How to get a mortgage

Homeownership is a common goal for many individuals, and securing a mortgage is a significant part of this journey. The process of obtaining a mortgage, particularly for first-time homebuyers, can seem like a labyrinth of financial terms, legal requirements, and important decisions. Despite the complexities, getting a mortgage is a manageable process when you have the right knowledge and guidance at your disposal.

In this guide, we will explore the step-by-step process of how to get a mortgage in the UK. From the initial stages of assessing your financial health and understanding different mortgage options to the more advanced steps of obtaining a mortgage offer and finally completing your property purchase, this comprehensive guide will serve as your roadmap.

Whether you’re just starting to dream about owning your first home, or are already house-hunting and ready to apply for a mortgage, this guide aims to demystify the process and provide you with the knowledge you need to navigate your home buying journey with confidence. So let’s take those first steps towards securing your dream home together.

Step 1: Evaluate Your Financial Situation

This is the critical first step in the process of obtaining a mortgage. You need to be fully aware of your financial health, which includes understanding your income, spending habits, existing debts, and savings. This evaluation will give you a clear idea of how much you can realistically afford to borrow for a mortgage.

A. Determine Your Income:

Include all sources of income, such as salary, freelance work, rental income, dividends, or any other regular income streams. If you’re applying for a joint mortgage, make sure to consider the combined income.

B. Calculate Your Expenses:

Make a comprehensive list of all your current expenses, including bills, groceries, transportation costs, leisure activities, insurance, etc. Don’t forget about less regular expenses such as annual car maintenance, holiday expenses, or irregular medical bills.

C. Consider Your Existing Debts:

Add up all your existing debts, such as credit card balances, student loans, personal loans, or car loans. Having high levels of existing debt can affect your mortgage eligibility.

D. Review Your Savings:

Take stock of your savings. This includes money you’ve set aside for a down payment, as well as any emergency or retirement savings. Don’t drain your savings entirely for the down payment, as it’s important to have a buffer for unexpected expenses.

E. Calculate What You Can Afford:

Now that you have a clear picture of your income, expenses, debts, and savings, you can estimate how much you can afford to borrow. Most financial experts recommend that your mortgage payment (including taxes and insurance) should not exceed 28-30% of your gross monthly income. There are numerous online ‘mortgage affordability calculators’ that can assist with these calculations.

F. Prepare a Budget:

Finally, try to prepare a new budget considering your potential mortgage payment. This will give you a sense of whether you can comfortably afford the mortgage while still being able to meet your other financial obligations and maintain a comfortable standard of living.

Step 2: Check Your Credit Score

Your credit score is a crucial factor that lenders consider when deciding whether to offer you a mortgage and at what interest rate. A good credit score can help you secure a better mortgage deal, so it’s important to know where you stand and how you can improve if necessary.

A. Obtain Your Credit Report:

Firstly, get your credit report from a credit reference agency such as Experian, Equifax, or TransUnion. In the UK, you can request a statutory credit report for free. This will give you an overview of your credit history, including any loans, credit cards, and other forms of credit.

B. Review Your Credit Report:

Carefully review your report for any errors or discrepancies. This can include incorrect personal information, duplicate accounts, or inaccuracies in your repayment history. If you spot any errors, contact the credit reference agency to get them corrected.

C. Understand Your Credit Score:

Your credit report will usually include a credit score. This is a numerical representation of your creditworthiness, based on the information in your credit report. In the UK, credit scores can range from 0 to 999 (Experian), 0 to 700 (Equifax), or 0 to 710 (TransUnion), with a higher score indicating better creditworthiness.

D. Improve Your Credit Score:

If your credit score is low, consider taking steps to improve it before applying for a mortgage:

i. Repay outstanding debts on time: Regular, on-time payments show that you’re a reliable borrower.

ii. Register on the electoral roll: This can improve the accuracy of your credit report and boost your credit score.

iii. Keep credit utilisation low: Try to use no more than 30% of your total credit limit across all your credit cards and lines of credit.

iv. Limit applications for new credit: Each credit application can temporarily lower your score, so only apply for new credit if necessary.

Step 3: Save for a Deposit

One of the most significant aspects of buying a home and getting a mortgage in the UK is saving for the deposit. This upfront payment is crucial as it forms a portion of the buying price, which is not covered by the mortgage.

