Making an offer on a property is more attractive to any owner when you are in a position to move forward. Having your mortgage arranged will give you that lead against any other perspective purchasers, in this current market any advantage you can gain is a bonus.
How do lenders check I can afford a mortgage?
Lenders will work out your household income – including your basic salary and any additional income you receive from a second job, freelancing, benefits, commission or bonuses.
Checking affordability is a much more detailed process. Lenders take all your regular household bills and outgoings into account, along with any debts such as loans and credit cards, to make sure you have enough left to cover the monthly mortgage repayments.
They also have to ‘stress test’ whether you could still afford the mortgage repayments if interest rates were to rise, or if you were to retire, go on maternity leave.
In addition, they’ll make a Credit Check with a credit reference agency once you make a formal application to take a look at your financial history and assess how much of a risk lending to you might be.
How to prepare for your application
Before applying for a mortgage, contact the three main credit reference agencies and order your credit reports. Make sure there is no incorrect information about you. You can do this online either through a paid subscription service or one of the free online services currently available.
What you need to apply for a mortgage
Start collecting all the documents you will need for the mortgage application process. This might include:
proof of benefits received
P60 form from your employer
your last three months’ payslips
passport or driving license (to prove your identity)
bank statements of your current account for the last three to six month
statement of two to three years’ accounts from an accountant if self-employed
tax return form SA302 if you have earnings from more than one source or are self-employed
self-employed people should look to provide information alongside their tax return, which supports what the SA302 says about their income, such as bank statements.
Be accurate. Make sure the information on the application form matches the documents you supply.
For example, don’t round up your salary if the amount on the payslips differ from this figure.
Provide details of the address of the property, the estate agent and your solicitor.
These are the basics – some lenders might ask for more paperwork.
Bear in mind lenders might have different criteria around income and outgoings.
Ask your lender or independent mortgage adviser what else you might need.
Please note, printouts of online statements of your current account and utility bills might not be acceptable.
You will either need hard copies or to have copies certified by your solicitor, your bank or your utility provider.
How you spend your money
You might also need to show your outgoings, including how much you’re borrowing on credit cards and other loans.
As well as your household bills, including:
insurance policies, and
general living costs such as travel, childcare and entertainment.
Are you remortgaging?
If you want to increase the size of your mortgage you might also have to go through the affordability checks above, and you’ll be given advice around which mortgage products are suitable.
If you have a mortgage and don’t want to borrow any additional money, there are more flexible arrangements.
Do you want an interest-only mortgage?
Not all lenders offer interest-only mortgages.
If you do apply for one, you will have to show you have a credible repayment method in place, as well as meeting the necessary income criteria.
Calculate the total cost of your mortgage
The lender or the broker will do this for you, but make sure they explain all the charges and fees, including any conditional charges and fees, such as early repayment penalties.
Some brokers will charge a fee for advice, receive a commission from the lender or a combination of the both. They will tell you about their fees and the scope of the service they can provide at your initial meeting. In-house bank and building society advisers don’t normally charge a fee for their advice.
You will be shown the total yearly cost of a mortgage expressed as a percentage of the loan. This will be shown as an Annual Percentage Rate of Charge (APRC) calculation and includes any fees such as valuation or redemption fees associated with your mortgage. This APRC will help provide a more thorough comparison between the different mortgages deals available.
Using price comparison websites
Comparison websites are a good starting point for anyone trying to find a mortgage tailored to their needs.
We recommend the following websites for comparing mortgages: