Before you start the process of looking for your dream home, you’ll need to find out how much you can borrow for a mortgage first.
Before applying for your mortgage, you’ll need to assess your finances and work out whether you can afford the monthly repayments.
During the application process, mortgage providers will take a look at your income, your outgoings and your lifestyle choices, to make sure you’re able to pay the monthly sum, should interest rates rise.
In this article, we’ll guide you through the process of getting a mortgage, and explore the assessments lenders will carry out when agreeing how much you can borrow.
This depends on a whole host of factors, from your income and outgoings, to your lifestyle and even your credit score.
In the past, lenders based the amount you could borrow solely on your income. For example, if your annual income was £50,000, you could borrow three, four or even five times this amount – up to £250,000. This was known as the loan-to-income ratio.
Now, thanks to changes made by the Financial Conduct Authority in 2014, the mortgage application process will require your lender to ask you a series of questions to determine your spending habits. You may even be required to show evidence of this by providing copies of your bank statements and any other finance products you may have. This is what’s called an affordability assessment.
Some lenders go even further and will carry out what’s called a ‘stress test’, where they will assess your ability to cope financially in the event of redundancy, or other financially challenging circumstances like having a baby.
Following the assessment, your lender will send all of the information off to their underwriting team, who will assess everything in detail and provide what’s called a ‘mortgage in principle’. This will give you a clear idea of how much you can borrow, and will allow you to start the process of looking for a suitable home (some estate agents won’t let you look at properties until you have a mortgage in principle from a reputable lender).
You may find that the amount your chosen lender is willing to lend you is less than you hoped. It’s always worth shopping around, using comparison sites such as Money Saving Expert and Money Supermarket to get the best possible rates, and to find out whether there is any flexibility in the amount you’re able to borrow.
Note: your mortgage in principle is merely an indication of how much your chosen lender may be willing to lend you and is not guaranteed.
Once you’ve had an offer accepted on a property – congratulations! It’s now time to apply for your mortgage.
Taking the figure provided in your mortgage in principle, your lender will then start the application process specific to your new home.
Much like your application for a mortgage in principle, the mortgage application itself will require you to answer a series of questions about your deposit, your financial history and your spending habits. This application will likely be more detailed than the process of obtaining a mortgage in principle, so prepare to answer all questions openly and honestly. Your lender will provide a list of the types of information they’ll need from you prior to your application. Take as much information as possible and any proof of earnings, finance products and bank statements for both applicants along with you. This will help to speed up the process.
During the application process, your mortgage advisor will take you through the mortgage products available to you.
There are hundreds of different mortgage products on the market designed for all sorts of buyers and sellers.
The job of your mortgage consultant will be to explain these to you clearly and make recommendations to you based on your unique set of circumstances.
That said, mortgages typically fall into two main categories:
a. Fixed mortgages. This is where the amount you pay each month is fixed, even if interest rates go up and down. This is the best type of mortgage for those looking for a clear idea of their outgoings each month. This type of mortgage is also recommended if finances are likely going to be stretched in the first few years of your mortgage. Some fixed mortgages with the best rates will have a fee attached to them, however, this could save you a significant amount of interest in the long run.
b. Tracker mortgages. This is where the amount you pay each month fluctuates depending on the interest rate at the time. While this affords many applicants the flexibility to change their mortgage mid-way through the term, perhaps to make a lump sum, or to switch to a better rate, there is a lot of uncertainty with this type of product. Interest rates have been known to exceed 15% in the past, so make sure you’re able to keep up with your payments should this happen.
While details of your finances are one of the key factors taken into consideration during your mortgage application, your lender will also need to assess the property you plan to purchase, to ensure it’s a solid investment for the bank.
Following your interview with the lender, your mortgage advisor will then be in touch to organise a survey of your new home. Here, a qualified surveyor will visit the property, and look at things like signs of subsidence, cracks in the walls and roofing, leaks and damp.
In some instances, your lender may reduce the amount they’re willing to lend you based on the age and condition of your home. In some extreme instances, you may find your lender refuses your application altogether. If this happens, it’s nothing too major to worry about – you simply will have to start your search for a home all over again!
In most cases, however, and particularly when purchasing a new-build property, your survey will go smoothly and your application can continue.
The whole application process can take anywhere from a week up to two months, so you will need to be patient while you wait for the application to complete.
You do not need to worry about getting hold of the borrowed funds – this will be handled by your solicitor.
Your solicitor will liaise with the estate agent, the seller and your lender to coordinate the transfer of money on the day of purchase. This is called an ‘exchange’. Once money has changed hands, you will then be able to ‘complete’ – the day you’re handed the keys to your new property.
It’s common knowledge that the process of buying and selling a property can be extremely costly.
Not only will you need a healthy deposit to purchase a property, you will also need to factor in stamp duty (no longer applicable to first-time buyers) estate agency fees and legal fees. We recommend having a minimum of £5,000 put to one side to cover the cost of the move itself.
If the process of buying or selling your home still seems a little daunting, get in touch with the friendly team at ZeroC. We’ll take the time to understand your requirements and will be able to answer any questions you have about the mortgage process.
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