When you apply for a mortgage in 2023 it can often seem a daunting prospect. The labyrinth of technology, complex calculations and myriad options may appear overwhelming. However, securing a mortgage is a critical step in most home buying journeys. Which is why whether you’re a first time buyer bracing yourself for the initial plunge into the property market, a current homeowner looking to move or perhaps, exploring the world of property investment, our guide will equip you with the knowledge you need. We will explore:

• How to prepare for applying

• What will you need to apply for a mortgage?

• How much deposit do you need?

• What does a mortgage lender take into consideration?

• Getting an agreement in principal

• Applying for your mortgage

• How long does the mortgage application process take?

• Final stages

How to prepare for applying

Thorough preparation is crucial before you embark on the process of applying for a mortgage, as it ensures you’re in the best position to secure the most favourable deal. It’s essential to have all the necessary documentation readily available, including but not limited to, your recent payslips, tax returns, and evidence of your deposit. This will speed up the application process and help demonstrate your financial stability to potential lenders.

Moreover, it’s advisable to verify the accuracy of your credit records held by the major credit reference agencies – Experian, Equifax, and TransUnion. These agencies can provide free reports, allowing you to review your credit history with ease. By doing so, you can rectify any discrepancies or inaccuracies promptly, which could potentially impact your credit score and, subsequently, your mortgage application.

Additionally, ensure your details are up-to-date on the electoral roll. This isn’t just important for your civic duties; it also aids mortgage lenders in validating your identity and residency, hence boosting the credibility of your application.

Lastly, prudent financial management is key. Strive to maintain a clean record of timely bill payments and limit unnecessary expenditures. Also, avoid borrowing excessive amounts of money from other sources, as this could raise concerns about your financial stability. Remember, mortgage lenders need to be confident that you can handle the financial responsibility of monthly mortgage payments without defaulting. Therefore, demonstrating solid financial habits will significantly enhance your prospects of securing a mortgage.

What will you need to apply for a mortgage?

Embarking on your mortgage application journey necessitates thorough preparation, including gathering essential documents required by lenders. Here’s a rundown of the key documents you’ll need to have at your disposal:

• Identification documents: A valid form of identification is indispensable. Typically, this would be a passport or a driver’s licence. Ensure that these documents are current and readily available, as lenders will use them to verify your identity.

• Proof of address: Another key requirement is proving your address. This could be demonstrated with a recent utility bill (like electricity or water) or a council tax statement. Remember, the document should clearly state your name and current address.

• Bank statements: Lenders will require insight into your financial behaviour over the past few months. For this, you’ll need to present your recent bank statements. These statements give lenders an understanding of your income, expenses, and how well you manage your money.

• Income documentation: Clearly demonstrating your income is paramount, as it assures the lender of your capacity to service the mortgage. Depending on your employment status, this could be your recent payslips or tax returns.

• Verification of deposit: Lenders will require evidence of your deposit and its origin. Whether your deposit is accumulated through savings, investments, or a gift, you’ll need to document the source(s) to ensure transparency and to confirm it’s not borrowed, as borrowed deposits can present a higher risk to lenders.

How much deposit do you need?

The magnitude of your deposit holds significant sway over the mortgage terms you can secure. Typically, a more substantial deposit translates to more favourable interest rates, simply because it reduces the lender’s risk. Therefore, the larger your deposit, the more attractive your mortgage deal is likely to be.

The baseline deposit requirement for a majority of mortgage products sits at 5%, although there are instances where some lenders may entertain a lower percentage. However, it’s worth noting that a deposit of this size is usually paired with higher interest rates and potentially more stringent approval criteria.

On average, buyers aim to accumulate a deposit amounting to around 10% of the property’s value. Deposits of this size often unlock better mortgage deals and offer a wider range of options. That said, there’s no upper limit to the size of a deposit, and if your financial circumstances permit, a larger deposit can provide access to the most competitive interest rates and loan terms.

What does a mortgage lender take into consideration?

The evaluation of a mortgage application is a comprehensive process, with lenders scrutinising several elements to gauge your suitability as a borrower. Each of these factors contributes to a lender’s understanding of your financial standing and reliability, helping them to make a balanced decision.

• Credit history: Your credit history is akin to a financial CV. It outlines your past and current debts, repayment habits, and any financial missteps such as defaults or bankruptcies. A positive credit history, characterised by consistent, timely repayments, will significantly enhance your application.

