Guide to Applying for your First Mortgage

When it comes to applying for your first mortgage, there are many things that need to be taken into consideration.

This guide will take you through what factors are considered and what information you will need to provide in order for you to make your first successful mortgage application as a first-time homebuyer.

Have you Got a Deposit?

You will need to have a stash of savings to place as deposit on a property. This article outlines the different ways the UK government is helping first-time homebuyers and home movers. Alternatively, you could raise the deposit funds with the help of a family member.

Take a look at our Guide to Guarantor Mortgages and Joint Mortgages for more on this.

What Can you do Before Applying?

First, you should find your credit history report and most importantly, make sure that there is no incorrect information about you on it. This may include;

  • Your entry in the electoral register.
  • Credit accounts that you may not use anymore, but may still be open.
  • Names of former partners or flatmates of which your credit report may still be financially linked.

Once you are satisfied that the information is 100% correct, you can examine your score and figure out if there is anything you can do to rosy-up your rating.

This Guide to Improving your Credit Report is full of handy hints on how you can do this.

How Do I Choose the Right Mortgage?

When choosing a mortgage, you must consider how you would like to repay it (i.e. interest only or repayments) and over how many years. Traditionally, mortgages last 25 years, but you can get them for 20-30 year periods. You can even find mortgages that must end on the applicant’s 85th birthday.

The longer your mortgage term, the lower your monthly repayments will be. However, the longer your mortgage lasts, the more interest you will pay in total. Taking a longer mortgage term is beneficial for those who need cashflow, extending the term can also help you meet affordability criteria that you wouldn’t necessarily be able to meet if you chose the standard 25-year term. 

A financial advisor can help you make the best decision by giving you specialist advice from their years of experience.

Take a look at this Guide to the Benefits of Broker Advice, for more about how their services can help you.

What Documents will you need to Apply for a Mortgage?

These will vary from lender to lender, but typically you will need;

  • At least three months’ payslips
  • A P60 from your employer
  • Information of any loans, credit cards or finance agreements you are currently paying off
  • Bank Statements from your current account (around 3-6 months of statements)
  • Bank Statements from any savings accounts you may have (again, 3-6 months’ worth)
  • Proof of any benefits you currently receive including disability, housing benefits etc.…
  • If you are self-employed, you will also need two to three years of statements from your accounts, as well as SA302 forms and tax return documentation. We have a guide to applying for a self-employed mortgage here. However, if you carry out self-employed/freelance work alongside your normal paying job, then you will need to provide this associated proof of earnings when making your application.
  • 3-6 months of utilities bills
  • Proof of identification (passport or driving license)

What Do Lenders Assess in the Application?

Every lender has its own criteria for approved borrowers.  Lenders will assess your mortgage affordability based on your current level of income. If you are buying a house with a partner, they will look at the overall combined household income. They will take into account not just your basic income, but income plus any benefits and/or commission earned in your job. They will also look at money earned from any second/freelancing jobs.

The lender will also need to assess your current level of debt, to make sure that these costs, plus a mortgage payment every month, wouldn’t leave you struggling.

Typically, this stage of the application process is known as a ‘stress test’. For example, if you were to apply for a Standard Variable Mortgage how would you fare in the circumstances, should the Bank of England Base Rate were to increase dramatically? Could you still afford the mortgage as well as pay your utilities and debts?

Mortgage providers also take into account your ability to keep up with your repayments, should your fixed-term contract of employment end for example, or if you were to go on maternity leave.

Before your application is processed by the lender, you will be given a Key Facts Illustration (KFI) this is a formal document which outlines the lender’s full terms and conditions for the loan. It shows the address of the property, the interest rate, main fees associated, total cost of the mortgage and it will tell you if the mortgage is portable. A copy will also be sent to your legal representative.

What Will I be Charged for in the Mortgage Application Process?

In seeking independent financial advice, you will be informed of the exact costs of making a mortgage application and this figure can of course vary. Some brokers do receive a commission from the lender, should you sign up. Alternatively, you may be charged for their services upfront.

Read more in this Guide to the Benefits of Brokers.

You should also note that if you approach a lender directly, these charges may be wavered in order to incentivise you to take up a mortgage with them.

You will also have to factor in some extra costs in securing a mortgage and buying a house, these may include;

  • Mortgage Booking Fee – This is the fee the lender charges to ‘reserve’ your mortgage funds, as your application is being processed. This could cost around £100.
  • Arrangement Fee-  This is also known as the Completion Fee and it covers the cost of setting up your mortgage arrangement with the lender. This may be priced according to a certain percentage of the mortgage value.
  • Valuation Fee- This covers the cost of the mortgage lender sending a valuator around to the property you wish to buy, in order to confirm that the property is a suitable to act as security for the loan. This is not to be confused with a Homebuyer's Survey. The price of this survey will vary from lender to lender.
  • Account Fee – This is the cost of setting up, maintaining and closing your mortgage account. This figure could cost £100 or more.
  • Higher Lending Charge – This is not a common charge, but some lenders may ask you to pay a fee for offering you a mortgage covering a high percentage of the property’s value. This is designed to cover the lender, should you fail to keep up repayments and they have to sell your property at a loss. This could be approximately 1.5% of the mortgage value.  
  • Conveyancing Charge – This is the legal cost of undertaking the application. This goes to the solicitor or conveyancer and the cost can vary, depending on what they charge for their services.
  • Search Fee- Your solicitor may charge you Search Fees. This covers any council searches to find local issues that could affect the property’s value. This could cost a couple of hundred pounds to conduct.
  • Survey Fee- When buying a home, you will need to pay a surveyor to inspect the property and assess what (if any) work needs doing which could affect its value. There are two kinds, Homebuyers Report and the more involved Full Structural Survey. The cost could vary from hundreds to thousands of pounds.
  • Moving Costs – Don’t forget, you will need to factor in the hidden costs of moving such as hiring removal vans, installing broadband etc.
  • Telegraphic Transfer Fee – This is paid by the lender to the seller’s solicitor and covers the transfer of the mortgage funds. This could cost around £50.
  • Stamp Duty – This is worked out as a percentage of houses over £125,000 in value and steadily increases the more the property is worth. This is paid to the Land Registry upon purchase. The thresholds are set as follows;
    • 0 on properties up to £125,000
    • 2% on properties valued at £125,000 -£250,000
    • 5% on properties valued at £250,000- £925,000
    • 10% on properties valued £925,000 - £1.5 million
    • 12% on properties valued over £1.5 million

