Buying your first home can seem a daunting prospect, so seeking professional assistance is advisable. Most buyers will require a mortgage to purchase their home, and this is normally arranged directly with a lender or using the services of a broker.
Our panel mortgage adviser SRC Mortgages provide expert advice to help those setting out on the home buying journey to understand the mortgage process and some of the key considerations they will need to think through.
Using a high street lender or a mortgage broker?
Using a broker can be beneficial in many situations. They will normally have access to a wide range of lenders and have specialist knowledge in certain sectors, affordable housing is one example. Brokers will normally provide a more holistic service and can support you through the complete home buying process.
Going direct to a lender may save you money (not always) but it will limit you to the products offered by that lender only. And if they reject your application, you will need to go through the whole process again with another provider.
A good broker will be able to explain the advantages and disadvantages of using their services, so make sure you ask lots of questions before deciding which route to take.
The Mortgage Interview
Whether you go direct to a lender or through a broker, you should expect to be asked lots of questions about your personal and financial circumstances, this is to check your affordability. Interviews can be conducted face-to-face or online at a time and place convenient to you. Remember, if you are making a joint application, you will both need to be present.
It is important for your adviser to know as much about you as possible to ensure that any mortgage they recommend is suitable. If your circumstances are likely to change in the future this could have an impact on your borrowing ability.
You will almost certainly be required to provide documentation to support the information you have provided during the interview. The list below is not exhaustive but having these to hand may save you time.
- ID – normally a passport or driving license.
- Proof of address – a recent bank statement or utility bill.
- Proof of income – last 3 months' payslips and possibly latest P60.
- Self-employed – last 3 years accounts
- Proof of deposit – a copy of the statement.
- Credit report
If you think you will have trouble obtaining any of these items, you should raise this with your adviser as soon as possible.
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Your adviser should recommend a mortgage product suitable to your needs, but you may still be asked what type of product you would like. Broadly speaking, mortgages fall into two categories, fixed or variable. A fixed mortgage will mean that your monthly payments will not change, as opposed to a variable rate mortgage where payments can fluctuate.
Mortgage products come in various lengths, which can present another dilemma. Should you fix it for a short period e.g. 2 years or should you opt for something longer? Fixing for a longer period will tie you to the product and lender, which may be challenging if your circumstances change. On the other hand, having a short-term deal will mean regular reviews that could incur costs. And if interest rates start to rise, you may be offered a deal that is worse than those currently available.
Another consideration is how long you should arrange your mortgage. Traditionally this has been 25 years but with loan sizes increasing it is not uncommon for mortgages to be arranged for as long as 40 years. In our opinion mortgage terms should be as short as is affordable. The shorter the term the less interest you pay.
Don’t be afraid to ask for multiple quotes so you can compare the interest repaid over different terms. You may be surprised at just how much you can save by reducing your mortgage by a few years.
Your Mortgage Quote
A mortgage adviser will provide you with a quote for the mortgage they recommend. This document will contain all the relevant information about the product including the monthly repayments and any associated costs, e.g., valuation fees, arrangements fees.
If you have selected a fixed rate, make sure you check out the early repayment charges, which will show what you must pay if you decide to cancel your mortgage before the product term expires.
If possible, you should avoid adding any fees to your mortgage. Although this may help your cash-flow when purchasing, the interest paid on the additional borrowing over the mortgage term is in effect a false economy.
Loan to Value
The lower your loan to value the better the mortgage rate you will be offered. Loan to values normally change in multiples of five, so ask your adviser about the difference moving to the next loan to value would make. For example, if your loan to value is 86%, consider increasing your deposit to reduce this figure to 85%. This could give you access to more lenders and better deals.
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Article contribution by Simon Torry at SRC Mortgages