• Employment status: Your current employment status and stability are vital in showcasing your steady source of income. Whether you’re full-time, part-time, self-employed, or contract-based, lenders look for consistency and reliability in your employment.

• Income: Your income is directly indicative of your ability to service your mortgage. Lenders will consider not only your base salary but also any additional income such as bonuses, overtime, or income from investments or properties.

• Outgoings: Just as important as income, your monthly expenses give lenders a view of your financial management. This includes routine bills, living expenses, existing debts, and any other financial commitments. The aim is to ensure that taking on a mortgage won’t overstretch your finances.

• Deposit size: As discussed previously, your deposit size can influence the mortgage terms you’re offered. A larger deposit typically leads to more favourable interest rates and terms as it reduces the lender’s risk.

• Property type: Lastly, the type and value of the property you intend to buy also factor into the lender’s decision. Different properties come with varying levels of risk and potential resale value, influencing how the lender views your application.

Getting an agreement in principal

Prior to delving into property searches, a prudent step is to secure an ‘Agreement in Principle’ (AIP), also known as a ‘Mortgage in Principle’, from a potential lender. This preliminary document essentially outlines the amount the lender may be prepared to lend you, contingent on their initial evaluation of your financial circumstances.

An AIP offers several advantages. Firstly, it helps set a realistic property budget, allowing you to concentrate on homes within your financial reach, thus streamlining your property search. Secondly, it indicates to estate agents and sellers that you are a serious buyer with a lender’s backing, thereby potentially enhancing your bargaining position and credibility.

An added advantage is that an AIP can reduce the chances of mortgage rejection at a later stage. The preliminary assessment conducted for the AIP includes many of the checks a full mortgage application does, such as a credit check. Consequently, if you’re granted an AIP, it means you’ve passed some initial hurdles, though it’s not a guarantee of a final mortgage approval.

Do remember, however, that while beneficial, an AIP is not a binding agreement. The final mortgage offer can vary depending on the thorough evaluation of your financial status and the property’s valuation. Thus, it’s crucial to stay mindful of your financial commitments and continue practicing sound financial habits even after receiving an AIP.

Applying for your mortgage

After identifying your dream property and deciding to proceed with the purchase, the journey to secure a mortgage formally commences. If you’re planning to co-purchase the property with another person, such as a partner or spouse, keep in mind that they, too, will need to participate in and provide information for the application process.

Given the complexity and significance of the mortgage application, it could be beneficial to consider engaging the services of a mortgage advisor. An advisor can offer expert guidance throughout the process and assist in identifying a mortgage deal that best fits your unique financial situation. Crucially, they can help ensure your application is completed accurately and promptly, facilitating a smooth transaction once your property offer is accepted. They act as a liaison between you and the lender, smoothing the path towards a successful mortgage approval.

Following submission, your mortgage application moves into the evaluation phase. This involves the lender conducting a comprehensive review of your financial profile, which includes a credit check. This check provides the lender with a detailed insight into your financial health, credit history, and ability to manage financial commitments.

In addition, to the credit assessment, the lender also commissions a professional valuation of the property you wish to purchase. This step ensures that the property is worth the purchase price you’ve agreed to pay. The valuation acts as a security measure for both you and the lender, ensuring that you are not overpaying and that the lender is not over-lending based on the property’s true market value.

How long does the mortgage application process take?

The duration of the mortgage application process can vary considerably, often ranging from several weeks to a couple of months. This timeline is influenced by a multitude of factors, including the particular lender’s procedures, the complexity of your financial situation, and any unforeseen complications or delays that may arise.

Final stages

After gathering all the requisite details and successfully navigating the series of checks and verifications, the lender will make an informed decision on your mortgage application. Should the application be approved, you’ll receive a formal mortgage offer. This document elucidates the specifics of your loan, such as the borrowed amount, the interest rate, the loan term, and other pertinent terms and conditions.

The concluding phase of the mortgage application process involves the transfer of mortgage funds. These funds are typically sent directly to your conveyancing solicitor, a legal professional engaged to handle all the legal aspects of the property transaction. Upon receipt of the funds, your solicitor will complete the transaction by paying the agreed-upon sum to the property seller on your behalf. This marks the culmination of your mortgage application journey, bringing you one step closer to owning your new home.

Congratulations, you’ve now completed the mortgage application process! If you need any more help with with mortgages you can read our blog here.