A. Determine the Required Deposit:

Generally, you’ll need to have at least 5% to 10% of the purchase price for a deposit, although having a larger deposit can often help you secure a better mortgage rate. For instance, if you want to buy a house priced at £200,000, you will need at least £10,000 (5%) saved up as a deposit.

B. Create a Saving Plan:

You will need a disciplined savings plan to reach your deposit goal:

i. Budget: Identify areas where you can reduce spending and divert that money into savings.
Regular Savings Account: Set up a regular savings account and automate monthly transfers into this account.

ii. High-Interest Savings Account or ISA: Consider a high-interest savings account or an Individual Savings Account (ISA) to maximise the interest on your savings.

C. Utilise Government Schemes:

In the UK, there are several government schemes designed to help first-time buyers save for a deposit, including:

Lifetime ISA: You can save up to £4,000 each year, and the government will add a 25% bonus to your savings.

D. Gifted Deposits:

Sometimes, family members may provide a gift to help with your deposit. This is known as a gifted deposit, and lenders will typically accept it, but they may require a letter from the family member confirming it’s a gift and not a loan.

E. Keep Track of Your Saving Progress:

Regularly review your savings progress, adjust your budget as needed, and keep focused on your goal. Saving for a deposit can be a long process, but seeing the progress can help maintain your motivation.

Step 4: Get Advice from a Mortgage Adviser

Getting advice from a professional mortgage adviser, also known as a mortgage broker, can be invaluable in the process of applying for a mortgage. They have the experience and knowledge to guide you through this complex financial decision.

A. Understand the Role of a Mortgage Adviser:

A mortgage adviser’s job is to help you find a mortgage that suits your specific circumstances. They have access to a wide range of mortgage products, some of which may not be directly available to you. They can guide you on the different types of mortgages, interest rates, terms, and conditions, and they can also help you with the application process itself.

B. Understand the Costs:

Mortgage advisers can be fee-based, commission-based, or a mix of both. Fee-based advisers charge a fee for their service, which could be a flat fee or a percentage of the mortgage. The lender pays a commission to commission-based advisers. Make sure you understand how your adviser is paid and what it means for you.

C. Prepare for the Meeting:

Before meeting with a mortgage adviser, gather all your financial information. This will include details of your income, outgoings, debts, and savings. Be ready to discuss your future plans, like changes to your income or additions to your family. The more your adviser knows about your situation, the better they can assist you.

D. Make the Most of the Advice:

The adviser will make recommendations based on your circumstances. Ask for explanations if you’re unsure about anything. Remember, the decision is ultimately yours. The adviser is there to guide you, but you need to be comfortable with any decision you make.

Working with a mortgage adviser can save you time and potentially a lot of money. They will help you navigate the lending market, understand mortgage jargon, and guide you through the application process. Remember, though, that it’s essential to consider their advice as part of your broader research and decision-making process.

Step 5: Understand How Much You Can Borrow

Once you’ve assessed your financial situation, you’ll want to figure out how much you could potentially borrow. This amount, coupled with your savings for a deposit, will determine your budget for a home.

A. Calculate Your Income:

Your income plays a crucial role in how much you can borrow. Include all reliable sources of income, such as your salary, bonus, regular overtime, and any freelance or contract work. If you’re applying for a joint mortgage, be sure to include the other person’s income.

B. Understand Lender’s Criteria:

In general, mortgage lenders in the UK might lend you about 6 times your annual income. However, this is not a hard-and-fast rule. Some lenders might be willing to lend more, while others might offer less. Your job, your credit score, and the type of mortgage you’re applying for will all have an impact on this.

C. Consider Your Current Debts:

Lenders will also consider any existing financial commitments you have. These could be other loan repayments, child maintenance, or credit card repayments. The higher your existing debts, the less you might be able to borrow.

D. Affordability Assessment:

In addition to looking at your income and existing debts, lenders will also conduct an affordability assessment. This looks at your regular spending habits, including bills, groceries, travel costs, and leisure activities. This ensures that you’ll be able to afford your mortgage repayments even if interest rates rise.

E. Mortgage Calculators:

Mortgage calculators can be useful tools when estimating how much you might be able to borrow. They’ll require information such as your income, outgoings, and deposit amount, and then provide an estimation of the mortgage amount you could potentially get. These tools can be found on most lenders’ websites.

Step 6: Decide on the Type of Mortgage

Choosing the right type of mortgage is an essential step in the home-buying process. This will determine how much you pay each month, how your payments might change over time, and how long it will take to pay off your mortgage in full.

