Making those first moves toward buying a home and taking out a mortgage may seem a bit daunting, but Darren Polson knows exactly what you need to do. Here he explains the mortgage process to help you find your way...
It remains an uncertain time for those who are looking for their first or a new home but there is some evidence to suggest that the situation has begun to stabilise to some degree.
With both house prices and mortgage rates falling (albeit not massively) this has tempted more people who might have been holding off to, once again, explore the market.
Our brokers have certainly seen an increase in mortgage enquiries and whether you are a first-time buyer or moving home, it remains the case that getting the mortgage you want can be a complex matter.
There’s no doubt that a mortgage will likely be the largest financial commitment you will make and therefore it’s vital you understand the process.
How much can you borrow?
There are a significant number of factors you need to consider, from the size of deposit you might require to the length or term.
Firstly, make a plan – importantly it’s critical to establish how much you can borrow.
The amount you can borrow will of course impact the property you can buy and is, in the main, determined by your income at the time of applying.
It’s important to note that if you are applying as a couple, then the mortgage provider will most likely consider your combined salary for affordability purposes.
A lender will use an affordability model, looking at your income and outgoings and will then calculate the maximum you can borrow.
In addition to this figure, you can then add any deposit you have – in broad terms this effectively gives the amount you will have available to buy your home.
Whilst 100% mortgages were widely available in years gone by (no deposit required), these days 5% is pretty much the smallest deposit you will need. This would mean you’d require a 95% mortgage.
One important point to note is that higher deposits can mean that lenders will offer you a lower interest rate and it may also widen the number of lenders and deals available to you.
What length of mortgage should you obtain?
The length of your mortgage will very much depend on your individual circumstances and indeed how much you can afford to pay.
For those who are fortunate enough to have additional income to their disposal each month, many lenders will allow you to overpay some of your mortgage each year – this is in addition to your monthly payments.
Typically this could be up to 10% of your outstanding mortgage and this will apply before you incur any early repayment charges.
How will the mortgage progress? All the stages
In short, the key steps in the mortgage process are:
Pre-application, assessment, and affordability checks – this would include a review of documents, circumstances, initial overview of your requirements and ultimately the provision of what is called an agreement in principle.
Formal application – this is an application to a lender for the mortgage.
Offer – this is a formal offer of a mortgage from the lender you have applied to.
Completion – the part when your legal conveyancing is completed, and you have the keys to your new home.
Obtaining help from professionals
As mentioned previously, the process itself is not always straightforward and with thousands of deals to choose from it is always recommended that you seek the advice of an independent mortgage broker at the outset.
Furthermore, you will also need to instruct a solicitor to assist with the legal completion – in most cases they will also support you in negotiating and making offers for your desired property.
Some firms are both a mortgage broker as well as a property solicitor and this can of course make life that little bit easier.
Buying a home is an exciting time and a dream for many people – getting the right advice at the start can go a long way to ensuring that dream comes true.
Darren Polson is head of mortgage operations at Aberdein Considine
