10 June 2016

Prepare for your first mortgage application in six steps

Applying for your first mortgage might seem daunting, but it’s one of the most important decisions that you’ll make when stepping onto the property ladder.

Forget paying monthly rent to your grumpy landlord or Housing Association and imagine how satisfying it’ll be when your hard–earned cash is repaying your mortgage loan, taking you one step closer to owning your own place.

Our six–step guide could help you to make your first mortgage application a success:

1. Find out what you can afford

It may sound like a no–brainer, but before you apply for a mortgage work out how much you can realistically spend on home loan repayments each month. Our Mortgage Affordability Calculator can help with this.

It’s also vital to figure out how much you need to save for a deposit, as the bank will expect you to put some of your own money into the deal before it gives you a loan to buy property.

There are a number of schemes to help first time buyers, including help–to–buy ISAs, or Individual Savings Accounts, where the Government will give you a bonus of 25% of your closing balance up to an amount of £3,000 (qualifying criteria applies to the bonus). These are available per person, as opposed to per household, so if you are buying as a couple you can get a combined bonus of up to £6,000.

2. Find the best mortgage for you

You’re likely to come across different types of mortgage when searching. The two main types are fixed rate and tracker.

A fixed rate mortgage guarantees the interest you pay won’t change for a certain length of time. Two–year fixed rate mortgages are most popular in the UK, but they're not the only option. You can normally expect to pay more for these mortgages through a higher interest rate on repayments, but they do offer you the certainty of a fixed monthly instalment.

Most tracker mortgages use the Bank of England base rate to calculate their interest rates. If the base rate goes up, so do your mortgage repayments. Of course, if you’re lucky, the rate could also decrease, effectively shrinking your repayments.

3. Get your paperwork together

Tougher mortgage checks came into force in 2014, meaning your lender needs a lot of information about your income and spending before they can make you an offer.

Before you apply for a mortgage you should ensure you have:

  • three years of address history without gaps
  • your last three payslips and your P60 form
  • your last three months of bank statements
  • full details of any loans, overdrafts or credit cards.

If you are self–employed you may also be asked to provide two years’ worth of accounts verified by an accountant’s certificate from a CCAB qualified accountant.

4. Consider contacting a mortgage broker?

An independent mortgage broker will be familiar with the market and may be able to use their relationships with providers to cut you a better deal than you can find by yourself. If your circumstances are slightly unusual – for example if you’re self–employed, don’t have the best credit score or have no credit history at all – they’ll be able to save time by ruling out providers whose criteria will not let them offer you a loan.

5. Improve your credit score

One way to increase your chance of a successful mortgage application is to improve your credit score. You can check your score on sites such as Experian and Equifax.

Note: Applying for too many Agreements in Principle can adversely affect your rating, as they often show up as applications for credit, so it's good to use an online calculator if you are putting out feelers.

Which leads us to…

6. Getting an Agreement in Principle

Before making a decision about whether they're prepared to lend to you, a provider will take your information and check your credit rating. The Agreement in Principle, or Decision in Principle, is based on basic information so it’s not a guarantee that they will lend you that amount. At Nationwide you can apply for this free, no–obligations confirmation online, on the phone or in branch.

Once you have your Agreement or Decision in Principle and have an offer accepted on a property, you can progress to your full mortgage application. Your final mortgage will depend on a number of factors ranging from the value of the property to the amount that you put down as a deposit.

Looking for a little more information?


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