It's probably the biggest financial commitment of your life so far, so here are my top tips to help you steady the ladder before stepping up.
As we all know, interest rates have held at an historic low for years which means that money is cheap to borrow and products are extremely competitive. But this only helps if you actually qualify for a mortgage. The market may seem uncertain and lending rules are stricter but there are some great deals out there. So, don’t be disheartened; there are a number of ways to increase your chances of securing the loan you need. Here are a few tips on where to start.
Work out your upfront costs
It’s not sufficient to be able to make the monthly mortgage payment, you’ll have to shell out quite a bit before you even get to that stage, so bear in mind that the more money you have to start with the better.
First and foremost, you need a deposit! Whether that comes from years of saving every penny or you are lucky enough to have help from family, you won’t get far without one. Some lenders will lend up to 95% loan to value which means you will need a 5% deposit to put down.
The other main expense is Stamp Duty. If you are buying a property which costs £125k or less, there is nothing to pay. Homes above this amount pay on a progressive, sliding scale ranging from 2% (£125k-£250k) up to a whopping 12% on amounts above £1.5m! It’s worth noting that if you are buying jointly with someone who already owns a property you will have to pay a higher rate, effectively 3% more, even on properties costing less than £125k. We have a Stamp Duty calculator on our website to help you work out how much you will owe in both scenarios.
There are also costs associated with the mortgage: a property valuation fee, a lender arrangement fee (although this can often be added to the loan), and brokers’ and solicitors’ fees and costs. The lender will provide you with a Key Facts Illustration which will itemise all the costs associated with mortgage, and you can ask your solicitor for a guide to their pricing. I can’t give you a ball park figure because there are too many variables depending on the property price, the local council, the lender, etc. the list goes on… Just remember, you’ll need to find the funds!
Also, bear in mind you’ll have to furnish the property and perhaps pay for a removal company to transport your stuff!
One of the main reasons people get declined for a mortgage is they simply don’t have a realistic view of what they can afford. As a first-time buyer, you may have to consider smaller, cheaper properties and buy outside of your preferred area to get something within budget. It doesn’t have to be your forever home, merely a stepping stone to the home you’ve always wanted.
Regardless of whether you are salaried or self-employed, lenders will generally lend 4.5-5 x your income (or joint income). This can include salary, dividends, commission, overtime, bonus, rental income etc.
Budget, budget, budget
Lenders will check to see if you can actually afford the loan repayments, so will look at your income and expenditure and pay particular regard to any credit commitments you have undertaken.
Budgeting is a skill that doesn’t come naturally to everyone but it’s better to show that you are careful with your money. Try to curb any unnecessary spending! Most lenders will ask for the last three months’ bank statements, so if you can, show that you have some funds left at the end of each month and that you are not maxing out your overdraft or credit cards. It’s all about responsibility!
If you are able, pay off as much debt as you can beforehand or at least reduce any credit cards or loan balances - you will look a lot more impressive and appealing to a potential lender.
Check your credit profile
Ensure that your credit profile is accurate and ask for mistakes to be rectified. It’s very easy to lose track and many people don’t realise how your credit history can affect you in the future. Sign up to Experian or Equifax to obtain an overview of your credit profile.
Don’t assume that your bank will give you the best rate. There are thousands of mortgages out there, and that’s where a mortgage broker can help! Not only will we search the entire market for you, we will match deals to your specific circumstances and requirements (including help to buy schemes, guarantor mortgages, joint borrower/sole proprietor mortgages). We also have great relationships with the vast majority of lenders and will manage your mortgage application for you. It’s time-consuming and requires a lot of know-how to get it processed as quickly and effectively as possible, so don’t leave it to chance.
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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Talk through your requirements
Emma Knapp has left Mortgages for Business for pastures new. For more information or for any questions relating to this blog, please contact the Residential Team on 0345 345 6788, where one of our consultant mortgage brokers will be happy to assist.