Mortgages, a dreaded word for first time buyers. Getting a mortgage can feel intrusive and a bit daunting but we’re here to make it as simple as possible for you. Everyone hates rejection so we’re here to make sure you get that YES!
We’ve sat down with the experts and absolute legends at RM Financial to give you the inside scoop into mortgages. What to do, what not to do and how to make sure you’re 100% prepped to get the best rate mortgage you can.
We’ve asked them the top 5 questions we know you are dying to get the answers to, so let’s dive right in!
How much can I borrow?
This is the most asked question by far, obviously everyone wants to know how much they can borrow so they can hunt down that perfect new pad! It can be dependent on the bank and your affordability (your monthly income vs outgoings and any outstanding debt). We would say a rough guide is the bank will lend you up 4.5 times your annual salary. Now, if you’ve got savy due to COVID and started a side hustle just remember you can include this, but you’ll need at least one year of accounts. Hagan Hack, Nationwide has just released a first-time buyer mortgage that will lend up to 5.5 times your salary. Be cautious with this though, make sure it's affordable for you. Make sure you get your hands on a fixed rate mortage if you can, it means you know how much is coming out each month, making it easier to budget.
2. How much deposit will I need and what about Co-Ownership?
You’ll need a minimum of 10% deposit on a new build, this is pretty standard across all banks. With Co-Ownership you won’t need any deposit. Co-Ownership means you will buy a % of the property and the Government will purchase the remainder, meaning the amount you need to mortgage will be lower. Which makes it easier for first time buyers to get onto the market - kinda nifty really. You’ll pay rent to the Government on the % of the home they own, just make sure you work out exactly how much that is to be sure you can afford it. Its key to know not all banks offer Co-Ownership mortgages, there’s only a few. If you’re buying a house to rent out, you won’t be able to get your hands on a Co-Ownership mortgage - its only residential. You can re-mortgage the house over time to increase your % and reduce the Governments meaning you can own the house all by yourself after a number of years. If you use a mortgage advisor, they will help you complete the Co-Ownership application.
3. What do I need for my mortgage application?
To start off, you will need 3 months bank statements, easy really! If you are your own boss, you’ll need up to 2 years accounts - so make sure you keep your shiz organised. Secondly, you’ll need some valid ID and proof of address, if you’re not a British Citizen you will also need proof of permanent residency or proof you have lived in the U.K for over 2 years. Lastly, proof of deposit or a savings account statement so the bank know you’ve got the cash monies.
4. What does a lender look for on your credit file?
It’s not a surprise that your credit file is very important when applying for a mortgage, there are two places a bank will look, which is either your Experian or Equifax file. A really good way to improve your score is by signing onto the electoral roll, easy right? A really obvious one is the banks want to make sure you can keep up with payments and pay off debt, so make sure you don’t miss a credit card payment - we know it’s an easy thing to forget in busy life these days, just set up a direct debit so it is one less thing to worry about. Having no credit history is nearly as bad as having a low credit score (weird right?). It’s because banks don’t know that you can pay money back. It’s worth building up your credit file by getting a credit card but be sensible with it! Only use it for groceries or fuel, it’s not free money! Defaulted accounts are another thing that banks will look for, and don’t worry we all took out that £1,750 Santander overdraft at uni and forgot to pay it back, if you have a default on your account over 2 years old, its nothing to worry about if you pay it back. Just be aware that it may reduce the number of banks willing to lend, but it by no means is it a no. Hagan Hack - even if your mortgage application has been approved don’t get that banging new sofa on finance until you have the keys in your hand, the bank can pull out if your score decreases.
5. What are banks looking for in my bank statements?
Let's clear this up now, the banks don’t care if you love a monthly ASOS haul or a few cheeky pints after work on a Friday. So don’t feel like you can’t leave the house or even treat yourself to an M&S two can dine in for £12 three months before applying. Another common misconception is gambling, you can have a monthly football accumulator but if COVID has forced you to download Foxy Bingo and spend your Friday nights on there, we would recommend deleting that account. Hagan Hack - don’t think you’re the ultimate joker when transferring friends and family money with illegal payment references, it might be funny at the time, but a bank can refuse a mortgage application because of it, keep it PG. At the end of the day the bank just wants to make sure that you can afford the repayments so don’t think it’s ok to live in an un-arranged overdraft, it’s not cool. They also want to make sure that your salary matches your payslips. They are not sitting there judging you over that £30 Starbucks order - we all need our iced oat frappes with sugar free vanilla syrup and cold foam!
Mortgages are a bit like speed dating, they all depend on your personal circumstances. You might need to swipe left a few times before finding that perfect match.
Get in touch with Rhys at RM financial if you are looking for a mortgage, he’s on your side!
Let’s get you that mortgage and your dream home!