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Apply for a mortgage

If you are a first time buyer or its been several years since your last property purchase, you may have some questions about the current mortgage application process. The process of securing a mortgage is actually very straightforward in most cases.

This section is our complete guide with everything you need to know about mortgage applications. We will tell you about the basics of what a mortgage is, how to apply for one and ways in which you can get the best mortgage to suit your needs.

What is a mortgage?

A mortgage is a loan arrangement in which a lender will provide you with funds to purchase a property (in most cases). A mortgage or remortgage can also be used for other purposes, such as funding renovations to your existing property or debt consolidation.

The borrower will provide the lender with a cash deposit, or in the case of a remortgage will use equity in their current property. The lender then will provide an amount of capital proportionate to the deposit amount and the value of the property.

The amount of deposit needed will depend on the value of the property you wish to purchase. A standard mortgage deal will expect around 10% of the property’s value as minimum but this will depend on the mortgage.

There are times the deposit can be less, such as with a 95% loan to value (LTV) mortgage, when the borrower provides a 5% deposit, and the lender provides the other 95% needed for the purchase.

There will also be times when you may need a bigger deposit, such as with buy to let mortgages. With a buy to let mortgage, investors will take out a loan to buy a property that they will then let out to a tenant for a profit. With this mortgage type, you will generally need a larger deposit amount to be approved (anywhere between 20%-40% of the property’s value).

Depending on the type of mortgage, the borrower will repay the interest on the loan and the capital every month (a capital and repayment mortgage) or they will pay the interest element only (interest only mortgage). With an interest only mortgage, the entirety of the funds borrowed are repaid at the end of the mortgage term.

For more information about buying a home with a mortgage CLICK HERE.

Reasons to take out a mortgage or remortgage

In many cases a mortgage will be intended to buy a house, which the borrower will then live in themselves as their main residence. However, this is not the only reason for taking out a mortgage loan. Reasons to apply for a mortgage or remortgage include:

  • Funding home improvements or renovations
  • As collateral for a personal loan
  • To consolidate debts into one monthly payment
  • Buying a second property for business premises
  • Buying a property to rent out to tenants (buy to let)
  • Taking out a joint mortgage with another person
  • Helping to pay for a divorce settlement
  • Other reasons such as holidays, cars, school fees etc.

A mortgage can be used for all of the above purposes. Whether the loan is approved for each purpose will depend on individual lenders.

If one lender will not approve a mortgage loan, it is worth consulting with other lenders on their policies. Some mortgage providers may be more flexible than others with their approval process.

For more information on remortgaging a property CLICK HERE.

How to apply for a mortgage

The application process for a mortgage can seem complicated but we have broken it down into easy to follow steps below:

  • Save for a deposit (ideally at least 10% of the value of the property, 5% is the minimum needed)
  • Search for a property – remember the price of the property will depend on several factors such as size and geographical location
  • Agree a purchase with the seller/estate agent
  • Hire a solicitor and a mortgage adviser
  • Find the right mortgage deal (interest rate, mortgage term etc.)
  • Submit the mortgage application
  • Receive an ‘agreement in principle’ i.e. offer of a mortgage
  • Have the property valued with a property survey
  • Solicitor searches and other legal processes
  • Exchange contracts and complete the property purchase

For any further advice on the mortgage process, it is wise to speak to a specialist. A mortgage specialist will be able to answer any questions about factors such as estimated timings, fees and other factors that may affect the application.

When to apply for a mortgage

The choice of when to apply for a mortgage will depend on your individual circumstances. Getting onto the property ladder can be a great investment but it is wise to budget correctly and make sure a mortgage repayment plan is affordable.

It is best to make sure to only apply for a mortgage once certain it is an expense that you can afford long term. If a mortgage is taken out and the repayments are not paid promptly every month, the property is at risk of repossession. Though this is not a likely scenario for most, it is still worth bearing this in mind.

It is also important to consider factors such as the loan to value (LTV) rate of the mortgage, the interest rate, and the mortgage term required before making any decisions. You want to be sure to secure the right mortgage type for your needs and budget.

If uncertain about whether you will be eligible for a mortgage, speak to a mortgage specialist. A mortgage specialist is an expert at looking at finances and other relevant factors to help source the best possible lender and mortgage for each individual.

What do you need to apply for a mortgage?

There are several things that lenders will need to see from you when submitting a mortgage application. These include:

  • Your credit history: this includes credit score and affordability checks
  • Proof of income: how consistent your income is and how much you make compared to the amount of outgoing expenses you have. The lender may request a copy of your most recent P60.
  • Your deposit amount: the amount you have saved up as a deposit for the mortgage, it is best to save as large an amount as possible
  • How long you have been with your current employer: at least 3 to 6 months is ideal
  • Self-employed: they will want to see proof you are financially stable and most likely will want to look at your tax returns and accounts

It is standard for lenders to ask questions and request evidence during an active application. Any additional information requested is not usually indicative of being more likely to be declined.

