When you decide that you’re ready to start looking for your house, then it is time to meet a mortgage adviser to discuss your financing opportunities. You might decide later to take the mortgage directly from a bank, but meeting the adviser is usually free, and meeting them first will give you more understanding of what you need to look for. If you meet an adviser from the bank, they are restricted to their own products only, and they are required to sell them to you.
Mortgage Brokers
A good independent mortgage adviser will have access to many different useful tools and to market information, and they will be able to discuss your specific numbers and give personalised advice. Most lenders work through a network of mortgage advisers, there are some lenders who work via brokers only and there are some lenders who prefer ‘direct-only’ mortgages, and you need to contact them directly. If lenders work both via a broker and themselves, usually there is no big difference if you go to the bank directly. However, by using brokers you have access to a much wider net of products, and you have their help. Ultimately it will be you who makes the decision about the mortgage.
Not all mortgage brokers work with the whole market, some are tied to one or a small panel of lenders, and they promote only their products. So, the first question to ask the broker, even before arranging a meeting with them to avoid waste of time:
Q: “Are you working with the whole market?”
You need a broker who covers everything. Good brokers, although they will not be able to arrange “direct only” mortgages, can give you advice about such lenders. You can check their websites yourself to decide if it’s worth talking to these banks.
Another good question to ask the broker:
Q: “How do you receive your fee?”
Mortgage advisers receive their fees from lenders, but some of them also charge a fee to people who arrange the mortgage. Most of them charge the fee only after the purchase is completed, don’t agree to pay anything in advance, if they insist, just go to another broker.
Mortgage brokers are regulated by FCA (Financial Conduct Authority) and how they charge their fees shouldn’t affect their advice, but if you have any doubts, you better get a second opinion.
Where to find a mortgage adviser?
Ask your friends or colleagues, it’s always better to have recommendations.
Martin Lewis, an acclaimed financial adviser, has some recommendations on his website www.moneysavingexpert.com/mortgagebrokers.
You also can find someone in your local area by checking on www.unbiased.co.uk or www.vouchedfor.co.uk.
You don’t have an obligation to use the same mortgage broker even if you have met them and even if you have already started working with them. Certainly, it’s not polite and it’s a waste of their time, and a waste of your time because you need to start taking and preparing documents again, but if something goes wrong, you don’t like how they work, you need to chase them all the time, you can go to another mortgage adviser.
Choosing the wrong mortgage broker is not completely a disaster, you can go to someone else, but this could be more complicated, and it will take more of your time. Also, if another lender needs to do searches regarding your credit history, it can affect your credit score.
How to prepare for your mortgage broker meeting
Certainly, you can just go and meet someone, and talk about your situation, but it will save a lot of your time, and the broker’s time, if you take as many documents with you as you can.
If you have a better idea of what you want and what finances you have available to you, you will receive better advice.
Banks will ask for a lot of information when you apply for a mortgage, so you will need to prepare your documents anyway.
What banks will require:
- Personal photo ID: passport or driving licence.
- Proof of address: utility bills, bank statements and HMRC letters are all acceptable, but most banks will not accept mobile phone bills.
- Proof of your income: payslips from your job for the last 3 months, and some will require a letter from your employer to confirm it.
- Bank statements for all your accounts for the last 3 months.
- If you have other sources of income, you will also need to provide information about them.
- Be prepared to answer questions about your current loans or other obligations and provide documents about them.
- The proof of the deposit. If your parents or relatives help you with the deposit, the bank will want confirmation from them that this is a gift. The mortgage adviser can help you to draft a letter.
If you plan to buy with someone else, and if you plan to apply for a joint mortgage, you need to prepare all these documents for both of you. If you are considering buying a house with several friends, there are some banks that can give a mortgage to up to four people, but choices are very limited for more than three people. Sometimes it’s not easy to find a suitable product for 3+ applicants, and being first-time buyers could make it almost impossible, but ask your broker if this option could be available for you.
Please note that brokers must follow money laundering rules and they have a legal responsibility to check your IDs, original, not a copy. This will save you time later because the broker can certify to the bank that they have already checked your IDs.
