tests
on your finances. This means they’ll be considering how your mortgage would change if there was an increase in interest rates, or a change in the economy. If you have left yourself with very little wiggle room when applying for a mortgage, so that an increase would wipe out your savings, or take you into your overdraft, you’d be seen as a liability.
4. How to increase your chances of getting a mortgage
- Notice any spending trends and try to cut down ‘frivolous’ spending
- If you can’t cut down on the pub and restaurant visits, pay in cash so your spending doesn’t get judged
- Pay off any debts, credit cards or anything else you owe – a mortgage is a large debt and lenders won’t want you to be paying off multiple debts.
- Similarly, items you have on credit may work against you – try to pay them off before you apply for a mortgage.
- Don’t forget about your credit score – check it using Experian, or an app like Clearscore. Work on improving your score, make sure all the information is up to date and clear anything that could be damaging.
Top tips for getting a mortgage quickly
There are certain ways to speed up your mortgage application, and it’s all to do with seeming like a safe investment. The lender is risking potentially hundreds of thousands of pounds on the idea that you will be able to pay off your mortgage eventually. But they also want you to take time doing it, as they’ll get the interest over the years.
- Consider asking for less. Lenders will lend up to 4.5 times your annual income. If you only need to ask for 3.5/4 times your salary, you may speed up the decision.
- Have a higher deposit – usually the minimum deposit is 10% of the property value (unless you’re using Help to Buy schemes).
- Maintain a good credit score.
- Pay off any debts, items bought on credit etc.
- Have all the paperwork prepared when you go for your mortgage application meeting.
- Make sure you have a conveyancing solicitor hired, so you can give your mortgage lender their information during the application.
- Have concrete information about the agreed price of the property, the address of the property, the estate agent responsible for it etc.
Getting a mortgage doesn’t have to be confusing and using the tips we’ve offered should help you make sure you’ve done everything possible to get an approved application.