These are a few of the first thoughts that will no doubt run through anyone’s mind that is considering their first property purchase. Buying your first property can be daunting, whether your purchase is your first home, a buy to let or holiday let.
The process involved with finding out how much you can afford to spend on a property, through to actually getting the keys can potentially be a testing experience. There are hundreds of lenders in a huge mortgage market and the first thing that we all do is go straight to our bank. We’ve had our current account with this bank or building society since our teens and decide to ask our trusted name to assist us with getting a mortgage.
Now if you’re lucky this could work out well, but you must remember your bank is selling their own products and remember there is hundreds of lenders available. So, this presents a question, are you confident that you are getting the best deal? Because your bank will only be able to present you with the best deal that they can offer.
If you are wanting to get an idea of how much you can borrow a simple calculation used by the majority and you will see everywhere online is 4.5x of your annual income plus your deposit.
Deposits for residential purchases are generally around 10% of the property value and 20%-25% for buy to lets.
If you wish to get a much more concrete figure so you can view properties knowing that a lender has in principle, given the green light for the amount you require it’s a good idea to get a Decision in Principle (DIP) which is, without a doubt, the most effective way to present yourself when you’re going to view properties and demonstrates to estate agents and sellers that you are seriously looking to find a property.
This also shows you have already started the process to secure a mortgage. It is very important to note that multiplying your income by 4.5 is not the most accurate way to establish how much you can borrow. There are several other factors to consider that can affect your affordability, for example any outstanding finance, loans, credit cards and even dependents can all reduce the amount you can borrow for a residential mortgage.
If you are looking into a buy to let mortgage the affordability is viewed and calculated differently to residential mortgages. To keep this simple affordability for buy to let mortgages are calculated by the rental income for the property and lenders will use various different (ICR) interest cover ratio stress tests to ensure the rental income can cover the requested amount over the duration of the term – should this fall short of what you want to borrow, some lenders offer ‘top slicing’ which allows affordability to be assessed on the basis of your personal income aswell as the rental income to top up what is needed to meet your required mortgage amount.
Upon completing the above and having your offer accepted a full mortgage application would be submitted and you will need to instruct conveyancers to act on your behalf for carrying out various searches and completing the property purchase.
While all this is going on in the background the chosen lender will arrange for a valuation of the property which generally is free but, in some cases, lenders will charge a fee. You can if you wish pay for a more detailed survey/valuation of the property as the majority of lenders will only carry out a basic mortgage valuation report.
Additional surveys are something that are not necessarily a must but could be good practice for older properties and/or any property that appears to require some substantial refurbishment.
In some cases, lenders will want additional reports should any obvious defects be present otherwise they may be advised the property is not worth the figure stated unless repairs are carried out, therefore reducing the value of the purchase and potentially affecting the mortgage amount that can be borrowed. Providing all required documentation has been provided to the lender on their receipt of the valuation report they will assess the documents and underwrite the mortgage.
Providing there is no unusual delays, some lenders can provide a fully underwritten mortgage offer in a matter of days. You may find that during this process that if you run your own business, are self-employed or have just started a new job, lenders may request additional documentation to satisfy them before providing a mortgage offer.
Once a full offer has been issued you will receive a copy as will your chosen conveyancer and mortgage advisor and then the process is in the hands of the solicitors to complete the transaction.
So, this is where the value of a mortgage advisor comes in. The process a mortgage advisor will take you through involves a fact find – the purpose of this is to obtain an overview of your current financial situation, your future goals, objectives, an understanding of your budget and spending.
A mortgage advisor will ask for several personal documents to be able to accurately assess your situation these will include things like bank statements, pay slips, tax returns, proof of your deposit & credit reports. In addition to this, more documents may be requested and for good reason – Mortgage advisors are looking at every detail and ensuring your needs & requirements are met to find the best lender for you.
During this process a mortgage advisor will go into more depth about your mortgage and want to be able to make a recommendation which has left no stone unturned and ensure you are getting the very best available based on your circumstances, requirements, future goals & objectives.
It’s important to note that just because a mortgage product states the lowest rate of interest that doesn’t necessarily mean it is the most cost effective or best option over your required term.
There are other factors to consider with mortgage products that can include product fee’s, early redemption charges, exit fee’s and so on.
Mortgage advisors must always tell you what their charges are and the range of mortgages that they offer, this should always be the first conversation and this information should always be provided to you in writing.
You should also be informed if they have any limits/restrictions to the mortgages they can offer. Mortgage advisors are paid commission by lenders and in addition to this may charge a separate fee which you would agree with them prior to using their services.
Lenders fees and charges vary depending on who your chosen lender is. A mortgage advisor should take you through what the charges are and explain them to you when making a recommendation.
Potentially, yes, there are a vast number of lenders in the mortgage space that offer different products for all types of individuals and circumstances.
The reality of it is that these products will most likely cost you more to borrow because of the perceived risk to the lender however, it does not mean that you will be instantly dismissed by a lender because of adverse credit.
Taking on a mortgage is a big deal and is most likely to be the biggest financial decision of your life. Whether you are purchasing a home or an investment property you are potentially taking out a substantial loan for a long period of time.
It is really important that you do your research and make sure you get the right mortgage for you and your own situation, the reason there are so many lenders is because there are so many different types of mortgages needs and requirements, there is no such thing as ‘one lender fits all’ otherwise there would only be one lender!
I hope the information provided has given you an insight into how mortgages and a general overview of the process works.
The information above is purely for educational purposes and is not mortgage advice or recommendations/promotion of any mortgage products or lenders.
Finance Jeanie have you covered. Our team can offer you funding no matter where you live in the United Kingdom. Contact us via phone or email to discuss your funding or loan requirements.
