Laura Howard: For most of us, taking out a mortgage is a crucial part of buying a home, It pays then to do some homework before you start on the process.
I’m here with mortgage broker Davis Hollingworth who’s from London and Country to explain a bit about how it works.
LH: So, should I look for a property? Or should I look for a mortgage first?
David Hollingworth: For a first time buyer it’s always a bit of a chicken and egg situation because you don’t really know how high you’re going to be able to go on purchase price until you know how much you’re going to be able to borrow.
So, I think you need to scope out what mortgage options might be what realistically you may be able to borrow on your own circumstances, so that’s going to depend on what your level of income is, but things like deposit size may also play a factor, so look at that, but you can’t actually make a mortgage application on an actual single product until you’ve got the property.
What you can do is potentially get an agreement principle, and that will give a lenders view on whether he will be prepared to lend you something, but even that’s no guarantee when it comes to the actual crunch.
LH: So when I’m applying for my mortgage, what sort of documents would I need to hand?
DH: Well, it’s what you’d expect really, its pay slips, probably 3-6 months maybe depending on the lender, bank statements will be necessary, again probably 3-6 months, but it could be even longer than that, P60’s – if you’re self-employed, then you’ll need accounts, you will need a track record there, usually of at least 2 years, and you may need even more than that so each lender will be slightly different, but they may ask you for proof of deposit for example, or even some confirmation if that deposit is coming from your parents - that is actually a gift and not a loan.
LH: What can I do to boost my chances of being accepted for a mortgage?
DH: The bigger the deposit will be better for you, it will give you more options, it will open up better rates for you so if you can save for a bigger deposit then great, but beyond that, obviously you’re going to have a to have a good credit score, that’s what lenders are going to be looking for, so make sure that if you’ve got some concerns in the background about your credit file just check it up.
It’s very easy and cheap to do online and you can see exactly what the lender is likely to be looking at, so if you’ve got any blips that might not even be your original problem, then at least you can clean that up before you even apply.
LH: So, should I choose a fixed or a tracker rate mortgage – what’s your view?
DH: The view has to be that you’ve got to do what’s best for you.
All we know is next move in interest rates is going to be up, they are at record low now.
So, for a first time buyer, traditionally they would have opted anyway for fixed rate mortgage, its gives you peace of mind in knowing that your payments are going to be what they are today for a set period of time, whether that be 2/3/5 years.
Most borrowers actually, not even just first time buyers will be going for fixed rates they’re extremely competitive at the moment, and with no chance of rates falling there’s little on the upside for a variable deal, so it becomes more of a case of how long should I fix for.
Again, that’s a case of judging how I’ll be tied into this deal, do I want to be tied in for 5 years or do I want a little bit more room to manoeuvre maybe after 2 or 3.