Updated: Jun 12, 2018
Guest Blog - Claire Butter, Mortgage Advisor - Buchan Wealth Management Senior Partner at St James Wealth Management.
Buying a home might be the most substantial purchase you ever make; and it is vital that you have the right mortgage. With so many lenders offering so many products, the choices can be bewildering.
This blog is to help outline what you need to know before you get a mortgage.
SO WHAT EXACTLY IS A MORTGAGE?
A mortgage is simply a loan secured on a property and/or land. It’s a large loan taken over a long period of time. The ‘secured’ part of the description means that if you do not make your mortgage payments and the mortgage falls into arrears, then the mortgage lender has the right to repossess the property and sell it to repay the money you borrowed. If the lender does repossess your home and the sale proceeds do not cover what you borrowed, you will still have to pay back the shortfall. That’s why it’s so important to make sure you have the right mortgage and at a level you can afford.
There are two options open to you:
A ‘repayment mortgage’ (or ‘capital and interest mortgage’) works in a very similar way to a normal bank or building society loan (say, for a car) in that you borrow a sum of money (capital) and you repay it plus interest over a certain term; it’s just a larger amount over a longer term. If all the payments are met, the mortgage is guaranteed to be repaid by the end of the term.
An ‘interest only mortgage’ is exactly as it sounds; you just pay interest but none of the amount (capital) you borrowed. The capital is repaid under the conditions of whatever the particular mortgage lender considers to be a ‘credible plan’, for example with regular ISA savings made over the term of the mortgage. You should be aware that many lenders do not offer interest only mortgages any more.
Don’t forget that, in both cases, the lender has the security of the property.
Ok so let’s let breakdown the 10 Steps you need to know before buying your house.
1. GET YOUR PAPERWORK TOGETHER
• The first things a lender will want are your full name, address, date of birth and all your contact details. They will also want to know your marital status, whether you have any children and how old they are.
• They will want to know details of where you’ve lived over the last three years. This is so that they can check the credit register for your credit history. Your credit history shows where you live and the details of all occasions when you’ve taken out (and even applied for) a loan, a credit card, a store card and even a mobile phone contract. It also records your payment history so if you’ve missed payments or been late making them, that information is visible to the lender and will make a difference to whether they offer you a mortgage or not.
• They will want details of your employment history for the last three years and your current income to ensure that (a) the mortgage will be affordable for you and (b) you are in a position to make the mortgage payments.
• They will want details about any credit commitments you have and will check those against their credit register search. They will want explanations for any discrepancies between what you tell them and their credit search so make sure you list everything. In fact, producing a full list of your income and regular expenditure is always very helpful.
• Naturally, in due course, they will need the details of the property you want to buy – the address, the construction of the building (as some lenders will not offer mortgages on concrete or wooden constructions), details of who you’re buying from, the purchase price, how much you want to borrow and the term over which you want to repay the mortgage. You will also need to appoint a solicitor to handle the legal work for you and the lender will want those details too.
• The documents a lender will want to see will be proof of ID and separate proof of address: plus, if you are employed, your last three months’ payslips and most recent P60; if you are self-employed your last three years’ SA302s and statements of account. They will usually want your most recent three months’ personal bank statements and, for a self-employed person, your last six months’ business bank statements. If you are receiving a sum of money from a family member toward the deposit, the lender will want a letter from that person stating that the money is a gift, that the person does not require repayment and that they will have no legal interest in the property.
2. CONTACT A MORTGAGE ADVISOR
Having someone to help guide you through the complexity of today’s mortgage markets, is highly recommended to help make the process as straightforward as possible, and ensuring that you not only have the right kind of mortgage to suit your individual needs, but also the most suitable rate from the most suitable lender.
3. UNDERSTAND HOW MUCH YOU CAN BORROW
You may have a desired mortgage amount in mind, or you might want to know the maximum a lender will give you, or you may want to know the most you could sensibly borrow. Your bank would be able to tell you only how much they will lend you.
Gone are the days of 0% deposits. Most lenders will consider a deposit as low as 5% but as a general rule, the higher loan to value (LTV*), the higher the interest you pay. In order to keep your mortgage repayments as low as possible we recommend aiming to secure a higher deposit if possible.
*LTV – amount you are borrowing compared to the purchase price or property value (whichever is lower)
Be aware that if a lender or an intermediary wants to submit an agreement or decision in principle (a partial mortgage application without property details) on your behalf, the lender will carry out a credit search on you. If you have several of these done by different lenders, this could reduce your credit score by giving the appearance of being turned down for credit.