Also, one of the advantages of using a broker is that they help to prepare the mortgage application for you, and it saves a lot of your time. Once you have provided the above documents, they will send them to the bank themselves. If for some reason you want another application later, the broker will do it again for you.
| Check your credit score before your meeting with a broker. If you plan to buy a house, this is the first thing you should start with, see our blog about credit history here LINK |
Spend some time before your meeting to determine your budget: how much money you already have for your deposit and how much more you can save or borrow from your family. Will you plan 5% deposit or 10%? You will discuss the timing with the adviser, but you can expect that there will be several months before the completion and all final money transactions take place, sometimes many more months, you will have some more time to save more.
Look at your monthly income and expenditure: what monthly bills you can’t avoid? What is left to pay a mortgage? If you pay monthly rent and know how much money is left every month for your savings, you might have a good idea of how much mortgage you can afford to pay.
Look on Google what mortgage products are currently available, so you know approximately what to expect. Some of the best deals might not be available to you due to lenders’ specific requirements, but the broker can find a good new deal, which you don’t know about. If you know about the current market, it’s easier to judge if the product you are offered by the mortgage broker is good or not.
Advantages of using a mortgage broker
- Good mortgage brokers know specific lenders’ requirements, some can discuss with the bank your situation before the bank goes into a hard credit check and rejects you, and this can save your credit history. Unfortunately, first-time buyers have a higher rejection rate, so it’s better to avoid applications where you can be rejected.
- Using their tools saves a lot of time spent on comparing various products.
- The mortgage broker will save you time by preparing the application.
- Brokers have up-to-date information about rate changes, and they will advise you about that.
- If for some reason you want to apply again, for example, if rates moved and you want to take advantage of better rates, the broker will do it for you.
AIP (Agreement in Principle)
To get an advantage when you put forward your offer for a property, it is advisable to obtain AIP (Agreement in Principle) even before you find a suitable house. You will need to submit the mortgage application as normal. The bank will assess your situation, income, monthly bills and you credit history, and they will confirm how much they will lend you. This will provide certainty for you so you know what houses to look for, and it will show the agent that you are a serious buyer with solid financial position.
Also, having an AIP means that you have fixed the mortgage rate in case rates go up during the time when you are searching for your place. Often AIP is valid for six months, so you will have at least several months to find a house. But you don’t have an obligation to take this mortgage and if rates go down, you can apply for another product, with the same bank or another.
Government help for first-time buyers
There are several government-backed schemes that aim to provide help for first-time buyers to step onto the property ladder. These include
Lifetime ISA (LISA)
You can use a LISA to buy your first home (for a property costing £450,000 or less) or save for later life. You must be aged between 18 and 39 to open a LISA.
You can put in up to £4,000 each year until you’re 50. You must make your first payment into your ISA before you’re 40. The government will add a 25% bonus to your savings, up to a maximum of £1,000 a year.
Help to Buy: Mortgage guarantee scheme
The government offers lenders a guarantee on 80% of the mortgage where the borrower has only made a 5% deposit. This scheme is due to finish in December 2023, but there are rumours that it will be extended in Autumn Statement.
Right to Buy
The Right to Buy scheme is available only to council and housing association tenants in England to buy their home, but there are good discounts available for those who qualify.
Shared Ownership.
This is for people who can’t afford the mortgage on 100% of a home. It offers people the opportunity to buy a share of a home (between 10% and 75% of the home’s value) and pay rent on the remaining share. Later, you can buy a bigger share when you can afford to.
The house is usually managed by a housing association, and the rent for the remaining share that doesn’t belong to the buyer is paid to them.
You still need to pay a 5% deposit on your share.
The scheme is available for households earning less than £80,000, or £90,000 in London.
You can find more here in this book or on the government website.
Mortgage for self-employed
People who are self-employed are usually aware that it is much more difficult to get a mortgage, as self-employed income is not as stable as a salary, and banks consider such borrowers more risky.
But it’s not impossible. There are banks who specialise in providing such products and who are prepared to look at your personal circumstances. It might be easier to find such lenders via a mortgage advisor, as they have more information available to them.
