The golden rule to getting the mortgage you want is getting your finances in order first. There’s no point house hunting or daydreaming about lowering your monthly payments until you’ve taken a cold, hard look at your income and outgoings. This is exactly what your lender will demand to see when you come to make a mortgage application – whether it’s your first one, or even your tenth.
Getting your financial house in order
It’s been tougher to get a mortgage over the past few years, thanks to something called the Mortgage Market Review. After the financial crisis exposed the less than robust standards many mortgage lenders had in place, the financial regulator stepped in and ordered lenders to be much more careful about who they allow to borrow, and how much they lend out.
The result has been that mortgage affordability tests are now much harder to pass, with banks and building societies going to much greater lengths to check up on applicants. Forewarned is forearmed, so save yourself some time and hassle by getting together all the documents you will be asked to submit in advance of making your application. This includes your last three months’ payslips and bank statements – and your partner’s if making a joint application. You’ll also need your P60 from your employer and full details of any savings, credit cards or loans you have – everything from storecards to card loans. If you’re applying for your first mortgage and have been gifted any of your deposit by your family, you may also be required to provide a legal document stating that the money is indeed a gift and not a loan, which could give the lender a claim on the property in future. Solicitors charge for providing this service so look into the matter before making your mortgage application.
Applying for a mortgage
Once all this information has been gathered, you’re ready to submit your application. Some lenders will allow you to do this online, many insist on a face-to-face meeting, which can take some time to arrange. Alternatively, you may use a mortgage broker who acts as a middleman between you and the lender and can help you choose the right deal and take you through the process. The process differs a little for first-time buyers, compared to existing homeowners. It is wise for first-timers to apply for an ‘agreement in principle’. This confirms how much can be borrowed, subject to the lender being satisfied with a specific property later down the line. The agreement in principle allows first-timers to know exactly how much they can afford to spend when house hunting. Upon finding a suitable home, the full mortgage application can then be submitted and the lender will start to verify the property’s credentials. It will do this through its own solicitor, who will contact the buyer’s solicitor to share and cross-reference all the information. Sometimes the mortgage lender will charge the borrower fees to cover these legal costs. Once it is satisfied, the mortgage will be agreed and money will be released to the conveyancer to purchase the property. This process can easily take eight weeks
Moving home and remortgaging
For existing homeowners wishing to secure a new mortgage for their current or a new property, this requires a remortgage – the process of paying off your existing mortgage and switching to another lender or loan. One possible advantage is that you may be able to secure a lower interest rate than you are presently paying and so save money. You may also be able to raise money through remortgaging by adding to your existing loan by releasing built-up ‘equity’ – the portion of the property you own excluding the mortgage – that may enable you to extend it or improve it and add value. However, there are often costs associated with remortgaging, such as legal fees, so it’s important to calculate whether these will outweigh any potential savings before applying for a new deal. Remortgaging is typically quicker than applying for a first mortgage but the process can still take around a month.
So if you’re coming to the end of your existing mortgage deal, give yourself plenty of time to remortgage so you don’t find yourself on the lender’s standard variable rate – what you revert to when an introductory deal expires – which is usually more expensive. You can apply for a mortgage or remortgage yourself or you can seek professional help from a mortgage broker or financial adviser. Be aware that they may charge you a fee for their services.
Neil Newstead, FARLA MARLA
CEO – Oakfield Estate Agents