A. Fixed-Rate Mortgage:

A fixed-rate mortgage guarantees that your interest rate will remain the same for a set period, typically two, five, or ten years. This type of mortgage offers stability because your monthly payments will stay the same for the fixed period, which makes budgeting easier. However, fixed-rate mortgages often come with higher interest rates than other types.

B. Variable Rate Mortgage:

A variable rate mortgage has an interest rate that can change over time. There are several types of variable rate mortgages:

i. Standard Variable Rate (SVR): The SVR is the lender’s default interest rate. It can go up or down over time, usually in line with the Bank of England’s base rate.

ii. Tracker Mortgage: The interest rate on a tracker mortgage is linked to a specific rate, usually the Bank of England’s base rate, and will move up and down with it.

iii. Discount Mortgage: A discount mortgage offers a discount off the lender’s SVR for a set period.

Variable rate mortgages can be cheaper than fixed-rate mortgages, at least initially, but your monthly payments can increase if interest rates rise.

C. Mortgage Repayment Options and Types:

i. Interest-Only Mortgage:

With an interest-only mortgage, you only pay the interest on the loan each month. At the end of the mortgage term, you’ll need to pay back the original amount you borrowed. This type of mortgage can make your monthly payments lower, but you’ll need a plan to repay the loan amount when the mortgage term ends.

ii. Repayment Mortgage:

In a repayment mortgage, you pay back a portion of the loan plus interest each month. This is the most common type of mortgage, and by the end of your mortgage term, you’ll have paid off the entire loan and own your home outright.

Step 7: Get a Mortgage Agreement in Principle

Before you start seriously house hunting, it’s beneficial to obtain a Mortgage Agreement in Principle (also known as a Decision in Principle or Mortgage in Principle). This is a conditional offer made by a mortgage lender that states how much money they may be willing to lend you. It’s not a guarantee, but it can give you a clearer idea of your budget and show estate agents and sellers that you’re a serious buyer.

A. Understand What It Is:

An Agreement in Principle (AIP) is a written estimate or statement from a lender that ‘in principle’ they would lend a certain amount to prospective borrowers based on some basic information.

B. How to Apply:

You can apply for an AIP online, over the phone, or in person at a bank or building society. You’ll need to provide some basic information such as:

  • Your income.
  • Your regular expenditure.
  • Any outstanding debts.
  • Your credit commitments.

The lender will also conduct a ‘soft’ credit check. This won’t affect your credit score, but it allows the lender to see if there are any significant credit issues that could affect your mortgage application.

C. Impact on Credit Score:

A Mortgage Agreement in Principle typically requires a ‘soft’ credit check, which doesn’t impact your credit score. However, if you proceed with a full mortgage application, the lender will conduct a ‘hard’ credit check, which will appear on your credit report and could affect your credit score.

D. Use It to Guide Your House Hunting:

An AIP can be incredibly helpful in guiding your house hunting. It gives you a realistic idea of what you can afford, so you can focus on properties within your price range. It can also make you more appealing to sellers, as it shows you’re serious and potentially able to secure a mortgage.

E. It’s Not a Guarantee:

Remember, an AIP is not a guarantee that the lender will give you a mortgage. The final mortgage offer will be based on a more detailed analysis of your financial situation and a full assessment of the property you want to buy.

An AIP typically lasts between 60 and 90 days, depending on the lender. If you haven’t found a property within that time, you may need to get another one. Be aware that multiple AIP applications can impact your credit score. Always consult with a mortgage adviser or your lender if you have any doubts.

Step 8: Find a Property

Once you have a solid understanding of your budget and a Mortgage Agreement in Principle, the exciting part begins – finding your new home. This process requires careful consideration and patience to ensure you’re making a wise decision.

A. Determine Your Property Needs:

Firstly, define what you’re looking for in a property. This will largely depend on your personal circumstances, lifestyle, and future plans. Consider factors such as the size of the property, the number of bedrooms, the type of property (house, flat, etc.), and any specific features you desire, like a garden or parking space.

B. Select the Location:

Location is a crucial factor when buying a property. Consider the proximity to schools if you have children, local amenities like shops and parks, commuting distance to work, and the overall neighbourhood safety and appeal.

C. Start the House Hunt:

Begin your search online through property websites, local estate agents, and social media platforms. Attend open houses and arrange private viewings for properties that meet your criteria.

