Buying Guide Step 2

Getting a Mortgage

Which Mortgage Company and What Mortgage?

Your mortgage is likely to the be your biggest single household expense, so you need to be sure you have the right deal.

Get an Agreement in Principle

We always recommend that you pre-arrange your mortgage with a lender before you start hunting for property – also known as getting an agreement in principle. Speak to an Independent Mortgage Adviser to make sure you get the best deal for you.

This means that you know you are looking for property within your budget, and just as importantly you can make a qualified offer which puts you in a better negotiating position and allows you to quickly complete the legal process.

In turn this means you are less likely to miss out on the property you want and you are less likely to suffer from gazumping – where another buyer comes along and offers the seller more money.

Getting a good deal

Having a good credit rating and having savings for a deposit puts you in the best position for securing a good mortgage rate.

Generally, the best mortgage rates are available to buyers who have a good credit rating and can provide at least 15% of the property’s value as deposit. This means they are only looking for an 85% mortgage from the mortgage company.

If you have a low credit rating, county court judgements, or you have been declared bankrupt, you may have to pay more for your mortgage.

Checking out your Credit Rating

You can find out about your own credit reference file with one of the UK’s main credit reference agencies: Experian, Equifax or Callcredit. It only costs a few pounds to do this and if you spot anything wrong you can start to put it right.

What is a mortgage exactly?

A mortgage is a loan to buy property, and it is secured against the property itself. This means if you do not keep up repayments on the loan the mortgage company (lender) can repossess the property. So it is very improtant that you only borrow an amount of money that you can afford to pay back.

When you come to sell the property you will need to pay off any remaining mortgage from the sale first. Usually this is sorted out by your solicitor so you don’t need to do anything; you just need to include it in your budgeting figures.

A higher deposit gives you the best rates

Many mortgage companies won’t lend if you have less than 10% of the property’s value as a deposit. If you are only able to put up a deposit of 10%, you may have to pay a “Higher Lending Fee” (sometimes called a Mortgage Guarantee Charge or a Mortgage Indemnity) which will mean you are likely to pay a higher mortgage rate and additional administration fees.

You may be able to apply for a ‘help to buy’ scheme – read more in our guide

How will I be assessed for a Mortgage?

The mortgage advisor will look at your income and if you are a couple they will look at both your earnings.

If you are self-employed a lender is likely to want a couple of year’s accounts and if you are employed on a contract they will want to know the terms of your contract and that your income will continue.

If you are about to move to a higher paid job the lender may also take this into consideration.

Choosing a Mortgage

Many companies have introductory rates and it is a good idea to be sure you are comparing mortgage products on a like for like basis.

As well as the monthly repayments you need to check out the following point s:

  • Any charges to set up the mortgage
  • Any penalties for early repayment
  • How long is the mortgage term? Most are 25 years but some are available for different periods.
  • What happens at the end of any special offer period?