Buildings Insurance – You may be required to pay a fee for buildings insurance if you choose to shop around and not opt for the buildings insurance offered by your lender.

Mortgage Life Insurance – If you intend to make the largest purchase of your life and you have dependents or a partner, you need to make a contingency plan for the loan. As with building insurance, your lender may offer you a Mortgage Life Insurance plan. However, shopping around could save you money.

These costs will be outlined in detail on your Key Facts Illustration document. You will also be given the choice of paying the fees upfront or incorporating them into your mortgage repayments.

Let’s Look at an Example:

Grace is looking to buy her first home. She earns £32,000 a year and has saved a £15,000 deposit. She is looking for houses for sale up to a maximum of £150,000 in value. She has been offered a 90% LTV Mortgage, with the extra fees broken-down into the following figures;

  • Mortgage Account Fee (payable before mortgage funds are released) - £280
  • Product Fee- £480 with the option of this being £0 if she chooses a mortgage where the fee is included within the price of the mortgage (this could equate to an extra £10-20 on top of her mortgage bill per month)
  • Valuation fee - £250
  • Stamp Duty – set at 2%, totalling £3,000
  • Mortgage Set Up Fee - £99
  • Solicitor’s Charge - £300
  • Life Insurance- Grace found a deal for £18 a month

In taking these costs into account and the additional costs associated with moving into a new home (i.e. broadband set-up, maintenance repairs etc.), Grace opted for a mortgage deal where the product fee was absorbed into the cost of her mortgage.

How is the Mortgage Repaid?

When considering which mortgage option to go for, you should pay close attention to the lender’s Annual Percentage Rate (APR), this will show you the total yearly cost of the mortgage product. This will be expressed as a percentage of the loan amount.

Please Note: From March 2016, lenders must use Annual Percentage Rate of Charge (APRC). This encompasses the annual cost of the mortgage (as a loan percentage), as well as any fees associated with the mortgage, including valuation fees and redemption fees.

Please see our Guide to Mortgage Types for more details on how mortgages can be repaid and when extra charges may be applicable.

What Happens if My Application is Successful?

The mortgage application process takes around four weeks to complete. If you are successful, you will be offered a Mortgage in Principle. This agreement is valid for 3-6 months and lets estate agents know that you are an acceptable candidate for putting on offers in their portfolio.

If the Mortgage in Principle agreement is not actioned within the 3-6 months of it being issued, you will need to apply again. Be careful about applying for too many mortgages, as these applications leave what is known as a ‘hard footprint’ on your credit report. This means that your credit rating could be negatively affected if you seek, but don’t take up, too many offers for mortgages.  

It is possible to extend this deadline in extenuating circumstances, for example, you may be buying a new build property and the building work has yet to be completed.

It is also possible for the lender to revoke your application during this time. They may do this if, for example, you have been made redundant during the 3-6 month period.

What if My Application Gets Rejected?

If the lenders you approach reject your application for a mortgage, don’t get disheartened, there may be steps you can take to get a better result next time.

Some of the reasons you may have been rejected this time around may include;

  • Poor credit history, there are a number of steps you can take to improve its. Take a look at this Guide to Improving your Credit Rating for more information.
  • You may not be registered on the electoral roll
  • You may have made too many applications for credit in the recent past
  • You may have too many outstanding debts
  • You may simply not match the lender’s profile of ideal candidates (this will vary and may be an issue for those looking for a self-employed mortgage product)
  • You may not have a high enough income; in which case, you may need to consider finding a higher paying job.
  • There may be administration errors, for example, credit accounts that you may have forgotten to close.
  • Your deposit may be too small; in which case, you may need to save up some more funds.
  • You may have lived in the UK for less than three years.

Ultimately, lenders will vary on who they lend to and the criteria and documentation they need from you in your application. However, this article may have given you some pointers on how banks and building societies assess your level of ‘risk,’ when they consider offering you a loan.

Summary of the Mortgage Process

  1. Raise your deposit
  2. Seek financial advice
  3. Apply and receive a Mortgage Agreement in Principle
  4. Get an offer accepted on a property
  5. Legal process of buying and selling begins
  6. Exchange contracts and complete the sale (mortgage funds released)
  7. Move in and start paying your mortgage

For personalised advice, unique to your circumstances, it is always wise to consider advice from an independent source. Get in touch today, and receive your free quote.

Compare deals from the UK's leading lenders including