4. OBTAIN AIP/DIP
Once you have an agreement in principle (AIP) or decision in principle (DIP), you’ll usually receive written confirmation showing the maximum amount you can borrow.
5. FIND A PROPERTY AND MAKE AN OFFER
Contact some estate agents or search online, make a shortlist of the properties in your price range you want to see and arrange to see them.
Once you have seen some properties, if there is a particular one you’re interested in, arrange a second (and even third) viewing to make note of details about the property and its surroundings. If you’re not sure about anything, ask! It’s also a good idea to go and see a property at different times of the day to check out things such as the traffic.
When you’ve found the property you want, make an offer (via your Solicitor) to the seller.
6. SUBMIT FULL MORTGAGE APPLICATION AND INSTRUCT SOLICITOR
Once an offer is accepted, your Mortgage Advisor will then complete the full mortgage application and submit it to the mortgage lender on your behalf. This will consist of all the information mentioned previously and you’ll need to supply the documents mentioned above to go with it, along with payment of any fees. When you have submitted the application, the mortgage lender will start the ‘underwriting’ process. This means that they will be checking all the information you have given them on the application form and checking the documents you have provided to make sure they all tally.
They will also arrange for the valuation to be carried out for New Builds or a copy of the home report to be sent (if the home report is dated in the last 3 months, if more than 3 months old a refreshed home report will need to be carried out, this is at the sellers cost) If the lender feels that they do not have sufficient information from you, they may request more.
7. REVIEW PROTECTION AND SUBMIT APPLICATIONS
At Buchan Wealth Management we will talk to you about arranging protection for your mortgage. This will be entirely dependent upon your personal circumstances but may include:
• Life and/or critical illness cover to repay your mortgage in the event of your death or earlier diagnosis of a critical illness (e.g. cancer, heart attack, or stroke) during the term of the mortgage.
• Income protection, which will provide you with an income if you are unable to work for a prolonged period.
• Mortgage payment protection, which might pay your mortgage for up to two years in the event of accident, sickness or unemployment.
• Buildings and contents insurance for the property.
None of these is compulsory except for buildings insurance; it will be a condition of the mortgage that you put this in place in time for the exchange of contracts.
However, your mortgage lender will make it clear in the offer that it is your responsibility to pay your mortgage in all eventualities, so it is wise to consider the options available to you above.
8. MORTGAGE OFFER ISSUED
When your mortgage offer is issued, a copy of it will be sent to you, your solicitor and your Buchan Wealth Management Mortgage Advisor. Check it carefully and seek clarification from your Mortgage Adviser or the lender if you are not sure of anything. Your solicitor will arrange a meeting and will go through the contract with you, double-check the details are correct and explain the legal obligations contained within it prior to asking you to sign the contract.
9. SIGN CONTRACTS WITH SOLICITOR
When an offer is accepted on the property a completion date is usually set. This is the date you legally take ownership of the property and receive the keys. This may be up to three months later.
10. PICK UP KEYS TO YOUR NEW HOME AND MOVE IN!
On the day of completion, the mortgage lender will transfer the funds to your solicitor, which in turn will be passed on to the seller’s solicitor. When this has taken place, you’ll be invited to pick up the keys to the home that you now own.
CONGRATULATIONS!! YOU MADE IT!
But what if I'm an expat wanting to buy a house in the UK?
The UK mortgage market has shrunk considerably since the economic downturn with many high street banks and building societies withdrawing from the ex pat market. There remains a number of competitive options available.
Expat mortgages fall into two categories: those that are for people who are about to move abroad and wish to retain their property here – usually to rent out; and people who are currently living abroad and are planning to return home at some point in the future.
These mortgages are looked at on an individual basis now. If you have any questions about these please get in touch.
(Your home maybe repossessed if you do not keep up with your payments on your mortgage)
At Buchan Wealth Management, a Senior Partner Practice of St. James’s Place Wealth Management we will help guide you through the complexity of today’s mortgage markets, making the process as straightforward as possible, and ensuring that you not only have the right kind of mortgage to suit your individual needs, but also the most suitable rate from the most suitable lender.
To discuss your mortgage needs contact Claire Butter, Mortgage Adviser, 01224 202421 or firstname.lastname@example.org
The Partner Practice represents only St. James's Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group's wealth management products and services, more details of which are set out on the Group's website at www.sjp.co.uk/products. The `St. James's Place Partnership' and the titles `Partner' and `Partner Practice' are marketing terms used to describe St. James's Place representatives