D. Arrange Viewings:

Visit a variety of properties to get a feel for what’s available in your price range. Be thorough during your viewings – check the condition of the property, ask about any recent repairs or renovations, and get a feel for the neighbourhood.

E. Keep an Open Mind:

Remember, no property is going to be absolutely perfect. You may need to compromise on some aspects, so try to keep an open mind. Prioritise what’s most important to you and be prepared to overlook minor issues.

D. Making an Offer:

Once you’ve found a property you love, it’s time to make an offer. This is where having your Mortgage Agreement in Principle can give you an advantage, showing sellers that you’re serious and capable of securing a mortgage. You should discuss the amount to offer with your estate agent as they can guide you based on the local market conditions and comparable sales.

E. Offer Accepted:

If your offer is accepted, congratulations! You’re one step closer to owning your new home. But remember, the agreement is not legally binding until contracts have been exchanged, and there are still several steps to complete, including a survey, conveyancing, and the full mortgage application.

Finding the right property can take time, and it’s important to be patient. You’re making a significant financial commitment, and rushing this process could lead to regret later on. Take the time to thoroughly research and view properties before making a decision.

Step 9: Full Mortgage Application

Once you have an accepted offer on a property, the next step is to submit a full mortgage application. This involves providing more detailed information to the lender, who will then thoroughly assess your financial situation and the property before making a formal mortgage offer.

A. Contact Your Lender or Mortgage Adviser:

The first step is to contact your lender or mortgage adviser to begin the full mortgage application. If you’ve already secured a Mortgage Agreement in Principle, the lender will have some of your information on file, but you’ll need to provide additional details and documents.

B. Provide Detailed Information:

For a full application, the lender will need in-depth information about your income, outgoings, and personal circumstances. You may need to provide pay slips, bank statements, details of any debts, and proof of your identity and address. If you’re self-employed, you may need to provide business accounts or tax returns.

C. Property Assessment:

The lender will also need to assess the property you’re buying. This usually involves a basic valuation to ensure the property is worth the price you’re paying. Depending on the type of mortgage and the property, the lender may also require a more detailed survey.

D. Hard Credit Check:

As part of the full mortgage application, the lender will conduct a ‘hard’ credit check. This will appear on your credit report and may impact your credit score. It allows the lender to see your full credit history and assess how much of a risk you pose.

E. Mortgage Offer:

If your application is successful, the lender will issue a mortgage offer. This details the terms of your mortgage, including the amount, the interest rate, the duration, and any conditions. Make sure you read this document carefully and discuss any queries with your lender or adviser.

F. Consider Mortgage Protection:

When you apply for a mortgage, it’s also a good time to consider mortgage protection. This could include life insurance to cover the mortgage if you die, income protection in case you lose your income, and home insurance to protect your property and contents.

Applying for a mortgage is a serious commitment, and the process can be complex. It’s essential to be thorough, honest, and organised. Keep all your documents and information readily available, and be prepared for the process to take a few weeks. Remember, you can always seek advice from your mortgage adviser or lender if you’re unsure about anything.

Step 10: Hire a Solicitor and Surveyor

Once your mortgage application is in process, the next steps involve hiring a solicitor (or licensed conveyancer) and a surveyor. These professionals will conduct necessary checks on the property and handle the legal work required for the home purchase.

A. Hiring a Solicitor or Conveyancer:

Conveyancing is the legal process involved in buying a home. This includes conducting local searches, handling contracts, providing legal advice, dealing with the Land Registry, and transferring funds. A solicitor or licensed conveyancer can do this work for you. It’s a good idea to shop around to get a few quotes before choosing one. Ensure they are accredited by the Law Society in England and Wales, the Law Society of Scotland, or the Law Society of Northern Ireland.

B. Conveyancing Process:

Once hired, your solicitor or conveyancer will start the conveyancing process, which includes:

i. Conducting Local Searches: These are enquiries made to the local authority to uncover any issues that might impact the property’s value.

ii. Reviewing Contracts: They will check the sale contract from the seller’s solicitor, ensuring all details are correct.

iii. Liaising with Your Lender: They’ll ensure that the mortgage conditions are met and that the funds are ready for completion.

iv. Land Registry: After completion, they’ll register your ownership of the property with the Land Registry.

C. Hiring a Surveyor:

A surveyor will check the condition of the property. This is important because it can uncover issues with the property that you weren’t aware of when you made your offer. There are different types of surveys available, from a basic home condition survey to a full structural survey. The right one for you will depend on the property type and age, as well as your plans for it.

