So far in our property buying guide we’ve covered off the process for getting a mortgage agreement in principle (AIP) and what should you consider when viewing a property (see parts one and two of this five part series).
Now, in this third instalment, we’re going to take a look at what happens once you’ve had an offer accepted on a property and need to formalise your mortgage.
Applying for a mortgage
The first thing you’ll need to do after getting an offer accepted on a property is to contact your mortgage broker (or the lender your AIP is with if you went directly to them) to get the ball rolling on your mortgage application. This is vital as you’ll have to have these funds in place before you can exchange contracts on the property.
forward with the property purchase. Remember, your AIP was just an indicator of what the bank would be willing to lend you in principle. It’s not a binding agreement. Only once you receive the formal mortgage offer have you successfully secured the funds you need.
What will a mortgage lender ask for as part of a mortgage application?
Similar to when you applied for your AIP (agreement in principle), a mortgage lender will ask for proof to substantiate the information you’ve provided in your application.
You’ll typically be asked to demonstrate your earnings either by supplying three months’ payslips or your last three years’ SA302s, tax year overviews or business accounts if you’re self employed.
A lender will also want to make sure you can comfortably afford the mortgage repayments, so will ask you to provide your most recent three months’ bank account statements. This is so they can see what your typical monthly outgoings amount to, and whether the mortgage repayments would be manageable in addition to these expenses.
You’ll also be asked to provide evidence of your deposit (the amount of money you are putting towards the property purchase from your own savings). This could take the form of a statement from a savings account or a building society, clearly showing the account in your name and the amount of money deposited.
You’ll need to additionally verify your identity to confirm you are who you say you are. This is to protect against fraud, and you’ll usually be asked to supply two approved forms of certified ID, one of which must be a photo ID (usually a passport or a driving license). The other form is usually a household utility or council tax bill, bearing your home address.
Finally, you’ll have to provide the memorandum of sale (an official confirmation from the estate agent that lists the property you’re purchasing and the agreed purchase price) and you’ll need to give contact details for the conveyancing solicitor who will act for you in the purchase.
Agreeing a mortgage term and borrowing rate
Together with providing evidence of your income, savings and spending, at the time of making a formal mortgage application you’ll also have to decide on a mortgage term and borrowing rate – how many years you’ll take out the loan for and at what rate of interest.
Most lenders typically offer fixed rates of interest over two, three and five years. This means that instead of the interest rate you pay on the loan being variable (able to go up or down month by month), it will stay the same for a fixed duration of time (kind of like when you lock in a fixed rate with an internet or mobile phone provider for a set time). Variable tracker rates are also available should these be best suited to your circumstances.
When making your decision, don’t just look at the monthly repayment amount but the amount you’ll repay over the lifetime of your mortgage. Also, factor in any product fees too (this is a charge you pay the lender to access that particular mortgage product). The lowest rate of interest may have a product fee of £999 for example, whereas a slightly higher rate may have no product fee to pay and could work out cheaper over the mortgage term.
Your mortgage broker will assess your circumstances, go through the different lending rates available to you, and recommend the right product to match your needs.
What if I’m applying for a Help to Buy mortgage? Is the process the same?
If you’re buying your first home through a Help to Buy scheme, you’ll still need to apply formally for a mortgage in the same way we’ve outlined above, but you’ll need an ‘Authority to Proceed’ from your local Help to Buy agent before the sale can complete. Your mortgage broker will assist you with this process.
My mortgage lender wants to charge me a valuation fee – what’s this?
A valuation fee is a charge a lender sometimes adds in for sending a chartered surveyor to the property you’re purchasing in order to clarify that it’s worth the price you’ve agreed to pay for it. It’s essentially a precautionary measure the lender takes to be assured that its loan against the property is secure. Unfortunately this isn’t optional. If you don’t proceed with the valuation the lender won’t grant you the mortgage.
Does my mortgage offer have an expiration date?
In a word – yes. You’ll only have a set period of time (usually 6 – 12 months) in which your mortgage offer is valid, so you’ll need to complete on your property purchase within this window. Once the offer expires it might be possible for the offer to be extended or you’ll have to reapply. If your financial circumstances have changed you may not be able to secure the sum you were originally offered.
For more advice on Help to Buy or getting a mortgage, contact Threshold today.
- Home buying guide, part 1: Establishing affordability
- Home buying guide, part 2: Finding a property
- Home buying guide, part 4: Solicitors and exchange of contracts
- Home buying guide, part 5: Completion day
Your home may be repossessed if you do not keep up repayments on your mortgage.