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Getting your first mortgage


For many people home ownership is a financial priority, and often one of the biggest decisions you will ever make. This is why getting your first mortgage needs careful planning and preparation in order to consider all of the options available. Here are our tips to improving your position as a prospective borrower.
 

Pay off your debts


Banks and Building Societies are more welcoming to mortgage applicants who have no or few other debts, as they are regarded as lower-risk borrowers. Not only will clearing your debts give you a better chance of getting a mortgage, it will also give you a greater capacity to borrow. This is because most lenders now employ an affordability criteria (where your monthly debt repayments are subtracted from your monthly income when calculating how much you can borrow), instead of straightforward income multiples (where the lender multiples your gross annual salary by say, three or four, and this determines how much they will lend you).

Save hard


Save as much as you possibly can. Lenders favour applicants with at least 10% of the property value to put down as a deposit. What's more, the greater the deposit you have, the greater access you will have to the cheapest mortgage deals. 

Save wisely


Make sure you are saving in a tax efficient account such as an ISA (an Individual Savings Account). There are two types of ISA: Cash ISAs and Stocks and Shares ISAs. Cash ISAs operate as a normal savings account: you can get your money back at any time and they’re suitable as a short term investment or savings measure. Alternatively you can choose a Stocks and Shares ISA. This is normally for those who are seeking a better return than cash savings accounts are currently paying and are happy to set aside their money for at least five years. As with any investment involving stocks and shares, your ISA investment may go down in value as well as up: there are no guarantees that you will make a profit.
Or look out for the new Help to Buy ISA scheme, due to be launched this autumn, where the government will add 25% on top of what you save each month (subject to savings limits). 

Keep orderly financial records


Lenders want to see evidence of a consistent and reliable income, so be prepared to show your bank statements and pay slips. If you are self-employed, you will have to show the lender your yearly accounts compiled by a reputable accountant. 

Address your borrowing past


Check your credit report from a credit reference agency such as Experian or Equifax before applying for a mortgage. This sets out all current and previous borrowing you have made and shows up difficulties a lender might identify, such as defaults, arrears and any County Court Judgments.
Getting familiar with the contents of your credit report will give you a chance to amend incorrect or unfair information by adding a 'notice of correction' to your report which lenders are obliged to consider. It is also a good way of to look out for evidence of identity theft too.

Make sure you are on the electoral roll


If you are registered on the electoral roll for every address that you have lived at, it will help to confirm your identity and address history, evidence your lender will want to see. It can also improve your credit score. Contact your local council for more information on electoral roll registration. 

Consider all options


If you haven’t been able to save a larger deposit, see if you are eligible for schemes such as the governments ‘Help to Buy’ scheme, which may allow you to purchase a property with a deposit of only 5%.

Other means of purchasing a property are also available - look at shared ownership schemes run by Housing Associations. You buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share, but you can increase your share of the property ownership later on if it becomes more affordable for you. 

Find the right mortgage deal


Once you are in a position where you are likely to be accepted for a mortgage, it is important you find the best deal for you. This means more than just securing a competitive interest rate – for example do you need to know exactly how much your monthly payments will be or can you take the risk that payments will fluctuate? How much can you realistically afford to pay per month for your mortgage or can you afford to pay any upfront fees?

There are a number of mortgage lenders, each offering different products and arrangement fees, so it can be difficult to compare mortgages on a like for like basis. A mortgage specialist or adviser will be able to find a product to suit your circumstances.

Taking guidance from a mortgage expert can not only save you money, it can be invaluable if you have been refused a mortgage or if you just fall outside the box - for example you are self-employed, have a patchy credit rating or have lived outside the country for some time.

If you would like to speak to a Mortgage Specialist or a Wealth Planner at Sanlam about your mortgage or other aspects of your financial planning, please do not hesitate to get in touch. We'd love to hear from you. Email letstalk@sanlam.co.uk.

Date issued: 24.07.15

Please remember any views or facts expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice. None of the information should be regarded as advice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Any tax treatment is dependant upon individual client circumstances and may be subject to change.

Sanlam is a trading name of Sanlam Wealth Planning UK Limited (Reg. in England 3879955) and English Mutual Limited (Reg. in England 6685913). English Mutual Limited is an appointed representative of Sanlam Wealth Planning UK Limited which is authorised and regulated by the Financial Conduct Authority.

Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol, BS1 2NH.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.