Are you a UK resident looking to buy your first home? You may find the process of applying for a mortgage overwhelming. Don’t worry, you’re not alone. This guide will walk you through the steps involved in getting a mortgage so that you can navigate the application process as smoothly as possible.
What is a Mortgage Application?
First of all, what is a mortgage application and why is it so important?
A mortgage is a long-term loan specifically used to purchase land or property. A mortgage application is sent to a lender, typically a bank or building society, to determine whether or not they will provide the money required to purchase said land or property.
Initially, a lender will provide a mortgage agreement in principle (AIP) (also known as a decision in principle (DIP)). This is when a lender agrees, in principle, to grant you a mortgage to purchase a property based on the information you have provided them, such as your income and expenditure, and after running a soft credit check. An agreement in principle is typically valid for around one month. After this time elapses, you will have to apply for a new one.
Initial Steps
Before applying for a mortgage, it is strongly recommended that you get in touch with a mortgage adviser such as Cooper Associates (also known as a mortgage broker). Our team of award-winning mortgage advisers will be able to guide you through the application process and help you choose the right mortgage for you.
What You’ll Need for Your Mortgage Application
Applying for a mortgage can seem daunting, especially if it’s your first time buying a home. As mortgage advisers, we want to make the process as smooth as possible. Here’s a guide to everything you’ll need when applying for a mortgage.
Proof of Income
Lenders will want to see proof that you have a reliable income to repay the mortgage each month. If you’re employed, you’ll need to provide wage slips covering the last 3 months. We’ll also request bank statements showing wage deposits. If you’re self-employed, you’ll need to give us copies of your last 2 years of accounts or SA302 forms.
Deposit Evidence
Most lenders ask for a minimum 5% deposit, however it isn’t uncommon for some to require 10% or more. You’ll need to show where these funds have come from through savings statements, investment portfolios or gifted deposit letters.
Identification
Lenders will need to confirm your identity, residence, and credit history to process your application. Please supply your passport, driving licence, recent utility bills, council tax bill, and latest mortgage statement or landlord reference if relevant.
Credit History
Don’t panic if you have little credit history. Most first-time buyers won’t have extensive records. We’ll talk you through what you can do to check your credit history and see if you have evidence of payments like mobile phone contracts, which all help your application. If you do have adverse credit from missed payments, be upfront with us. There are still mortgage options, but these are reduced.
Affordability Proof
As well as the income proof above, we’ll also need you to give a breakdown of all your regular outgoings from loan payments to food bills or travel spend. This helps assess the affordability of your mortgage which is what will be assessed by the lender. Be honest and accurate for the best chance of mortgage acceptance.
That covers the key documents you’ll need as a minimum for your mortgage application. We’re here to advise each step of the way. If you have any questions on what’s required, or you’re ready to proceed, don’t hesitate to get in touch.
Choosing a Mortgage
There are several different types of mortgages to choose from. Before applying for a mortgage, you need to consider which is right for you. Various factors can affect this decision, such as your financial situation, current interest rates, loan terms and fees.
Repayment vs Interest-Only
There are two main ways of repaying your mortgage. These are Capital & Interest (repayment mortgages) and an interest only mortgage.
A repayment mortgage is the most common type of mortgage. This involves paying back your mortgage at an agreed amount over an agreed period and building equity in your property. Your monthly payments are split between building equity in the property and paying interest to the lender. Providing no repayments are missed, your mortgage will be fully paid off by the end of its term. We usually recommend a repayment mortgage for first-time buyers.
An interest only mortgage only requires you to repay the interest earned on your mortgage. This means lower monthly payments but a higher repayment amount at the end of the term as no additional equity is built up in the property.
Fixed vs Variable rate
Mortgage interest rates are based on the Bank of England’s base rate. Current (and projected) interest rates can also affect what type of mortgage you opt for. There are generally two types of mortgage interest rates: fixed and variable.
With a fixed interest rate, your interest rate is locked in for a certain timeframe (most commonly 2, 5 or 10 years) and your monthly payment amount will not change during this period.These tend to be popular at times where interest rates are trending upwards or budgeting is important and you want to have a known, fixed payment for a set period of time. For more information, you can read our full guide to fixed-term mortgages.
A variable interest rate rises and falls in line with the Bank of England’s base rate. This means that your monthly payments are not fixed and can go up or down over time. These tend to be more popular at times where interest rates are falling or tying in for a two year period is too long due to future plans. You can find our full guide to variable rate mortgages here.
There are often also fees associated with a mortgage application. While Cooper Associates offers a fee-free service, some mortgage brokers charge fees for their services. To avoid encountering surprise fees, it’s always worth doing your research before beginning the mortgage application process.
You can use our Mortgage Calculator to calculate how much your mortgage repayments are likely to be.
The Step-by-Step Process
To help provide you with a birds-eye view of the whole process of applying for a mortgage, we’ve broken it down into simple steps for you:
1. Financial Review
The first step is to speak with one of our expert mortgage advisers for an initial confidential financial review. We’ll discuss your financial circumstances, budget, and goals to advise the most suitable mortgage products. We’ll also outline precisely what you’ll need to proceed to application.
