How to get a mortgage
Last reviewed on 09 June 2016
Where to get a mortgage
Most high street banks and building societies offer mortgages. As well as the big names there are smaller banks such as Tesco Bank, Sainsbury Bank and Metro Bank as well as the Post Office, regional building societies, specialist lenders, some credit unions and other organisations which offer mortgages.
You can get a mortgage either direct from a lender or via a mortgage broker.
If you go direct the lender will only offer advice on its own range of products. You’ll be asked lots of questions about what type of mortgage you want, whether it’s appropriate for you and how long you want the loan for. The lender will then recommend a mortgage suitable for your needs and circumstances.
Mortgage brokers offer a similar but much wider service.
A mortgage broker can advise you on what type of mortgage would be best for you, tell you which lenders offer the best deals and then help you arrange your mortgage.
Some brokers only look at mortgage deals from a limited number of lenders while others can advise on the whole market. Brokers also often have access to exclusive deals from lenders but there may be some deals which are only available direct from a lender.
A mortgage broker must tell you upfront how much of the market they look at and if they charge for their advice. This could be a flat fee and/or a percentage of any home loan they help you arrange. Some brokers don’t charge a fee but receive commission if they sell you a mortgage.
For help finding a mortgage broker visit unbiased.co.uk.
Going it alone
If you don’t want any help or advice and know exactly what mortgage product you want you can go straight to the lender. But if you don’t take advice, you’ll have to fill in the forms yourself without speaking to an adviser and confirm in writing that you received no advice. This type of mortgage application, known as execution-only, is only allowed in certain circumstances.
Whether you take advice or not you will still have to go through a formal application process with your lender.
Applying for a mortgage
New rules introduced in April 2014 tightened up the mortgage application process. Lenders now not only have to check you can afford the repayments on any loan they offer you by carrying out an affordability check, but they also have to ‘stress test’ your ability to repay the loan if your circumstances change or interest rates rise by say 3% in the first five years of your loan*.
The lender will look closely at your income and spending habits. As well as wanting to know how much you spend on such things as rent, household bills, pension contributions, loans, travelling to work, childcare and basic living costs such as food, clothes and leisure, many lenders now go further. Don’t be surprised if you’re asked about how much you spend on holidays, hobbies, pets, the hairdresser, dry cleaning, socialising, take-aways and so forth.
They then use this information to help them decide how much they will lend you. The tighter rules have led to some people being offered smaller loans than they might have in the past while others, such as the self-employed and those with irregular income, may find it harder to get a mortgage.
How to speed up the mortgage process
Get your finances in order before you apply for a mortgage.
- Sort out any debts you have. You need to show a potential lender that you have enough income to service any existing loans, credit card bills etc as well as being able to repay a mortgage. You may need to clear or reduce some of your debts first.
- Lenders increasingly rely on credit scores when deciding if someone can afford a mortgage so check your credit rating is up to scratch. You can get your credit report from credit rating agencies Equifax and Experian for just £2, or Callcredit for free (by visiting noddle).
- Make sure you’ve saved enough cash to pay a deposit on your new home (you’ll need at least 5% of the purchase price) as well as for legal fees, stamp duty, surveys and other fees.
- Draw up a detailed budget of all your income and spending, ideally several months before you apply for a mortgage. Not only will this save you time when you come to apply but you’ll also be able to see in advance if you need to adjust your spending habits to persuade a lender to give you the size of mortgage you’d like.
- You’ll need proof of your income so make sure you have payslips, bank statements, tax returns, accounts if you’re self-employed and any other relevant documents to hand.
* Recommended by the Financial Policy Committee.