On The Mortgage & Protection Podcast, The Mortgage Store’s Jon Deane discusses how you can make yourself mortgage-ready to make the application process as simple and surprise-free as can be.
Preparation is key when you’re thinking that maybe later in the year you’ll be looking to purchase a property. We think you need to start things rolling at this early stage.
There are one or two key areas where you really need to start the process yourself. One area would be around what the lenders are going to be looking at when an application comes in. This is basically how good the applicant is in terms of their credit profile, how good they are if they borrow money, currently and in the past, and also, how easy is it to find them.
So in other words, knowing their address history so that a lender is very comfortable that the information they’re being given is correct. They’ll be far more trusting in lending considerable sums of money.
What Do I Need To Arrange Myself?
First of all, you should make sure that you are on the electoral roll. That is critical, because it provides an address history to a lender. It’s stating that there is a very clear indication of where you’ve lived for the last three to four years.
If you can’t provide that information, then it can be a headache, because what it means then is that you will have to provide address proof for those three years.
If you’ve had many different addresses, as you can imagine, it will be a very difficult thing to do.
More important than anything is to get on to the electoral roll, you will put yourself in good stead from a lender’s point of view.
Another thing is they will look at your credit file. Different lenders use different credit file experts. So you have Experian, for example, or Equifax is used by most of them, but they will use different ones.
So what’s important is that this credit file will say, “Yes, you’ve had credit, you’ve repaid it, this is your address history” or something like “You’ve got adverse credit”, this will give them a really good indication of how good you are as a borrower and as an applicant.
Rather than going to one or other of the major companies, a good option would be using something like check my file. They do 30 days free (most of them do that) but what that does is provide both reports from Experian and Equifax. When you get that through, you need to check that everything is correct. It isn’t always, so you’ll want to check;
- That your address history is correct on there,
- That you’ve got no adverse credit,
- No surprises where perhaps you’ve missed a payment on something and you weren’t aware of it.
If you haven’t got anything on there in terms of a credit profile, it’s not the end of the world, but it maybe the time then to consider building up perhaps history on credit. So for example, maybe take a credit card for a period of time where you’re shopping on it each week, and then at the end of the month, you repay it fully.
There are no additional costs incurred at all and that will all help your profile, which ultimately when it comes to apply for a mortgage, will put you in good stead with a lender.
How early should we start planning?
With the electoral roll, they don’t always update it on a regular basis, they will only do so at certain times in the year. The earlier you register the better.
Sit down with a mortgage adviser quite early on. Doing so before you’re actively looking for a property helps to really establish how much you will potentially need as a deposit.
It would normally be a minimum of 5% (of the purchase price), but the higher the deposit, the better rates available and potentially more that you can borrow. The higher the deposit, the better the risk from a lender’s point of view too.
Establishing key criteria early on, for example, what the monthly payments will be and how much you can borrow will be a key factor because then when you do start looking for a property, you want to be in the right ballpark with your figures.
An initial appointment with a mortgage adviser would be the key, and then you’d go away and understand the process fully; what you need to provide and also what sort of price you’ll be looking at.
What documents do I need?
There are a number of documents that lenders will need to establish how good you would be as a borrower.
The first one will be proof of deposit.
Now, this will normally be a minimum of 5% of the purchase price but it can be obtained in a number of different ways. So for example, you may have built this up through savings, which the lender will then need to see the build up.
They will need to see regular savings through a savings account or another account and a statement showing this regular buildup of savings as proof of deposit.
Alternatively, you may have sold an asset so again, you will need a trail to show the original source and certainly if it’s overseas this could take time as well. Just to show where this money has come from as obviously lenders need to consider the risk of money laundering.
Nowadays, it’s quite difficult to save regularly certainly if you’re in rented or you’re living at home, but perhaps with a low paid job, a lot of parents now will help out their children. So a gifted deposit is quite normal. If a parent for example, or a sibling will gift money as a deposit you would need a letter from that person. That letter will need to state that they have no interest in the property, that it is not a loan and that it does not need repaying.
Things like that are quite important in establishing quite early on because obviously there’s a time factor involved in obtaining that.
The next thing that you will need to do is prove your income. Now if you’re employed, typically you will need to provide three months payslips. They will need to be the most recent and you need to make sure that they are correct too. So in other words, the net pay that you’re receiving is reflected in your bank statement because they will cross reference them and check that your tax code is correct.
If you have any deductions for pensions, etc, that they are on there as well. If you’re self employed, sole trader or limited company you’ll need to provide an SA 302 and a tax year overview. You will need both of these and you’ll need to speak to your accountant to obtain these. If you don’t have an accountant, then you’ll need to go directly to HMRC and they will provide the documentation you need.
Now bear in mind that some lenders will look at one years’ accounts for the self employed, but ideally they like to see two years’, so you will have far more choice over lenders and rates and they may take an average figure.
It’s important to establish exactly what your income is showing, so talk to an adviser to confirm what income will be used.
Another thing a lender will ask for is a budget planner. Now a budget planner is showing affordability, it’s quite a key part of getting a mortgage, so it needs to be very accurate.
A budget planner is looking at what your expenses are, how much income potentially you will have spare that you could put towards a mortgage. With a budget planner, it’s really important that you write everything down accurately, no estimating, and actually go through it all.
Accurately put down any information you’ve got from your bank statements or any outgoings that you’re aware of and that will really help them to get an actual accurate picture of how much you are then going to be able to afford towards your mortgage.
The final thing that they will ask as a requirement is proof of ID and address.
Now typically that will be a passport or driving licence. So again, it’s important to make sure that you, for example, have an in date passport and that the address is correct on your driving licence.
Then for your address, they will look for a utility bill typically dated within the last three months, (not a mobile phone bill), a bank or credit card statement or a council tax bill. You can use the driving licence, make sure that the address is correct.
If you’re buying jointly, then they will need the information for both of you. So just bear that in mind. If somebody pays all the bills, for example, then the person will need to make sure that they can prove their address.
The key is preparation and to have all this information to hand. When you actually come to apply for a mortgage, a well packaged mortgage will go through very quickly and put you in a position where if you find your dream home, you can act on it, and you know that you’re in good stead to get that mortgage.
If you’re forever trying to take out the information and go backwards and forwards with different providers and things, then potentially you will lose that property because it will drag and drag and the chain could fall apart. So preparation is key.
Your mortgage adviser would sit down with you and tell you exactly what you do need, but then you need to dig it out and have it all ready and then you can start finalising the application.
Everyone is individual and the criteria for each lender is different. So the key is really to sit down with an adviser, and for them to run through your circumstances and they will identify anything that they would need over and above this.
They’ll also be able to answer anything that you may have to ask in terms of the process.