How much can I borrow with a mortgage loan?

The amount you will be able to borrow will depend on several components. The lender will look at:

  • Your credit history: whether you have poor credit or are in debt
  • Other outstanding loans you have
  • Your income vs monthly outgoings

This helps the lender to have a better understanding if lending to you is financially viable. A lender may be wary under some circumstances. They do not want to risk a borrower ‘defaulting on” or being unable to pay their repayments.

In most cases, there will be a lender out there to suit everyone – regardless of financial history. It may just be that in certain cases, a specialist lender will be the most appropriate choice.

If one lender will not approve a loan for the amount you need, it is a good idea to check elsewhere. As policies differ, what one lender deems risky may not be too much of an issue with another lender. If in doubt, contact a mortgage specialist who will be able to compare rates and lenders for you.

What types of mortgages are there?

There are several types of mortgages available on the market. Which mortgage is the most suitable choice will depend on the individual needs of the applicant.

The first choice with any mortgage is whether you want a repayment or interest only mortgage. There are advantages and disadvantages to each of these and which one is the most suitable choice will be subjective depending on why the borrower is applying.

A repayment mortgage refers to a mortgage in which a lender will provide the borrower with a loan, on the understanding that every month they will repay a portion of both the capital and interest element.

With an interest only mortgage, the borrower only needs to pay back the interest element monthly, with the full amount of the loan being repaid at the end of the mortgage term.

There are various types of mortgages that can fall into either of the above categories and all serve different purposes. We have listed all of these mortgage types below:

MortgageA loan agreement in which a borrower will request a loan from a lender to purchase a property, which they will then live in as their main residence.
Buy to let mortgageA mortgage where the borrower requests a loan to purchase a property which they then rent out to a tenant. An interest only mortgage is a common and cost effective choice for this mortgage.
Let to buy mortgageA mortgage where you let out your current property to then buy a new property you will live in, converting the previous mortgage into a buy to let. You normally need at least 25% equity in your current property to qualify for this.
Debt consolidation mortgageA mortgage where the applicant will use their existing property as equity to borrow against, in order to pay off debts. This is beneficial as it can put all money owed into one monthly payment rather than several.
Joint mortgagesA joint mortgage is where you apply for a mortgage with another person. This could be a parent, partner, sibling etc. The mortgage would be in both of your names and based off your combined incomes and individual credit histories.
Guarantor mortgagesA guarantor mortgage is when another person will essentially co-sign the mortgage with you, guaranteeing they will repay the loan if you default on your repayments.
Shared ownership schemesA shared ownership scheme is when you will take out a mortgage to buy a percentage of a property and pay rent on the rest – sharing ownership with the landlord.
First time buyer mortgagesThere are mortgages that are specifically designed to help first time buyers get onto the property ladder. There are benefits to being a first time buyer, such as access to 95% LTV rates with some lenders.

Mortgage interest rates

There are various interest rates available to borrowers when taking out a mortgage. The most common of these are:

  • Fixed rate: where the amount of interest paid is ‘fixed’ for a set period of time, meaning the amount paid wont change. The term for a fixed mortgage rate will normally be 1, 2 or 5 years but can vary depending on the lender.
  • Discount rate: occasionally lenders will offer a discounted interest rate at the start of the mortgage term.
  • Variable rate: refers to an interest rate that can increase or decrease at the lender’s discretion. This will usually be charged at the lender’s standard base rate and referred to as a standard variable rate (SVR).
  • Tracker rate: refers to when an interest rate will always track and fall in line with the Bank of England (BoE) set interest rate at the time.

There are pros and cons to all of these options, so it is a good idea to do some research and speak to lenders about their rates to work out which is the most cost-effective choice for you.

Best mortgage rates

When applying for a mortgage, it is key to ensure it is the best choice in terms of factors such as interest rate, length of term etc. However, with a long-term commitment like a mortgage affordability is also an important consideration.

What is classed as the ‘best’ rate is subjective, as it depends on the applicant’s income and budget vs their monthly expenses. It is sensible to think about what monthly repayments will be affordable long term.

It is also best to take into account how much deposit you have saved as this will affect the amount of capital to borrow.

Then the best practice would be to compare prices across lenders to ensure that you select the one with the most competitive pricing. They can source the best mortgage deals possible based on the applicant’s finances and budget.

For more advice or assistance in securing the best mortgage rate for your needs, speak to a mortgage specialist such as us. We can compare prices across our extensive panel of lenders to find the most reasonable pricing for your loan repayments and the best possible terms.

How long does a mortgage application take?

A mortgage application is a fairly straightforward process but there are several stages to complete, meaning it can take several weeks to complete the full application process.

The first stage to an application would be simply deciding which lender and mortgage type to apply for. It is best to do some research before making any decisions, to ensure your application is going to the most relevant lender for your needs.

