A mortgage is one of the biggest financial commitments you’ll make - and is therefore one of the most daunting parts of the home buying process.
For first-time buyers hoping to get onto the property ladder, it can be difficult to know where to start and what to do when applying for a mortgage.
You often hear of stories of people whose mortgage applications are declined, which can be extremely off putting.
To help boost your chances of securing a mortgage, first-time buyers are being urged to follow six useful steps.
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Brian Murphy, head of lending at Mortgage Advice Bureau, has revealed his top tips for potential first time buyers hoping to get a mortgage.
"Getting yourself in a strong enough financial position is the first step in getting you on your way to securing your first home," Brian says.
"But next, you will need a mortgage, and knowing which kind is best for you can be difficult, especially when it is something you haven’t done before."
Here are the six essential steps first-time buyers should follow:
Get your documents in check
For all mortgage applications, lenders need to verify your income to assess what you can or cannot afford before lending you money.
This means providing various documentation to help evidence your financial position.
"This can include bank statements, proof of income, proof of address, or your latest utility bill," Brian says.
"For those who are self-employed, some lenders may ask for further documentation, such as two or more years of certified accounts, tax calculations and tax year overview.
"Getting everything in order well in advance of your application will help smooth the process."
Remember the importance of your credit score
If you were about to lend someone a large amount of money, you would want to know that they are responsible and capable of paying it back.
This is why lenders look at credit ratings to help decide whether or not they should lend to you.
"Two in three (68%) advisers cite ‘poor credit score’ as a common reason that delays buyers from getting their mortgage approval," Brian reveals.
"If you’re looking to purchase a property then understanding what your credit score is, and importantly how to improve it, can go along way to avoid any delays.
"Also don’t be spooked by a bad score. There are ways you can improve it over time from ensuring you’re on the electoral roll, having up to date information such as your address and not missing any repayments can help to boost your score."
Get on the electoral roll
If you’re not already on the electoral register, then Brian says that it is vital you apply to be added as soon as possible.
"Not being on it can impact future finance agreements such as a mortgage offer, lower your credit score, and prevent you from voting," he explains.
"One in five (19%) advisers cite this as a common reason for a mortgage delay, but it’s simple to do and can have a positive impact on your buying position."
Use government schemes
The government offers several different Help to Buy schemes to help get people onto the property ladder.
There are several options available, so Brian says to make sure to check which ones may be best suited to you.
Help to Buy Equity Loan Scheme
If you’re a first time buyer and are interested in a new build, the government will lend you up to 20% of the cost of your new build home.
You will need to pay back the loan but not until after five years of being in the property – and it’s interest free up until then too.
Lifetime ISA
If you’re a first time buyer, the Lifetime ISA acts as a savings account; with a few added benefits. You can pay up to £4,000 each year into your account and receive a 25% bonus (£1,000 maximum) from the government.
The cash must remain in the account until you exchange on your first property – you will need to instruct your solicitor to withdraw the funds but this will all be explained when you’re ready to move in.
"All you need to do here is save, save, save and you could be in for a lucrative bonus," says Brian."
Shared Ownership Scheme
Shared Ownership allows first time buyers to buy a proportion of the property they can afford (e.g. 25% or 50%) and pay rent on the rest of it.
"It means that many people can access properties they would otherwise not be able to afford, due to the location or house size," Brian explains.
"This way, you’re also getting a foot onto the property ladder and then through a process called ‘staircasing’ can slowly save up to own more of the house until its yours outright."
95% mortgage guarantee
If you’ve been trying to buy your next home but haven’t yet saved up a big enough deposit, you could be eligible to apply for a 95% loan to value (LTV) mortgage.
This means that you may be able to buy a home with just a 5% deposit.
Introduced by the government earlier this year, the scheme is an incentive for lenders to reintroduce 95% mortgage deals from April 2021.
The mortgage guarantee scheme means the UK Government acts as a safety net for lenders. In the worst-case scenario, if or where the property is repossessed and sold at a loss, the Government will take on some of the losses incurred by the lender.
Shop around for the best deal
"A mortgage is one of the biggest financial commitments you’ll make, so it’s important to find the right one that suits your circumstances," says Brian.
"A mortgage broker can help you find the most suitable deal, factoring in true costs. It’s important to not only think about headline rates, but also assess any additional fees that may be involved."
Talk to an expert
Speaking to a mortgage adviser can help offer you the relevant guidance on mortgage products available and what deposit savings are needed.
An adviser can explain all the options available to you and will look at your income and outgoings to establish how much you can afford to borrow and how much you’re able to save.