You will have to prove your income not only for 3 months but for a longer period, more like 3 years. They will ask for confirmation about submitted tax returns and taxes paid, and they will ask for bank accounts both business and personal for 3 years.
If you have a stable business that brings you good income, you just need to plan the purchase of your home and be ready when it comes to the mortgage application.
Impact of student loans
The good news is that, in terms of your credit history, student loans are not considered to be debt, and they will not affect your credit score. Yet, it will be part of your monthly payments, and banks will take them into account when they calculate the affordability of your loan, so you should take it into account too when you prepare your own budget.
10 ways to increase your chances of getting the mortgage
- Boost your credit score. Read here.
- Always pay your bills on time. If you pay rent, you can register with schemes like Canopy or CreditLadder so you regular rent payments increase your score.
- Pay some extra for your deposit. Paying £100 above 10% lender’s requirement, for example, £20,100 instead of 20,000 can increase your chances of your application being accepted. The more the better. And you also will pay less interest later.
- Reduce other applications, like applications for cards, mobile, credit purchases or something like that, at least a month before you apply for the mortgage.
- Never take cash from a credit card, not even abroad.
- Do not apply immediately after rejection.
- Don’t use overdraft. Watch your bank balance to avoid overdrafts. Even if you have the money on your savings account but regularly use overdraft, it can make the lender think about your poor money management skills.
- AVOID PAYDAY LOANS. Some people say that you never get a mortgage if you had a payday loan, at least you will need many years before it will be cleared from your records.
- Close credit or shop cards, which you don’t use. If you have a big credit available to you, lenders could consider that it’s risky.
- Avoid payments to any gambling websites. Even small payments to lottery sites can raise questions from the lender.
Other costs
Before starting your mortgage application, you need to understand what other costs you will need to pay when it comes to final payments. It will be very stressful if you suddenly find that there are additional couple of thousands to pay, which you can’t find.
- Mortgage arrangement fee. It could be £500-£2,000 or more. This could be the biggest cost, but most banks will allow to add it to the loan.
- Booking fee. This could be £100-£200 to be paid upfront and this is non-refundable, but not all lenders charge it, ask your broker.
- Valuation fees. This is for bank valuation, and this is separate to your valuation costs. Bank valuations are usually cheaper as their purpose is to make sure that the property doesn’t have major problems and it does provide sufficient cover for their risk, this could be around £200-£300, and some lenders provide free valuations. When you compare different mortgages, this cost is not always obvious, but brokers’ software does include it in its comparison.
- Lender’s legal fees. This could be £200-£300, some banks charge it at the top, some don’t, and some provide a cash-back to cover this cost. Cash-back can cover full legal costs or part of it.
- Your mortgage broker fee. This is usually paid after the completion of the purchase.
- Stamp duty. The full name of the tax – Stamp Duty and Land Tax. It depends on the house price, see Table XX. For most first-time buyers stamp duty will be zero, but you better check it upfront, especially taking into account coming changes. If you buy a new house, some developers offer to pay for it to give you an incentive to buy from them.
| Property price or transfer value | SDLT rate | ||
| Up to £250,000 | 0% | ||
| The next £675,000 (the portion from £250,001 to £925,000) | 5% | ||
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% | ||
| The remaining amount (the portion above £1.5 million) | 12% | ||
| For first-time buyers | Examples | SD | |
| Up to £425,000 | 0% | Up to £425,000 | 0% |
| The next £200,000 (the portion from £425,001 to £625,000) | 5% | £500,000 | £3,750 |
| No relieve above £625,000 | £600,000 | £8,750 |
- Your solicitor fee. £600-£1,500 depending on complexity (leaseholds are more expensive).
- Survey fee, if you decide to order one: £400-£1,000, depending on the type of the survey.
- Home insurance. This needs to be paid from the date of the exchange of contracts as at this point you are responsible for the property. Ask your broker as many would arrange it for you, but also shop around in advance as prices can vary considerably. This can be arranged very quickly, and it can be paid by a credit card to delay the payment for a month if your cash is low.