D. Surveyor’s Report:

The surveyor will provide a report detailing any problems they’ve found with the property. Depending on the findings, you might decide to renegotiate the price with the seller, ask them to fix the issues before you complete the purchase, or in extreme cases, you might decide to pull out of the purchase.

Remember that while hiring a solicitor and a surveyor may seem like an additional expense, they provide valuable services that can save you money and stress in the long run. They ensure that your property is a sound investment and that the purchasing process is handled legally and correctly.

Step 11: Receive and Accept Your Mortgage Offer

Once your mortgage application has been fully reviewed and approved by the lender, you will receive a formal mortgage offer. This is a significant milestone in your home-buying journey. Here’s what you should know about this stage:

A. Understand the Mortgage Offer:

The mortgage offer is a detailed document from the lender confirming that they’re willing to lend you the amount needed to buy the property. It will include important details such as:

  • The loan amount.
  • The term of the mortgage.
  • The interest rate and whether it’s fixed or variable.
  • Details of any fees.
  • Any special conditions associated with the loan.

B. Review and Accept the Offer:

Take the time to review your mortgage offer carefully. Make sure you understand all the terms and conditions and that they match your expectations. If there are any points that you’re unsure about, seek advice from your mortgage adviser or solicitor before accepting the offer.

Once you’re happy with the offer, you need to formally accept it. The process for doing this will vary between lenders – you might need to sign and return a physical document, or it may be possible to accept the offer online.

C. The Offer is Shared:

The lender will also send a copy of the mortgage offer to your solicitor or conveyancer. They will check the details and discuss with you any necessary next steps.

D. Offer Expiry:

Be aware that a mortgage offer is usually valid for a specific period, often three to six months. If you don’t complete the purchase within this time, the offer may expire, and you may need to apply for an extension or even a new mortgage.

Receiving a mortgage offer is an exciting moment – it means you’re one step closer to owning your new home. However, it’s also a significant financial commitment, so it’s important to ensure that you understand and are comfortable with all the terms of the offer before proceeding.

Step 12: Complete the Sale

Completing the sale, also known as completion or closing, is the final step in the home-buying process. At this point, the property legally changes hands from the seller to you, the buyer. Here’s what this step entails:

A. Agree on a Completion Date:

The completion date is usually set for at least two weeks after the exchange of contracts to allow both parties to organise their move. This is the day when the seller must vacate the property and the buyer can move in.

B. Transfer of Funds:

Your solicitor or conveyancer will arrange for the mortgage funds to be transferred from your lender to the seller’s solicitor. Once the funds have been received, the seller’s solicitor will confirm that the sale is complete.

C. Handover of Keys:

On the completion day, the seller will hand over the keys to the estate agent or directly to you. You can now move into your new home!

D. Register with the Land Registry:

After completion, your solicitor or conveyancer will register the transfer of ownership with the Land Registry. This step could take a few weeks, but you don’t need to wait for it to be completed before moving in.

E. Set Up Your Mortgage Payments:

Your first mortgage payment will typically be due the month after you complete the sale. Make sure you understand how and when to make these payments. Your lender will typically set up a direct debit or standing order for this.

Completing the sale is a significant moment – it’s when you officially become a homeowner. It can be a busy and potentially stressful time, with lots of last-minute arrangements to be made. But once the keys are in your hand and you step into your new home for the first time, you’ll know that all the effort was worth it. Congratulations on your new home!

Final thoughts 

Securing a mortgage is a significant step towards achieving the dream of homeownership. Although the process can initially seem daunting, breaking it down into manageable stages and understanding each step can transform it from an intimidating task into a structured journey.
Throughout this guide, we have covered everything from assessing your financial situation and choosing the right mortgage for you, to receiving your mortgage offer and ultimately completing your property purchase. We have aimed to simplify and demystify the process of obtaining a mortgage, equipping you with the necessary knowledge and confidence to navigate this important life decision.

Remember, everyone’s mortgage journey is unique, and it’s important to seek personalised advice when you need it. Whether it’s consulting a mortgage adviser, speaking to a solicitor, or getting a surveyor’s professional opinion, don’t hesitate to utilise these resources.
In the end, all the preparation, paperwork, and patience lead to a reward that is well worth the effort: a place to call your own. As you take these steps on your journey towards homeownership, we hope this guide will be a valuable reference, illuminating your path and supporting your decisions along the way. Happy home buying!

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