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How to apply for a mortgage

Making a mortgage application is not as straightforward as it sounds. We guide you through the process and explain how you can increase the chances of being accepted.

Applying for a mortgage 

Pre-planning 

You need to do some prep before you apply for your mortgage. You need to have determined a price range at this point even if you have not actually decided on a property.  Once you know the amount you would like to borrow, you will probably need to have at least 5% of this sum in savings in order to act as a deposit. Then you will need to take account of other related costs such as legal and surveying fees, searches etc. 

If you have a poor credit score and accumulated high debt levels on cards or personal loans, you may want to try and put your personal finances in better order before you apply for a mortgage. 

How to boost your mortgage chances 

You should check your score with the three main credit reference agencies 

It’s free and easy to do and will give you a better idea of your chances of getting a mortgage. A low score means it will be much harder to secure a mortgage – and if you apply for a mortgage and get rejected, this will further harm your credit score.

Before you put pen to paper on your mortgage application, improve your score if you need to. This could mean simple but important steps such as putting yourself on the Electoral roll, closing unused bank accounts or transferring multiple credit cards onto one card and arranging an effective repayment plan. If you consolidate your debt onto one card, you only have one monthly payment to make – which is easier to manage and might be at a lower rate of interest than you were paying before. 

Timing your mortgage application

If you have just changed jobs or recently become self-employed you might find it more difficult to get a mortgage. Many lenders want to see proof of earnings over a specific period of time before they will accept an application.  

Your employment situation might mean you need to put a mortgage application on the back burner – for a short while at least. But if you are satisfied that the costs are within your budget and the timing is right, then you can begin your application. 

When to apply for your mortgage

Once you have decided what you need to borrow and that you are actually in a position to borrow, you can look for a mortgage that suits your needs. It is vital you shop around as once you are locked into a mortgage it might be difficult (and expensive) to switch to a better deal. 

What do I need to apply for a mortgage? 

Firstly, ensure you are able to supply necessary documentation or you may be scuppered before you start! 

You will need: 

  • Proof of ID - this could be a valid passport or photo card driving licence. 

  • Proof of address – you will need to provide two documents that show your name and current address. This could be a bank or credit card statement, utility bill or council tax bill. These documents will only be accepted if they are dated within the last 3 months.

  • Proof of earnings – you will be required to provide up to 6 months’ worth of bank statements. This shows salary and any other income paid regularly into your account. You might also want to provide your P60 from your employer and, if possible, 6 months’ worth of payslips

Showing what you earn each month is only one part of the equation. Your healthy salary might be swallowed up each month by high living costs. For this reason mortgage lenders require applicants to provide details of your regular outgoings – this will include things like food shopping, credit and store card bills, car finance, personal/student loans, travel costs, gym membership, utilities, phone, TV,  broadband and childcare.

Your bank statements should also show proof of how you've built up your deposit. Lenders may ask you to explain what they consider to be any unusual transactions, and evidence will be needed to back those up. If you've been given the deposit as a gift, you'll need a letter from whoever gave you the money. 

Mortgage applications if you are self-employed 

Mortgage applications are often more complex if you are self-employed rather than employed directly. You will need to submit your annual business accounts from the last 3 years, including the current tax year. 

Your accounts and tax returns will need to be verified by an accountant via a tax return form SA302 – this essentially provides evidence of your earnings. You will also be expected to provide information such as bank statements and receipts related to your self-employed business.

These days it is not uncommon to switch between a directly employed role and a self-employed one – possibly several times within a career. It is important to remember the gaps between roles will make a difference when it comes to applying for a mortgage. For instance, let’s say you have been self-employed for 15 years but then take a position with an employer. You work for a year before returning to self-employed status. You then decide you want to apply for a mortgage for a new home. 

A lender will not take into account your 15-year track record of self-employed earnings (even if your role is the same as before), so you are essentially back to square one again. It might be worth looking at the timing of your mortgage application accordingly. If a plan to become self-employed coincides with a wish to buy a home, it might be prudent to apply for a mortgage first while you are directly employed. 

Mortgage deposit 

It is quite common for mortgage lenders to ask for proof of where a deposit has come from – so you will need to show evidence of your savings OR alternatively, if the deposit has been gifted to you by someone else (i.e. a parent or grandparent) they will need to send a letter to the lender verifying this fact. 

For those applying for a mortgage later in life, the lender may want to know details of your pension income if the mortgage term extends into retirement age. 

The mortgage application  

Decision in principle 

You can apply for a mortgage ‘decision in principle’ once you have found a mortgage deal you like, have an idea of how much you need to borrow, and have actively started viewing properties in your price range and preferred location. 

The decision in principle (sometimes referred to as an ‘agreement in principle’ or ‘mortgage in principle’ means the lender – subject to final checks – will provide the sum you need.   The decision in principle is useful as it reassures the estate agent and any prospective seller that you are a serious buyer. The ‘decision in principle’ often requires a ‘soft credit check’. A more detailed credit check is conducted at the formal mortgage application stage – this is when your offer on a specific property has been accepted. 

Given that house hunting can take some time, it is important to note that a ‘decision in principle’ does not apply indefinitely. If your search for a property takes longer than 6 or 9 months, you may need to go back to your lender again for a new agreement. 

Formal application 

Once you have made an offer on a property and it has been accepted, you are in a position to formally apply for a mortgage. The lender will now look in detail at the property you intend to buy and conduct a valuation to ensure the price is a fair reflection of what the property is worth.  A detailed credit check will then be carried out and all other information you have submitted will be verified. 

If the lender is satisfied with your application, it will make you a formal mortgage offer – this is usually valid for around 6 months. 

Depending on the lender and the complexity of your property purchase, you will usually receive your mortgage offer within a month of completing your application. 

Once you have received your formal mortgage offer, your appointed conveyancer will ensure the mortgage funds are transferred from your lender to the person selling the property on the agreed day for completion. 

Can you apply for a mortgage online? 

Yes you can. If you are happy choosing a mortgage yourself and don’t require any advice or guidance, you can apply online at your own pace. However, lenders will not let you apply online for some mortgages – for instance a Save to Buy or Help to Buy mortgage, or if your loan term takes you into or beyond normal retirement age.

If you would rather talk to a mortgage consultant with your preferred lender, you can pick up the phone and they can offer you guidance. 

Whether you apply online or not, your mortgage application might take a couple of hours to complete. It helps if you have all documents, bills and calculations at hand to make the process as easy as possible. 

Can you apply for a mortgage again if you are turned down? 

If a lender turns you down at this stage, it's worth trying to find out why, and potentially waiting a while before applying to another lender. 

Making several mortgage applications close together could significantly damage your credit score.  Your best course of action is to find out why lenders are reluctant to let you borrow and what efforts you can make (improve your credit score) or alternative options (joint borrower sole proprietor mortgage, guarantor mortgage, bad credit mortgage) you could take.


10th October 2020