After this, there will be several more stages including but not limited to:

  • speaking to the lender about mortgage terms
  • answering any questions and supplying all relevant financial information
  • securing a valuation on the property
  • receiving an ‘agreement or mortgage in principle’

The speed of the completion of these stages will depend on the processes and policies of the individual lender. There can also be other factors that can hold up the application process such as issues with credit checks, missing information on forms etc.

The best way to speed up the process would be to speak to a mortgage specialist or broker. They will be able to help streamline the application process to ensure it is as smooth and quick as possible.

How long does a mortgage application take through a broker?

A mortgage broker will generally be able to speed up the application process slightly as they are able to source information from lenders on the borrower’s behalf.

This saves time and hassle as they can compare pricing and help to ensure applicants are only applying to the lenders most suited to their needs – at the most competitive pricing.

With pre-existing relationships with lenders, mortgage specialists can in some cases also access deals and pricing that is not accessible from going directly to the lender. This is why it can be an advantage to consult with a specialist or broker, before deciding which lender to submit your application to.

How long does a mortgage application take to be approved?

When applying for a mortgage, an approximate time frame for securing an offer is around 2 to 6 weeks, depending on the lender. However, there can be several things that could affect the speed at which the application is approved and finalised.

There are criteria lenders will consider before approving a loan and several checks that will need to be undertaken. This is so they have all the relevant information they need to make an informed decision, considering any potential risk factors before approving an offer.

Some things that can slow down a mortgage application process include:

  • Credit checks/credit score and affordability checks: in some cases, a lender may decline to offer a mortgage based on credit score and advise improving it before then reapplying. The lender will also check your income to ensure the loan repayments are affordable which if they do not believe they are this can delay your access to the mortgage.
  • Missing details: if there are key details missing from the application, this can slow things down as the lender will need to get in touch to request these are sent through
  • Property valuation: the lender will usually want a valuation for the property to ensure they are loaning the appropriate amount. Occasionally there can be a hold up with this process, causing delays to the approval of the mortgage.
  • Problems with the sale chain: if the owner of the property being bought has a hold up with their mortgage for a new property, this can affect the speed at which you can buy and put your new mortgage in place. The same can be said for if you have a buyer for your current property who has delays in securing their mortgage.

How do I apply for a remortgage?

In some cases, people will choose to remortgage in the hopes of securing better rates, to fund home improvements or for various other reasons. A remortgage can lead to considerable savings long term so it is a decision that can make great sense financially.

The process for applying for a remortgage is similar to applying for a standard mortgage. You can speak to your current lender about changing your mortgage terms or potentially switch to a new lender if their deals are preferable.

The lender will still need to follow standard checks and procedures such as assessing credit history, income vs expenses as well as other relevant factors. As opposed to an initial mortgage, in a remortgage the lender will also consider:

  • The amount of equity held in the current property
  • How long is left on the current mortgage term
  • How much is left to pay on the mortgage
  • Whether you are tied into Early Repayment Charges or exit fees if moving to a new lender

It is vital to check before switching lenders whether your mortgage contract includes early repayment charges (ERC). These are fees that will be charged if choosing to end the mortgage agreement early for any reason. Not all lenders will have these in place so check with your lender about their specific policies.

How do I apply for a second mortgage?

Existing property owners may choose to take out a second mortgage for various reasons, such as a way of consolidating debts or to enable home renovations etc.

This is sometimes referred to as a second charge mortgage with the original mortgage being the ‘first charge’ per month and the new loan being the ‘second charge’. This mortgage is a new secured loan alongside the existing mortgage, as opposed to a remortgage in which a new mortgage deal is negotiated.

To apply for a second mortgage, you can speak to the lender for your current mortgage to start the application process. They may be able to offer preferential rates to existing customers.

The process for applying for a second mortgage involves the same considerations as applying for any type of mortgage. The lender will want to run credit and affordability checks to ensure the new loan repayments are affordable. They will also want to follow other standard processes for a mortgage application such as a property valuation.

With a second mortgage the loan will be secured against the equity held in the existing property rather than a cash deposit. This is similar to a remortgage in this sense.

Applying for a mortgage with bad credit

It is still possible to secure a mortgage, even with bad credit. Having a poor credit history is not an automatic block to being able to access a reasonable mortgage deal.

With only minor issues with credit, mortgages should still be accessible through most mainstream lenders. In circumstances where the applicant has a substantial amount of debt or poor credit, a specialist lender may be a more appropriate choice.

We have sourced a selection of specialist lenders that are excellent for providing mortgages to borrowers with a less ideal credit history. These include:

  • Accord mortgages
  • Aldermore
  • Bluestone
  • Kensington
  • Paragon
  • Precise
  • The Mortgage Lender

When applying for a mortgage with bad credit, it is advisable to speak to a mortgage specialist. We pride ourselves on our expert knowledge in this area and are able to offer extensive advice to anyone struggling to secure a mortgage due to their credit history.

For more information on securing a mortgage with poor credit click HERE.

Useful resources – Sign your mortgage deed – The mortgage guarantee scheme

Citizen’s Advice – Buying a home

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