Getting a mortgage | a quick guide to getting a mortgage
If you are thinking about getting a mortgage as a first time buyer but are not sure where to start, let us take you through what you need to know. From deposits to credit rating and finding that dream home, there’s a lot to think about before you sign on the dotted line.
At least six months before you want to buy, you need to work out what you can afford and start saving for getting a mortgage.
Making regular payments into a savings account looks good to a mortgage broker or bank, as it shows you can stick to regular payments.
Think about how much you could afford to pay each month in a mortgage and, most importantly, never overstretch yourself.
A spokesperson from the Council of Mortgage Lenders said: “People who are looking to buy their first home at the moment need to have saved a good sized deposit to get a mortgage. Although products with small deposits are available, the best rates will be found with larger deposits, and on average first-time buyers are currently putting down 20%.”
How do I prepare for getting a mortgage?
- Spend plenty of time looking for properties so you know what’s out there, and what you can afford.
- Make sure you are on the electoral role.
- Make sure your bank accounts are up to date with names, job titles and phone numbers.
- Get a credit card, set up a direct debit and pay it off in full each month. Mortgage lenders will be impressed that you can manage your money in this way.
- Lenders will want to see three months of bank statements to make sure you haven’t gone over your overdraft limit. This will prove you can manage your money well and not breach existing agreements.
- Set up meetings with your bank or a good independent mortgage broker to get advice on the best deals out there.
Should I use a mortgage broker?
Mortgage brokers are different to banks. They offer independent advice for getting a mortgage to buyers, and can approach banks on your behalf to negotiate a good deal. This won't affect your credit rating.
They often have access to deals you may not be able to get on your own. Make sure they're "whole of the market" which means they speak to as many banks and lenders as possible (note some big banks don't deal with brokers so find out who - then you can do your own research).
They often charge for their services, so be clear on the fees before you agree to anything. London & Country and FirstMortgage are worth checking out as they are fee free. You could also try John Charcoal, the UK's leading independent mortgage and remortgage adviser.
The two main types of mortgages
Fixed-rate mortgage: You pay a fixed rate of interest for a set time.
Tracker: The interest goes up or down in line with the Bank of England base rate.
There are numerous other types; speak to your mortgage adviser on the best one for you.
How much of a deposit will I need?
This depends on the property price and your salary, so do your sums. Generally you can only borrow four to four and a half times your income.
Ray Boulger, Senior Technical Manager at independent mortgage adviser John Charcol, said: “There are a few mortgages available with a 5% deposit but to get the best rates one needs at least 25%. Also the smaller the deposit the greater the risk of being rejected. Shared ownership schemes from housing associations may also be worth considering for anyone struggling to find a deposit.”
Stamp duty. This is a fee worked out based on a percentage of the property value.
Under £125,000 there is no stamp duty (£150,000 in disadvantaged areas)
£125,000 - £250,000 = 1%
Over £250,000 = 3%
Over £500,000 = 4%
Over £1,000,000 = 5%
Over £2,000,000 = 7%
(Correct as of 21 March 2012)
Other costs to consider
- an arrangement fee
- lender’s valuation
- a survey for the property
- land registry fee
- legal and conveyancing fees.
You should also take into account costs of moving and homes and buildings insurance.
By Lexie Morris