Finance Jeanie provide funding options to clients all over the UK including all the following counties. We cover all the major towns and cities. If you do not see your location in the following list please don’t hesitate to ask.
Bath Bristol Clevedon Fulton Keysham Weston Super Mare
Bedford Biggleswade Dunstable Flitwich Leighton Buzzard Luton
Ascot Bracknell Hungerford Maidenhead Newbury Reading Sandhurst Slough Thatcham Windsor Wokingham
Amersham Aylesbury Beaconsfield Buckingham Chersham Denham Gerrards Cross High Wycombe Marlow Slough Stoke Mandeville Taplow
Cambridge Chatteris Ely Girton Godmanchester Huntington Newmarket Ramsey Soham Whittlesey Wisbech
Chester Crewe Nantwich Northwich Macclesfield Runcorn Tarporley Warrington Widnes
Bodmin Falmouth Newquay Padstow Penzance Redruth Truro
Barrow In Furness Carlisle Kendal Penrith Whitehaven Wilton Workington
Alfreton Ashbourne Belper Bolsover Buxton Chesterfield Codnor Crich Cromford Derby Duffield Glossop Heanor IIkeston Long Eaton Littleover Matlock Melbourne Ripley Sponson
Barnstaple Exeter Honiton Plymouth Paignton Torquay
Blandford Bournemouth Christchurch Poole Weymouth Dorchester Wareham Wimborne Shaftesbury
Durham Bishop Auckland Chester-Le-Street Durham Seaham Sedgefield Spenny Moor Stanhope
Basildon Billericay Braintree Brentwood Canvey Island Chelmsford Clacton-On-Sea Colchester Epping Hadleigh Harlow Rayleigh Tilbury
Cheltenham Cinderford Cirencester Clearwell Gloucester Kingswood Slimbridge Stroud Tewkesbury
Bolton Bury Manchester Oldham Rochdale Stockport Wigan
Basingstoke Andover Aldershot Farnborough Petersfield Tadley Portsmouth Fareham Gosport Havant Hayling Island Waterlooville Southampton Hedge End Romsey Totton Winchester Alton Eastleigh Stockbridge
Hereford Kington Ledbury Leominster Ross-on-Wye
Bushey Chorley Wood Elstree Hatfield Hemel Hempstead Hertford Hitchin Letchworth Potters Bar Sawbridge St.Albans Stevenage Tring Watford Welwyn Garden City
Cowes Newport Ryde Sandown Shanklin Venture
Ashford Canterbury Chatham Dartford Dover Faversham Hythe Maidstone Margate Ramsgate Rochester Royal Tunbridge Wells Sevenoaks
Accrington Blackburn Blackpool Burnley Chorley Clitheroe Lancaster Liverpool Manchester Morecombe Preston Skelmesdale
Ashley-De-La-Zouch Coalville Earl Shilton Leicester Loughborough Market Harborough Melton Mowbray Syston
Gainsborough Grantham Grimsby Lincoln Boston Bourne Brigg Spalding
Birkenhead Liverpool St.Helens Southport
Acton Brentford Camden Town Chiswick Edgware Enfield Fulham Hackney Hampstead Harrow Hounslow
Alysham Diss Fakenham Great Yarmouth King’s Lynn Loddon Norwich Sheringham Thetford Watton
Alnwick Ashington Berwick-On-Tweed Blyth HalfWhistle Morpeth
Bingham Hucknall Mansfield Nottingham Newark-On-Trent Ollerton Retford
Abingdon Banbury Bicester Bloxham Chinnor Cholsey Didcot Henley-On-Thames Kidlington Wantage Woodstock
Bridgenorth Ludlow Madeley Newport Shrewsbury Telford Wellington Wem
Bath Bridgewater Burnham On Sea Crew Kerne Taunton Wells Weston-Super-Mare Yeovil
Burton-On-Trent Cannock Keele Leek Lichfield Newcastle-Under-Lyme Stafford Tamworth Uttoxeter Wolverhampton
Brandon Bury St.Edmunds Felixstowe Ipswich Lowestoft Stowmarket Sunbury
Camberley Chertsey Cobham Dorking Epsom Esher Farnham Godaming Guildford Haslemere Leatherhead Redhill Reigate Staines Sunburn-On-Thames Walton-On-Thames Weybridge Woking
Sussex Bexhill on Sea Brighton and Hove Crawley Eastbourne Hastings Horsham Worthing
Hartlepool Middlesbrough Redcar Stockton-On-Tees
Gateshead Jarrow Newcastle Under Tyne South Shields Sunderland Whickham
Coleshill Coventry Leamington Spa Nuneaton Rugby Stratford Upon Avon Studley Warwick
Arundel Billingshurst Bognor Regis Bosham Chichester East Grinstead Fishbourne Lancing Littlehampton Midhurst Petworth Selsey
Amesbury Chippenham Malborough Salisbury Swindon Tidworth Warminster Wilton
Beverley Bridlington Driffield Goole Hornsea Hedon Pocklington
Harrogate Northallerton Malton Pickering Ripon Richmond Scarbourough Selby Skipton Stokesley Tadcaster Thirsk Whitby
Barnsley Dinnington Doncaster Maltby Mexborough Penistown Rotherham Sheffield Swindon
Batley Bingley Bradford Castleford Dewsbury Halifax Helden Bridge Huddlesfield Keightley Leeds Morley Otley Wakefield Wetherby
Abergavenny Caldecott Chepstow Monmouth USK
Aberdare Barry Bridgend Caerphilly Merthyr Tydfil Neath Ponty Pridd Porch Cawl Port Talbot Swansea
Barry Cardiff Cathays Ely Penarth
Abertillery Beaufort Blaine Brynmawr Ebbe Vale Newport Tredegar