How To Get A Mortgage

This article is a compilation of the series run in Ethos News over the last couple of years. Check back for the next part every couple of months.

Part One – Check Your Credit Report

Most lenders use a credit scoring method to decide on mortgage applications. They check for missed payments, arrears and defaults, but they also check to see if you are financially active i.e. that you are used to paying back money. It is always worth checking your credit report before applying for a mortgage, just in case there is something on it that you don’t know about it. Better to find out about it before the lender does! I’m happy to explain further and tell you how you can get your credit report.

Part Two – Proving Your Identity and Address

Before you can get a mortgage, the lender needs to know who they are lending to. This means you will need to supply proof of your identity and your address. Your identity is most easily confirmed by your passport or photo driving licence. Your address can be confirmed through a recent utility bill (from the last 3 months) or a bank statement. Make sure that your bank has your current address, and if you are a couple, make sure that at least one bill or bank account includes your partner’s name.  If you are using a bank statement as proof, then this usually needs to be a printed statement or an official statement from your online banking showing your name and address – a print out of your transactions doesn’t count! I’m happy to explain further.

Part Three – Your Income

In our series on how to get a mortgage, we now move onto your income. The simple part of the answer as to what a lender requires is three months’ payslips. The trickier part of the answer is if you don’t have these or you are not in permanent employment. A few lenders will consider contract or agency workers if there is a history of such work. One or two lenders may even consider you even if you haven’t started work yet but have a contract in place for permanent work. Many will consider the income from second jobs, in whole or in part. If you are self employed then usually you need to have been trading for 2 or 3 years with accounts for these years. An accountant’s certificate may be OK, as will your annual tax statement from Revenue and Customs.

Part Four – Income Multiples

It used to be the case that you could borrow 3 times your sole income or 2.5 times your joint income. Now each lender has their own income multiple, and some have different multiples for different income brackets. Some also have different multiples for self employed. You may only be able to borrow 3 times your income or up to 5 times. As a rule of thumb several lenders will lend about 4 to 4.5 times your income if you earn at least £35k pa. However if you have large outgoings on loans or credit cards, then you won’t be able to borrow as much.

Part Five – Affordability

As mentioned last month, it is not just how much you earn that counts towards getting a mortgage, but more importantly how much you can afford. So before you can get a mortgage, a lender will consider your expenditure as well as your income. Mostly they will look at any outstanding loans or credit card balances, and deduct the monthly payments for these from the monthly amount they think you can put towards a mortgage. If the amount you want to borrow is close to what they think you can afford, then they may insist that some or all of these loans or balances are cleared before you complete on the mortgage. Each lender takes different items of expenditure into account, but I can help you work out how much a lender will let you borrow and advise you of the most suitable lenders to approach based on your circumstances.

Part Six – Talking It Through

Go into your local branch and they will sell you what their bank provides – they won’t suggest a better product from another bank! One of the key advantages of a whole of market advisor is that he or she will take the time to fully understand your circumstances and requirements. Brokers call this the “Fact Find”. Only once you have explained your current circumstances – income, borrowing, status, etc – and your requirements – type of mortgage, rate, product, insurance – and you understand your options – will your advisor be able to make a suitable recommendation for you. The advice given can then be based on your specific circumstances. Often I have found that there are more factors to consider than a client initially realises.

Part Seven – Research

Once an advisor fully understands your income, outgoings and requirements she or he can then begin the research for a suitable mortgage. Ethos Financial uses computer software that updates daily with the latest mortgage products offered by over 50 different lenders. Using many different search criteria we can narrow down the search to a list of potentially  suitable mortgages. After that we go the extra mile of discussing a case in confidence with one or more suitable lenders to double check that your unique circumstances are a match for the particular lending criteria of that lender.

Part Eight – Overcoming Obstacles

For some, getting a mortgage may seem straightforward. Yet for many of the people who come to me for advice on a mortgage there is at least one potential hiccup on the road to a new mortgage. For example, your income may be irregular; you may not have had an accountant do your self-employed accounts; you may never have borrowed money before; you may have a small deposit or someone is helping you with the deposit; the place you want to buy may be a non standard construction; you may need to let out your current home; and the list goes on. The good news is that where one lender may say no, another may say yes, as long as you meet their other conditions. With access to over 50 lenders I should be able to find a suitable lender to overcome most legitimate obstacles.

Part Nine – Documents

One of the biggest differences between a smooth mortgage application and a lengthy or tricky one comes down to your documents. In other words, if you do not have the right documents ready, then either we cannot apply for a mortgage, or the lender will not move forward with your application, or will refuse you a mortgage. Not only will a lender want proof of your identity and of where you live, they need proof of your income, bank statements, proof of deposit, employment contract, etc. If you are self-employed this could be 3 years certified accounts and tax statements (SA302). All the documents together help the lender decide if they are happy to lend to you. So getting all your documents together at the start, can make a significant difference to a lender making a prompt decision on your mortgage. Ask me for a full list of documents relevant to your situation.

Your home may be repossessed if you do not keep up repayments on your mortgage.