Arranging a mortgage for your home

Once you’ve found a property you love and want to buy, it’s time to consider the most important part – your mortgage. There’s no point in rushing this stage, because a bad deal will stick around for years. Whilst you can remortgage and get an improved interest rate at a later date, it pays to be on the ball and know the ins and outs of getting a mortgage at the first time of asking.

How much can I afford?

This is one of the main questions any buyer will ask. How much can I really afford? Few people can buy their home outright and will of course, need to arrange a mortgage.

Anyone over the age of 18 can apply for a mortgage. Typically, you’ll be able to borrow up to three times your annual salary. So, if there are two of you applying, you’ll be eligible to borrow more. Add your deposit to this price and you’ll know the maximum you can offer on a property.

Here are a few tips for working out how much you can realistically afford on your mortgage:

  • Remember you need to repay your mortgage monthly, on top of household bills and other expenses. Even though a bank may be willing to lend you a certain amount, it doesn’t necessarily mean you can afford this.
  • If you choose a variable rate on your mortgage, your monthly repayments could go up or down. Consider a fixed rate to ensure the same expenses each month.
  • Consider your lifestyle and what would happen should your salary change. Will you be able to afford the repayments?
  • Add up the other costs and expenses associated with owning your property, including utility bills and council tax.

The deposit

As discussed previously, banks will typically offer a mortgage for 90% of the property – meaning you need to stump up the other 10%. Gone are the days when you could get a 100% mortgage.

The larger deposit you’re able to save, the better interest rates you’ll likely be entitled to. This can also help avoid negative equity – whereby the house is valued less than your mortgage.

The different types of mortgage

When it comes to a mortgage, there are plenty of options for you to consider. However, the basics will remain the same. That is, you will repay the amount borrowed with interest. What sets each mortgage apart is the interest rates applicable, and these vary between banks.

Repayment Mortgages

Repayment mortgages

Repayment mortgages work on the following principles:

  • Monthly repayments to pay the amount borrowed, plus interest.
  • Payments will typically be more expensive.
  • After the final payment, the loan will be paid off.
Interest Only Mortgages

Interest only mortgages

Interest only mortgages work on the following principles:

  • Monthly repayments to pay the interest only.
  • After the final repayment, capital is still outstanding.
  • Buyers will save money for the duration of the term to pay the final settlement.

Although there won’t be a considerable difference in the total repayments, only with repayment mortgages will you guarantee to pay off the loan.

Both mortgage types can be taken out over a number of years, and this is likely to be between 25 and 40. The shorter the term, the less interest you’ll have to pay.

Comparing deals and getting your first mortgage

The key to getting the best mortgage deal and ensuring you’re well prepared for the future, is shopping around. As such, it’s advised to speak to a number of different lenders, visit comparison websites and even have a chat with a mortgage advisor.

Remember, you can get advice and support from:

  • An independent financial adviser (IFA)
  • An estate agent
  • A solicitor
  • A mortgage broker
  • An accountant

However, although most mortgage advisors are independent and are there to help you find the best options on the market, there are some things to be aware of:

  • To offer specialist advice, mortgage advisors should have gone through certain training. They can only provide information if this has been completed, so make sure to ask the question.
  • Find out how the interest is being calculated, as there are a few ways to do this and it could make a big difference to your monthly repayments.
  • Ask if there are any charges for paying off your mortgage early, or switching to a better deal.
  • A CAT mortgage means it adheres to government standards, with no hidden charges.

Applying for your mortgage

So, you think you’ve found the right mortgage type. Now it’s time to apply and make sure the lender will accept you. By applying early, you can find out if you’ll be accepted and be in a strong position should you find a property you want to buy.

If you go through a specialist mortgage advisor or visit your local bank branch, you’ll need to bring the following:

  • Proof of employment
  • Three months’ worth of pay slips (or three years’ accounts if you’re self-employed)
  • Three months’ worth of bank statements
  • Proof of address

During the application, the lender will require a number of your personal details and carry out a credit check.

There are a number of reasons your mortgage application could be rejected. This includes a poor credit rating (because of missed payments, debt or bankruptcy), your salary, employment status, or even problems with the property you’re trying to buy. It’s worth checking your credit score before applying for a mortgage, to avoid wasting your own time.

After the lender has all the details they need, they’ll put these into the system – which will determine if you’re accepted or rejected a mortgage.

If you are rejected a mortgage, you should find out what the reason is and look to address this. You can also contact the Financial Ombudsman Service if you feel you’ve been wrongly treated.

Making an offer and negotiating property prices

Once your provisional mortgage has been accepted and you know exactly how much budget you have to play with, now’s the time to make an offer. However, how do you go about making an offer for something you fall in love with? Do you risk haggling over the price at the risk of losing the property?

In this section we offer guidance on what to do when it comes to making an offer on your first home.

Interest Only Mortgages

Before making the offer:

  • If you’re buying a property in Scotland, check it’s being sold with a Home Report. The Home Report includes the following:
    1. A Single Survey. This is an assessment of the property’s condition, a valuation and accessibility report – particularly worthwhile for those with special needs.
    2. An Energy Report. This outlines the energy efficiency of any property, giving you an idea of how expensive utility bills are likely to be.
    3. A Property Questionnaire. This form is completed by the homeowner and includes information such as Council Tax bandings.
  • Set yourself a limit and stick to it. Make sure your agent knows how much you have to work with. Even if you’ve found your dream home, don’t let your emotions get carried away – this can help you to save a substantial amount of cash.
  • Keep an eye on the market and find out how much similar properties have sold for. This can help you in negotiations, especially if it’s a particularly hard time to sell.
  • Consider the fixtures and fittings you’d want left behind and be prepared to have these drawn into the contract.
Interest Only Mortgages

Putting in your offer:

  • First things first, you need to contact the estate agent to submit your offer, rather than going straight to the seller. By law, estate agents have to inform the seller of the offer, no matter how low it is.
  • It’s an idea to phone the estate agent and then follow this up with an email too, so it’s in writing.
  • The seller will accept or reject the offer, which will come back through the estate agent. They may also provide a counter offer.
Interest Only Mortgages

Bidding a low amount for a property

It doesn’t hurt to bid under a property’s value, because you never know a seller’s circumstances or how quickly they need the sale to go through. Of course, on many occasions the offer will be rejected, but every now and then a cheeky one will be accepted.

But, when is a low offer most likely to be accepted?

  1. When the property has been on the market for a long time. The longer it takes to sell, the more likely the owner will be to accept a lower amount.
  2. If the owner wants a quick sell. For whatever reason, the owner may want to sell quickly without being on the market for weeks or months. It could be an empty property left to them in a will, or perhaps they’re moving away for a new job – whatever it is, you can take advantage.
  3. If you’re a first-time buyer. First-time buyers aren’t caught in a chain that can hold up the process, so because of your position, your lower offer could be accepted.
  4. As you have a mortgage in principle. Arranging your mortgage early can put you in a strong position, as you’ll have proof you’re ready to go from the moment the bid is accepted.
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