Written by Emma Lunn
Build the biggest deposit you can
The more you can put down as a deposit towards the cost of the property you’re buying, the cheaper your mortgage should be.
This is because mortgage lenders charge lower rates of interest to buyers with the biggest deposits. And that’s because a bigger deposit means they’re lending less as a proportion of the value of the property.
A bigger deposit means the property has to fall further in value before the lender’s money is at risk.
The minimum deposit you need normally 5% of the purchase price, so that’s £10,000 if you’re buying a £200,000 property.
With a 5% deposit, the amount borrowed is 95% of the property’s value, usually expressed as a 95% loan to valuation ration, or 95% LTV.
Lenders will often want to know where your deposit is coming from. If you’ve saved up for it, you can prove it by printing a statement from your savings account.
If your parents are helping, you’ll need a letter from them stating whether the money is a gift or a loan.
Step 2: Budget for additional costs
Make sure you have enough money for the other costs associated with home buying. These include:
- Mortgage arrangement and valuation fees
- Surveyor’s fees
- Conveyancing fees
- Stamp duty
- Moving costs.
Step 3: What can you afford?
Have a look at how much properties cost in the area you’d like to live. Then work out how much deposit you have and how much you’ll need to borrow as a mortgage.
As a rough guide, you’ll probably be able to borrow about four times your income. Or perhaps three times your combined income if you’re buying as a couple.
MoneySuperMarket’s mortgage channel lists the top deals for everyone from first-time buyers to house movers or re-mortgagers or.
You can input the figures into MoneySupermarket’s affordability and repayment calculator to get a rough idea of how much a mortgage will cost each month.
Step 4: Check your credit report
The three main credit reference agencies - Experian, Equifax and Call Credit – provide lenders with information on your use of credit over the course of time. This gives them an idea of how well you have managed borrowing and debt, including credit cards and personal loans.
It can be worthwhile having a look yourself. Doing so, say, six months before you plan to apply for a mortgage will give you time to correct any inaccuracies on the files.
Also, make sure you are on the electoral register at your current address so lenders can confirm who you are and where you live.
Step 5: Cut down on spending
When you apply for a mortgage the lender will carry out an affordability assessment to check you can afford the mortgage both now and in the future.
To assess affordability, lenders will want to see your bank statements from the past three to six months. They will look at what you’re spending your money on.
To stand the best chance of your application being approved:
- Pay off any debts and close any unused accounts
- Cut down spending as and where possible
- Cancel unnecessary direct debits
- Don’t gamble online
- Stay in credit on your current account
- Don’t take out a payday loan.
Step 6: Get your documentation ready
When you apply for a mortgage, the broker or lender will want to see certain documents. These include:
- Passport or driving licence and utility bills for identity checks
- Your past three months’ pay slips
- P60 from your employer
- Bank statements for the past three to six months
- Statements from your savings accounts
- Proof of any benefits you receive
- If you’re self-employed, two or three years’ accounts certified by an accountant
- If you are self-employed, form SA302 from HMRC showing your income and tax paid
- Proof of where your deposit funds came from.
Step 7: Do your homework
Buying a property is likely to be the biggest financial commitment you ever make, so it’s important to understand your options and make the right choice.
You can read about the different types of mortgages here, along with the jargon you’ll often encounter when you’re looking for a loan.
Any property you buy will either be freehold or leasehold. If you’re buying a leasehold flat, you will need to factor service charges and ground rent into your budget.
Step 8: Attend a mortgage interview
You can either apply for a mortgage directly with a lender or use an independent broker. In either case, you’ll need to go through an interview either face-to-face or over the phone.
The interview allows the mortgage adviser to collect all your information then recommend a suitable product. Make sure you’re prepared for the meeting – take along all the documents you collected in step 6. You’ll be asked about your income and spending, financial commitments and future plans.
Applying to the right lender first time reduces the risk you will damage your credit history by having multiple applications rejected.
Applying directly to a lender is only really a good idea if you are sure you know what you’re doing and are confident you have found the best mortgage for your circumstances.
Step 9: Submit your application
Once you’ve found a property to buy, and had an offer accepted, it’s time to submit your mortgage application.
If you use a broker, they will do this for you. Make sure you give your broker the correct information as it could slow things down if you want to go back and change things later.
Also, make sure you tell the truth as you understand it – inaccuracies on an application are regarded as mortgage fraud and could have serious consequences.
Step 10: Wait for a decision
Once your application has been submitted, the ball is in the lender’s court. It will review your application and documentation and carry out a valuation of the property to check it’s worth what you’re paying for it.
Based on its review of your application and valuation, it will make a decision on whether to offer you a mortgage and how much it will be. It might have some more questions for you or request more information during this stage.
While you’re waiting for a decision about your mortgage, find and instruct a solicitor to do the legal work for your purchase, and a surveyor who can inspect the property.