Getting a mortgage is a big deal, so it makes sense to go into it knowing exactly what you want and how you’re going to achieve it.
The very first step is to save up a deposit, as this will take much longer than the rest of the process. As an absolute minimum, you will need to save 5% of the cost of the property you want to buy. Check out the prices of a home that will suit your needs in the area you want to live on a property site and calculate what 5% of that figure would be.
Once you’ve saved a deposit, a good jumping-off point is to create a personal budget before you even consider visiting a mortgage broker or lender. There’s no point in looking for a home before you know how much you are able to comfortably pay out each month.
The next step is to compare mortgages with different lenders to see which one can offer you the best deal for your circumstances. Our broker partner, Mojo, will be able to help you with this.
To apply for a mortgage you will need to approach a lender either directly, or via a mortgage broker. Getting an agreement in principle (also known as a decision in principle) is a really good idea before you go for a full mortgage application.
This will not only give you a good idea (much more accurate than most mortgage calculators) of how much you will be able to borrow from the lender, but will help you when it comes to putting offers in on the home you choose, as you will appear to be more serious about and committed to the idea of buying that property.
The mortgage application process will be very similar no matter which lender or which type of mortgage you opt for. Essentially, all lenders are looking for assurance that you can afford to repay the large sum of money that they are considering lending to you.
Preparing your personal circumstances and documentation to suit a mortgage application is the best way to get your application approved, and make sure it is processed without any major delays or issues. Follow our six step plan to preparing for your mortgage application:
Lenders will need to carry out a credit check in order to process your mortgage application. This is usually a soft-search at agreement in principle stage and a hard search when you go through to the full application, however, if you’re concerned about this ask your broker or lender.
Having a bad credit score won’t always mean you won’t be able to get a mortgage, but it can make it more difficult. Those with a strong credit score will be approved more easily and usually get access to better interest rates.
It’s worth knowing what your credit file says about you before you approach a broker or lender, so there are no nasty surprises when they run the search. You also have the opportunity to improve it and correct any mistakes that may be listed. Our guide to mortgage credit searches will provide more information about this.
Lenders will need to confirm your identity so you will need to provide an official photographic ID, such as a passport. Ensure any documents used have the correct information, including your exact name, current address and an expiry date that is at least six months away.
All personal details will also need to match what is shown on your other documents. Even a spelling mistake can be an issue, so be thorough.
As with your ID, any proof of address must be current and show the same address as your ID documentation. There are a variety of documents that can be used for this purpose, such as utility bills, but they must be full and original copies. For example, if you’re using a bill, ensure you provide every page, not just one of them.
Some mortgage lenders now accept digital submission of supporting documents, whereas others will want hard copies, so ensure your proof of address is available in both formats. This will save you from scrambling to download and print copies if your chosen lender will only accept paper bills.
Lenders have a legal obligation to ensure that deposits have been obtained legally and may also have additional criteria in terms of the type of deposits they personally accept. For example, most lenders will not be comfortable with borrowed deposits and some won't accept gambling winnings.
If you’ve saved the deposit yourself, you’ll need to show a bank statement to show the accumulation of the money. If it’s gifted, you will typically need a signed letter from the person giving it to you to confirm that it is not repayable and is a genuine gift.
How you prove your income will depend on how you earn it. An employed applicant will typically need to show three months worth of payslips, but self-employed mortgage applicants will need to provide their accounts and tax calculations. Some lenders may also want to see bank statements to ensure the account number matches those shown on payslips etc.
If you earn money in multiple forms, i.e some self-employed and some employed income, you will need to provide evidence of both. Proof of any additional payments that are earned as a part of your existing role(s) but not shown on your payslips, such as bonus, overtime or commission payments, should also be provided.
If you receive benefits, most lenders will be willing to consider them alongside your other income (except housing benefit), especially if you can prove that they are a long-term income that are unlikely to stop, such as disability related benefits, child benefit and pensions.
Lenders will want to look at your outgoings to make sure that you will be able to afford your mortgage repayments alongside anything else that your income has to cover.
Most of the information they require is usually available on your bank statements, however, it can be helpful to take a list of all your expenses to ensure that they have considered everything. Whilst your goal is to get a mortgage, there’s no point in putting yourself in a position where you are unable to afford all of your commitments, so it’s important to make the lenders aware of everything.
