If you’ve decided the time is ripe to get a foot onto the property ladder, good for you! Buying your first home is a financial milestone to be celebrated, but working out how to reach that stage can feel like a challenge in its own right.
This guide aims to demystify the process of getting your first mortgage, from working out how much you need to save, to know which documents you’ll need when you’re finally ready to apply.
So keep reading and get the full nitty-gritty details and our 9 step process to applying for a mortgage. Best of luck!
Who Can Get A Mortgage?
Anyone with a deposit and regular income is a potential candidate for a mortgage. There are lots of things that lenders consider before making a final offer, but the most important are:
- Your income
- Your deposit
- Your credit score
The more you earn, the higher your deposit and the better your credit score, the easier you will find it to get a mortgage.
If you lack in one – or all – of these departments, then you’ll need to find a guarantor with good credit and regular income who is willing to co-sign your mortgage application.
Alternatively, you could delay making an application while taking steps to improve your chances by saving for a deposit and proactively building your credit score.
Going Solo V. Joint Applications
It is very common to apply for a mortgage as a couple. When two people apply for a mortgage together, each person only has to save half the deposit needed and show that they earn enough to cover half of the mortgage repayment.
However, in a joint mortgage application, the couple’s credit scores are linked. This means that both partners are required to have a good credit score- if one of them does not, it will affect the application as a whole and could lead to higher interest rates or even rejection of the application.
Number Of First-time Buyers In 2019 By Region
|Rank||Region||Number of first-time buyers|
|6||Yorkshire & the Humber||30,456|
How Much Deposit Do You Need?
The size of your deposit is a very important factor: not only does it determine how much you actually need to borrow, but it also affects which mortgages are available to you and how much you’ll be charged on what you borrow, too.
In mortgage-speak, the size of a deposit in relation to the price of a house is known as the ‘loan-to-value ratio’ or ‘LTV’. A deposit of £10,000 on the house worth £200,000 is just 5% of the property’s value, and buyer with this deposit would need a mortgage for 95% of the house price. Their LTV is 5%- the amount they can afford to pay upfront.
As a first-time buyer, it is possible to get a mortgage with an LTV of just 5-10%. Special first-time buyer mortgages typically have a low LTV requirement, and with the government’s help-to-buy scheme, it is also possible to borrow with just a 5% deposit.
However, if you can afford to save more, you are likely to benefit from doing so. If more of the purchase is paid for with the deposit; there will be less to pay back on the mortgage and less to pay in interest over the course of the loan’s lifetime.
In addition to this, some of the best interest rate deals are only available to buyers with an LTV of 25% or more.
Average Cost Of First-time Buyers’ Homes By Region
|Region||The average cost of a home for a first-time buyer|
|Yorkshire & the Humber||£142,000|
How Much Can You Borrow?
Before starting to look for property, it is important to gauge how much you can afford.
This is not just important for your own finances, but it also helps to prepare you for affordability checks that lenders perform in a mortgage application.
As a rule of thumb, you can borrow up to 4.5 times your annual salary before tax. The cap may change slightly if you have a very sporadic income or a very reliable and generous salary. For a joint application, it is possible to borrow up to 4.5 times the value of the combined salaries. If more than two people are applying, only two salaries will be taken into account.
As well as considering the upper limit, lenders also check the affordability of monthly repayments in relation to a person’s salary and fixed outgoings. Fixed outgoing include expenses such as other debts and childcare costs.
Lenders add these outgoings to the cost of monthly mortgage repayments and compare them to an applicant’s pre-tax monthly income. For a mortgage pass the affordability checks, it won’t push your total fixed outgoings to more than 35% of your total monthly income.
For example, let’s imagine your pre-tax salary is £2000 per month, and you already spend £250 on other debts and childcare each month. According to the affordability test, your fixed outgoings should not be more than 35% of your monthly income- £700 in total.
If you take into account the £250 you already spend on other outgoings, the maximum monthly mortgage payment you could afford in this scenario is £450.
What Do Lenders Look For?
Every lender has their own criteria that they look for when someone wants to borrow. However, there are a few characteristics that lenders across the board tend to prefer.
If you’re serious about getting a mortgage, taking steps to make sure you tick these boxes is likely to improve your chance of a successful application:
Lenders are reassured by regular income from steady employment; to a mortgage provider, this signals stability and a sound investment. If you have been chopping and changing, it could be worth settling down for a while (12-24 months in one employment is enough to indicate stability). Likewise, if you’re thinking of changing jobs, it could be worth holding out until you’ve applied for your mortgage to do so.
Self-employed people, freelancers and people on zero-hours contracts may feel at a disadvantage here compared to full-time employees.
However, even if you don’t have a sheaf of uniform payslips to present to a lender, 24 months of accounts and bank statements showing regular income can help to reassure risk-averse lenders.
Good Credit Rating
Every lender wants to know that their money is in safe hands – and having a good credit rating is perhaps the most important way to tell them that it is.
If you have a patchy history with paying back your debts on time, you’re unlikely to get the most competitive interest rates and could be turned down outright without a guarantor.
When you start saving for a deposit, it is a good idea to check your credit rating and see whether there is room for improvement. If so, you can start taking steps to improve it well in advance of sitting down to make your application.
Even if you have a sparkling record of paying back debts on time, lenders may be wary if you have large amounts of debt elsewhere. These are considered fixed outgoings and will minimize the amount you can get borrow.
When you start saving for a deposit, think about budgeting to pay down some of the debts you hold with other lenders to maximize your chance of success with a mortgage application.
Getting Ready To Apply
If you’re set on applying for your first mortgage, these steps could help to guide you on your way and help you prepare for application:
1 – Set yourself a target and start saving for a deposit.
2 – Get your credit rating in check. Check your credit file and start paying down large debts. If you know you have a patchy credit history, take pro-active steps to improve your credit rating.
3 – Check how much you can afford to borrow. Use the affordability assessments mentioned above to work out roughly how much you can afford to borrow.
4 – Research the types of mortgage available to you. There are many kinds of mortgage available to first-time buyers. If you know what you’re looking for, you can plan ahead for any special requirements (e.g. a large deposit) and can narrow down the search for a provider more quickly when you find a property you want to buy.
5 – Find a house! By this stage, you should have a good picture of your budget, based on your deposit and how much you can afford to repay. Use this to narrow down your search.
6 – Check deals for your preferred mortgage type. Once you have found your ideal first home, check to see what deals are currently on the market for the kind of mortgage you want. Once you’ve found the one you like the look of, you’re ready to reach out to the lender.
7 – Get your documents together. Collect any evidence and information the lender is likely to need. This includes proof of ID, proof of address, bank statements, payslips, P60s, business accounts and details of any fixed outgoings you have.
8 – Speak to the provider. This is your chance to ask questions about the contract and find out whether you could be eligible. If the lender thinks you fit their criteria, they will offer you an ‘agreement in principle’, which is like a sample of the contract, they would be willing to give you. Don’t forget to ask for a rundown of fees.
9 – Apply. If you’re happy with the provider’s quote and mortgage contract, go ahead and apply.
If your application is approved, congratulations- you just bought your first home! If not, try not to stress. Speak to the adviser and try to find out why it was refused.
If they can’t help you, take another look at your credit score and consider speaking to a mortgage advisor about how to improve your chance of success with another provider.
How Can The Mortgage Bank Help?
Here at The Mortgage Bank, we have partnered with some of the UK’s leading mortgage brokers.
They have already helped thousands of people get the best remortgage deal even people that have been refused before, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.