- Cost of moving home. It depends on the amount of your staff, which you need to move, and it could be up to several thousand. As usual, advance booking can save you a considerable amount.
If something goes wrong and you can’t pay the mortgage. What to do?
Taking the mortgage is a huge commitment and it would be silly not to consider the risks and how to mitigate them.
All mortgages come with a warning that you can lose your house if you don’t pay your monthly mortgage, your house could be repossessed by the bank. Nobody wants it.
To avoid the risk, the general advice is to have savings covering three months of your outgoing costs, six months would be even better.
Another way to protect yourself could be having special insurance – MPPI (Mortgage payment protection insurance). MPPI is supposed to cover mortgage payments if something happens, like you become ill or made redundant. There are stories that MPPI was mis-sold to people who actually couldn’t claim it, so before arranging this insurance you should check that the insurer will pay you, when it could be paid (sometimes there is a delay and you better know in advance for how long you will need to survive before the insurance will pay you) and for how long it will be paid (it could be up to 12-24 months).
Or you can consider taking a lodger if the space in your home allows it. Talk to your mortgage adviser, you might need permission from your lender for the lodger.
So, what happens if something goes wrong, and you can’t pay your monthly mortgage payments?
If you missed two or more monthly payments, you are officially in arrears. You should contact your lender as soon as possible, even before the payment is due if you feel that you will have difficulties.
At the end of June 2023 majority of lenders agreed to sign a mortgage charter that is designed to help people struggling with mortgage payments and now they have obligations to provide more support before the house is repossessed.
Lenders often want to start the repossession process after three months, but if they signed the charter, this could be delayed for at least 12 months. This should allow the mortgage holder to find a new job, or another solution for the payment problems.
Customers who are up-to-date with their payments can have several options to ease their financial situation:
- The bank can temporarily allow to switch to interest-only payments
- The mortgage term could be extended, for example from 25 years to 30 years.
- Or a mortgage holiday could be allowed.
All these options could provide only temporary relief without affecting the credit history, after six months this arrangement will go to your credit records.
You should remember that in any of these options, there will be more interest to pay in the long run.
There is some government help, but it covers only interest payments, and it is only available to people on qualifying benefits. Also, this is kind of a loan from the government, the money should be repaid later.
Q&A
- What if I want to move to another house? Many mortgages are now ‘portable’ but you need to check with your lender. In many cases you can use the same mortgage, it’s much easier and you don’t need to pay ERC, but the bank will still do a valuation of the new house, and they might charge some admin fees.
- Can I get a mortgage if I have a bad credit history? Bad history doesn’t necessary mean that you can’t get a mortgage, although you might need a specialist lender who designs their products for people with problems in their credit history. But most likely the mortgage rates will be higher. It is especially important to talk to a mortgage broker first to avoid further problems.
- What if I don’t have the money for the deposit?
In May 2023 Skipton Building Society started new products for first-time buyers with credit records and no deposits who are currently renting. There are certain criteria to be eligible:
| If you’re aged 21 or over with less than 5% deposit |
| You must have proof of having paid 12 months’ rent in a row, in the UK, within the last 18 months |
| It’s not available for new build flats |
At the time of writing they have 100% LTV 5-year fixed-rate mortgage with no arrangement fee with interest of 5.89%. There is a catch: the monthly mortgage payments can’t be more than the average rent paid in the last 6 months. For example, if you have been paying the rent of £1,500 per month, you might be able to buy a house for £266,514.
Another option to buy a house without a deposit: there are several guarantor mortgages available on the market, which use parents’ finances. To avoid tax complications the parents are
not listed as owners of your house, but guarantee to cover the mortgage if you can’t pay, and they are liable for repayments and arrears.
These products are rare but it’s worth talking to a mortgage adviser about them.
- Can I let my place if I need to move somewhere for work? Yes, most banks will allow it, but you need to ask their permission.
- Can I get more than 4.5 times of my salary? Yes, it is possible, some lenders could consider 5 times or even more, but these are usually for higher-paid professions, with strict criteria and it is often decided on a case-by-case basis.
Further Reading
Buy First Home Book – Helpful book on buying a house will all information you need to know in one place