This also gives you the opportunity to review your outgoings and cutback wherever possible, to increase your expendable income. This could go a long way towards helping you achieve the loan you’re looking for, as many of us are regularly paying for things we don’t really need and can find some areas where we can cut back!
Good to know: You can find a list of all of the accepted documents that you could provide for each purpose further down in this article.
The largest sum of money you’ll need to find is the deposit, which will be at least 5% of the cost of the property you’re looking to buy. If you can afford to save 10-15% towards your first home, however, this can make a huge difference to the lender’s decision.
For example, to buy a house that costs £250,000 you would need
£12,500 for 5% deposit
£25,000 for 10% deposit
£37,500 for 15% deposit
£50,000 for 20% deposit
You will also need to have enough income to cover the monthly mortgage repayments. Most lenders calculate your loan size based on four to four and a half times your annual income. If you apply jointly, your income will be assessed slightly differently and this will vary by lender. Typically, lenders either your combined income multiplied by a slightly lower number, perhaps three and a half, or use four and a half times the highest earner’s income plus the lowest earner’s income.
For example, to borrow £200,000
An individual would need to have an income of between £44,444 and £50,000
A couple would need to have a joint income of around £57,143 - although this will depend on how they calculate your combined income
Of course, in reality, the income will need to be higher than this, as lenders will need to take your other outgoings into consideration when calculating how much you can afford to repay. Some lenders also have a minimum income needed for any mortgage, regardless of loan size, which is generally £20,000-£25,000.
With the cost of living and house prices at an all time high, it can be very difficult for first time buyers to meet the deposit and affordability criteria of a mortgage, however, there are a range of home ownership schemes to help people get a foot on the property ladder.
Having access to the following documents will help your mortgage application go more smoothly. Be sure to read our section above on 'how to prepare for a mortgage application', to check that your documents meet the mortgage lender’s requirements:
A copy of your credit report - will be helpful for your initial meeting with a mortgage broker, although not essential, as they can obtain this information, it can speed up the process
Proof of ID - passport, photo driving licence, national identity card or bio-metric residence card
Proof of address - bank statement, credit card bill, utility bill, or mortgage statement dated within the last three months, or council tax bill, HMRC coding letter (the one showing your tax code), benefit entitlement letter, state pension letter, or tenancy agreement dated within the last 12 months
Proof of income (employed) - three to 12 months worth of payslips and bank statements, as the length needed can vary by lender. Some lenders will be willing to consider a letter from a manager or HR department if you don’t receive payslips, however, this is at their discretion and it’s much better to have payslips if possible. Three months of bank statements will also be needed
Proof of income (self-employed) - 12-36 months worth of your full accounts (signed-off by a certified accountant) and end of year tax calculations (used to be known as SA302 forms) for the same duration. A tax year overview for the most recent year can also be helpful. You will also need to provide bank statements covering any personal and business accounts
Proof of deposit - this will depend on how you obtained your deposit, but may include savings account or investment statements, proof of sale for any items that may have been sold towards your deposit - such as a car or property, a certificate of inheritance or a signed letter from the provider of a gifted deposit
As you can see from the above list, the majority of documentation required by a self-employed borrower is exactly the same as any other mortgage applicant, however, how you will need to supply a more detailed and longer history of your income.
This means that you will need to have been trading as self-employed in your current role for at least 12 months in order to apply for a mortgage. There are some minor exceptions, such as newly qualified doctors, but this generally applies across the board.
Depending on the type of self-employed income you earn, there will be a slight variation in the type of documents you need to provide, and the lenders that are willing to consider your application. For example, some lenders will not accept contractors at all, but there are specialist lenders that do.
It’s also possible that different lenders will calculate your affordability differently, for example, if you’re a limited company director, some lenders will use your net profits and dividends, whereas others will be willing to look at your net business profit instead of dividends.
A mortgage broker can compare mortgages on your behalf to ensure that you can get the best deal available, without you having to trawl through a list of every lender in the UK - there are over 900!
They can also make the application process go more smoothly because of their existing relationship with lenders, and provide you with knowledge and guidance that you might not get elsewhere.
That said, using a mortgage broker is certainly not essential and you can absolutely approach most lenders directly to make an application. However, if your application is likely to be more complex, for example, if you are self-employed or have bad credit, they can be very beneficial in finding the right type of lender to suit your needs.