To get a mortgage you need to have at least a 5% deposit for a home as well as meeting affordability criteria with a lender.
To get a mortgage you should take the following steps:
- Get a deposit – It will need to be at least 5%, but aim for 10-25% of the property’s value
- Meet the affordability criteria – Typically you can’t borrow more than four times your income
- Compare mortgages – Based on your criteria, shop around for the best deal
- Clean your credit file – Fix any errors or just build up a borrowing history
- Prepare your documents – Have all the documents you need to hand
- Get an ‘Agreement in Principle’ – Test your chances for approval and know where you stand
- Be ready to accept – Have a conveyancing solicitor in place to move funds when your mortgage is approved
Once you have an idea of what you can aim for in terms of price go over your finances and look at your savings to see how much of a deposit you could put down to get a home.
You will need to be able to put down at least 5% of the value of a property to qualify for a mortgage, but it’s better to aim for 10 – 25%. The bigger your deposit, the better the rates you’ll be able to get and the cheaper your mortgage will be overall.
If you are struggling to get enough together for a deposit, there are ways to boost the size of your deposit, such as the government’s Help to Buy scheme, or you could consider looking at shared ownership.
If you’re wondering about the size of mortgage you can get, the first step is to look at your income.
Traditionally lenders will offer you four times your income for a mortgage, but this can vary between lenders. If you would like to use the joint income of you and your partner combined, this is typically done in one of two ways:
- Either add the lowest income on top of the highest after it has been multiplied
- Or add both incomes together and use a lower multiplier figure.
Some lenders will also take your outgoings, or ‘liabilities’, into account, so it’s a good step to pay off any debts before applying. However, don’t make your spending artificially low – it’s not worth the risk of tricking the system to take out a mortgage you cannot afford further down the line.
You should compare mortgages on by the rates, which reflect the amount of interest you will be charged, the lower the rate the cheaper the mortgage. There are three types of rate
- Variable rate mortgages – Usually the cheapest rates, these mortgage rates will vary with lenders’ Standard Variable Rates, reflecting changes in the mortgage market and the base rate set by the Bank of England
- Fixed rate mortgages – Often more expensive, these mortgages will be set at the rate you get at the start for a set period of time, typically two, five and sometimes even ten years.
- Tracker rate mortgages – This mortgage will follow the base rate of interest, ‘tracking’ it b y a pre-agreed margin. For example if the base rate is 1% and your tracker is +2% you would pay 3%, if the base rate rises to 2% would pay 4%.
Don’t just compare on rates though, you should also take into consideration:
- Booking or arrangement fees – Most lenders will charge an upfront fee, typically these will be anywhere between £500 and £3000 depending on the mortgage.
- Initial period and exit fees – Many mortgage agreements will tie you in for a set period of time, charging you hefty fees if you want to remortgage.
- The mortgage term – The standard length of a mortgage is 25 years, but you might want to consider a shorter or longer term
- Overpayments – Overpaying on your monthly repayments will save you a lot of money over the course of the mortgage.
Before you apply for any mortgages make sure you check your credit report and fix any errors. If you haven’t already, make sure to do the following:
- Get on the electoral roll
- Pay off any arrears (ie pay all your bills in time)
- Close unused credit cards
- Check you don’t have joint accounts with ex-partners
- If necessary, build up your credit history with responsible borrowing, a credit-builder card may be suitable for this
Having all the documents ready will save you a great deal of time when it comes to applying. You will want to have:
- ID documents (typically your passport) and proof of current address (utility bills or credit card bills for instance)
- The last three months’ of statements for all savings and current accounts
- Your last three months’ of pay slips, including proof of any bonuses/commission you received
- Your most recent P60 tax form (showing income and tax paid from each tax year) or tax returns
- If friends or family are helping with your deposit, you will need to prove to your lender that any money deposited is a gift and not a loan
To test your chances of mortgage approval try to get an ‘Agreement in Principle’ for your mortgage of choice from your lender or broker.
An ‘Agreement in Principle’ is a conditional offer you have no obligation to accept. While some lenders may use a ‘soft check’ on credit file that won’t leave a mark on your file, not all will. So you should be careful not to do this too often or you could damage your credit score.
However, this is not the same as a formal offer or mortgage agreement and the lender can withdraw it any time. But also you aren’t tied in either.
Once you get a formal mortgage offer, you will need a qualified conveyancing solicitor to handle the moving (‘drawing down’) of funds between you, your lender and the property seller.
Your solicitor should also check over your mortgage contracts for you, as well as other legal services throughout the process of moving home.
You will need to pay your lender any outstanding frees once you have signed the agreement.
What to do if your mortgage application was refused
However, it may be better to stop, take stock and work on improving your circumstances and credit score, saving more for a deposit or looking for a better paying job.
- Getting a mortgage when you’re older – Once you’re over 50 your mortgage options begin to change, so it’s worth carefully considering your options.
- What size mortgage can I get? – Finding the right size of mortgage you can get before you start house hunting is a sensible move to help you set your budget.
- First-time buyers – Buying your first home can be both exciting and daunting, but thoroughly planning your finances can keep you on track.