How to get a mortgage - where to start
Decide where you want to live, what your budget is and what kind of home you want. Then you need to start thinking about what kind of mortgage you want and where you are going to get it from.
Most high-street banks and building societies offer mortgages, and there are also specialist lenders. It’s often worth speaking to an Independent Financial Adviser or a mortgage broker, who can explain the options – but make sure to ask if they charge a fee, and if they cover the whole of the market.
What do you have to do to get a mortgage?
You need to make yourself as attractive as possible to mortgage lenders. To get a good deal, you need to convince them that lending to you won’t be a risk, and that you’ll be a reliable and responsible borrower. When you make your mortgage application, they will look at
Work out your budget
Work out how much you can realistically afford. Will you be able to meet all your mortgage repayments? Remember that missing them means you could lose your home. Use Experian's mortgage calculator to find out what you'll pay each month and how much interest you'll pay in total.
Put a deposit together
Put together the largest deposit you can. Generally speaking, the larger your deposit, the better the deal.
Get your credit report in shape
The better your credit rating, the more options you're likely to have when looking for a mortgage. So, make sure your credit report is accurate, up to date, and in the best shape possible. You can check your credit score for free with an Experian account to give you an idea of where you stand.
Can you afford the mortgage in the future?
You may be able to afford it now, but what about if interest rates change, making the repayments higher? Or if you lose your job? Or if you have children and more week-to-week expenses?
Remember to cover extra costs
As well as the deposit, there are all the associated costs as well, from solicitor's and surveyor's fees to stamp duty, so remember to keep some funds available at the start to cover that.
What should I look for in a mortgage?
The term of the mortgage
Most mortgages last for 25 years, but you can choose a longer or shorter period, depending on what you can afford and how quickly you want to clear your debts.
How you repay
With a ‘repayment mortgage’, you make monthly payments covering both the interest and a percentage of the loan until it's all cleared. With an interest-only mortgage you pay off only the interest for an agreed period – then, at the end of the term, you’ll need to pay off the mortgage in full. Your lender may want evidence of your ability to do this before giving you a mortgage.
The type of mortgage
How much you will pay each month depends on the mortgage you have. Note that fixed, discount or tracker rates will revert to the standard variable rate (SVR) at the end of the two, three, five or ten-year period.
Fixed rate – As it’s fixed, you know exactly what you will be paying each month. You will not benefit if interest rates fall, but equally, you won’t be affected during the fixed rate period if interest rates go up.
Standard variable rate – Your monthly payment can go up or down, depending on the lender’s own standard variable rate. So, while it may be lower than a fixed rate to start with, it could go up. Variations include discount rates (usually a percentage taken off the lender’s SVR).
Tracker rate – This is linked to an independently set rate, usually the Bank of England base rate. So, like a standard variable rate, a tracker rate can go up or down while you have it.
The interest rate
When you are looking for a new mortgage, you will likely see two figures: the initial rate and the APRC. The initial rate is generally the 'offer' – say 2% fixed for three years, after which you revert to the SVR (as above). The APRC (annual percentage rate of charge) is the rate you would pay if you kept this mortgage for its full term and includes the initial rate, the SVR after that, and any charges and fees such as valuation charges. Both the initial rate and the APRC will help determine the size of your monthly repayments.
The loan-to-value ratio (LTV)
This is the maximum amount that your mortgage provider will lend you as a percentage of the value of the property. Say you are buying a new home worth £200,000 and the LTV is 80%, the most you will be able to borrow is £160,000, meaning you will need to find a £40,000 deposit. Mortgages with lower LTVs often come with good deals as the lender is taking less risk.
You can use our comparison service to compare different mortgages – weighing up the costs, features and benefits of each.
What do you need to provide when applying for a mortgage?
Mortgage-lending rules mean that it isn’t just your salary multiples and your deposit that matters. It’s about how much you earn but also what you spend, and an idea of the costs you might have in the future even if things change.
Mortgage lenders will want to know about your outgoings, which includes credit repayments but also utility bills and other fixed regular costs like childcare, school fees and season tickets.
You’ll also need to show them certain documentation, which can vary but is usually:
- Details of your solicitors, estate agents and the seller
- A P60 form from your most recent employer
- Your last three months of pay slips from work
- If you’re self-employed, two to three years’ accounting from a professional accountant plus tax form SA302
- Current passport or driving licence (in order to prove your identity)
- Current account bank statements going back between three and six months
How long does it take to get approved for a mortgage?
It ought to take between three and six weeks to look over all the information, do a mortgage credit check with one or more of the three credit reference agencies (Experian, Equifax and CallCredit), and complete a valuation, before approving your application and offering you a mortgage.
To make things move as quickly as possible, make sure you have all your documents and figures ready for when they’re needed, and don’t be afraid to talk to your solicitor as often as you can - if you’ve agreed a fixed fee then you won’t have to worry about that.
It’s worth noting that mortgage offers usually last between three to six months.
How your credit score can affect your mortgage application
Different lenders will use slightly different lending criteria. Checking your Experian Credit Score can give you a good idea of how the lender may see you based on the information in your Experian Credit Report. Some of the things you can do to get and maintain a good credit score in the run-up to your mortgage application include:
- Try not to make any credit applications in the six months before your mortgage application.
- Make sure you don’t have any defaulted or delinquent credit accounts.
- Register to vote at your current address as it proves your identity and address.
- Never miss a credit payment and always make them on time.
- Stay within your credit limits and keep balances to less than 50% of your limit.