2. Submit Your Application
Once ready to proceed, we’ll complete an application with your details and formally submit this to lenders with a view to getting you a Decision in Principle or Agreement in Principle certificate.
3. Await Mortgage Agreement in Principle
Based on the details and proofs supplied, lenders will usually provide this certificate quickly, which we will then pass on to you. This confirms their willingness to lend the amount discussed, subject to further checks and proof of everything declared.
4. Property Hunting
With an AIP / DIP secured, you can start property searching or submit an offer if you’ve already found one. Your AIP will likely need to be shown during negotiations with your Estate Agent. Don’t worry – it doesn’t tie you into that lender and changes can be made in future.
5. Full Mortgage Application
When an offer is accepted, lenders will ask for a full mortgage application with more in-depth details about you, the property, and evidence documents. We’ll complete this on your behalf accurately.
6. Valuation & Assessment
The lender will arrange a physical property valuation to confirm it’s worth the amount stated and the property is suitable security for the loan.
7. Mortgage Offer
With all assessments complete, lenders will issue a Mortgage Offer, confirming the exact rate, term length, fees and requirements. In most cases this Mortgage Offer is confirming exactly what was applied for initially.
8. The Legal Work
It’s now down to your chosen solicitor to do the legal work that is required for your purchase / remortgage. All mortgages apart from Product Transfers have legal work to be completed. This will include liaising with the seller’s solicitor or the lender, completing Land Registry checks and sharing important discoveries about your property such as local planning.
9. Completion & Get Your Keys!
Once contracts are signed and final funds transferred, you’ll be given the keys on your completion date. The property is now yours. Time for celebrations!
How Do Mortgage Payments Work?
If you’re new to home ownership, you may be unsure how paying back the money you borrow actually works. Here, we explain the basics of UK mortgage payments.
Most choose a repayment mortgage when buying a home. This means contributing towards both the loan amount borrowed (capital) and the interest charged on top by the lender.
Your payments first cover the interest cost accrued for that month. The rest then reduces your outstanding capital. As the capital left to repay declines over years of payments, an increasing portion goes towards eating into the loan amount.
Ultimately repayments lead to both interest and capital reducing to zero by the end of your mortgage term.
Top Mortgage Mistakes to Avoid for Smooth Approval
Making a mistake on your mortgage documentation can lead to annoying delays, or worse still, rejected applications. As your fee-free mortgage advisers, we want to help you avoid issues and secure approval ASAP. Here are the top mistakes people make when applying for a mortgage in the UK.
1. Incorrect Income Proofs
Failing to supply wage slips, bank statements, tax forms or accounts covering the periods your lender stipulates can lead to applications grinding to a halt. Double check you have the exact documents and covering dates needed to verify your income.
2. Deposit Evidence Gaps
You’ll need to fully evidence where your deposit has come from through clear bank statements, investment portfolio printouts or gifted deposit templates. Any question marks over the source of funds invariably cause delays or bigger problems.
3. Muddled Identification
Ensure that your identification documents are in-date, clear, and meet requirements. Utility bills must also be recent – within the last 3 months.
4. Credit History
Don’t panic if your credit file lacks detail. However, one of the biggest delays can be off the back of the information being declared in your application differing to the information held on your credit file. Be sure to know what is on there and that everything is accurate!
5. Unrealistic Budgets
Minimising outgoings might help get an Agreement in Principle, but cause issues when affordability is checked later down the line. Give truthful budgets – even some discretionary spending – and we can source deals to match.
6. Rushing Submission
While securing a mortgage fast is great, rushing evidence compilation heightens mistakes. Sloppiness sticks out! We recommend taking your time to thoroughly gather everything mortgage lenders require for the best chance of quick approval.
Top Tips and Key Things to Consider
There are some key things to consider when applying for a mortgage:
1. Are you financially secure?
First of all – are you in a secure financial position? You should be in steady employment or self-employed with a reliable source of income when purchasing a property, so if you have just started a new job, it’s advisable to be out of your probationary period before applying for a mortgage.
2. Do you have the required minimum deposit amount?
To get a mortgage, you will typically need a deposit of at least 5% of the property’s value, although it is common for lenders to ask for 10%. You will need to ensure that you have enough money saved up to put down your deposit. The larger your deposit, the more likely you are to be accepted for a better mortgage deal. Lenders will need to see Proof of Deposit to understand where your deposit has come from, which will either be through bank statements or a gifted deposit letter.
3. Is your credit score healthy?
Your credit score is also important when applying for a mortgage, as lenders will generally check the last six years of your credit history. You can easily check your credit score online with companies such as Experian, Equifax and Call Credit. Ways to improve your credit score include being on the electoral register, paying back loans and overdrafts and repaying your credit card on time.
Work with our award-winning mortgage advisers for expert advice on applying for a mortgage. Cooper Associates Mortgages will help you gain an understanding of your financial situation to make the mortgage application process as smooth as possible.
Get in touch for free and impartial mortgage advice today.
And check out our Mortgage Calculator for a quick and easy way to calculate your mortgage payments.
