In the first instalment of this series, we looked at the role of estate agents and what first time buyers should expect from them. In this piece, we turn to mortgage lenders. Given the size of house prices in the UK, the chances are high that you will need a mortgage. Which institutions offer home loans and how do you go about securing financing?
Mortgage lenders
Historically, banks and building societies like Halifax and Nationwide were the principal sources of home loans. While they remain active in the mortgage-lending market, they now face competition from other specialist lenders. This brings us to our first major point: there are hundreds of lenders vying for your business, so it makes sense to shop around. Don't just approach the bank where you hold your current account, but make use of the excellent online mortgage comparison tools.
Before you apply
The most important preparation you can undertake before approaching lenders is to do a little financial housekeeping. There are two prongs to this:
1. Credit rating
Your credit score is essentially the financial footprint you have left behind you, and lenders will always check this out before deciding whether to lend you any money, how much they are prepared to lend you and the interest rates applying to your loan. As such, the importance of making sure that you have a solid credit rating cannot be overstated.
There are three main credit reference agencies:
- Equifax - https://www.equifax.co.uk
- Experian: https://www.experian.co.uk
- Callcredit: http://www.callcredit.co.uk/consumer-solutions/your-credit-report
You can obtain a copy of your credit rating from any of these agencies for just £2. They each use slightly different criteria in collating their files, and it's entirely possible that they have built up a different picture of you than their counterparts. It's probably still fair to say that lenders tend most frequently to use the services of Equifax and Experian, but Callcredit's popularity is rising. Accordingly, we recommend that you apply to all three for your rating.
If there is any information contained within your credit report that is inaccurate, you can ask the agency to amend your record. Equally, if the contents of your report are technically accurate, but your circumstances have changed, you can request that a note to this effect be placed on your file.
Should you find that your credit rating isn't as good as you had expected, there are steps you can take to get it back on track. For more guidance on this, see the Nethouseprices guides to credit scores.
2. Spending patterns
A lender is required by law to make sure that you can afford to meet your monthly mortgage payments and they will ask you about your financial outgoings. It's probably worth taking a close look at your spending to identify areas where you make savings. For example, can you spend less on groceries, transport or childcare? Giving yourself even a small financial breathing space can be key to persuading a loan arranger that you can afford to take on the commitment of a mortgage.
Applying for a loan
The crucial point is that your application needs to be accurate and you will need to provide documentary evidence to support your assertions on salary and so on. When you meet with the lender, you should bring this paperwork with you. The loan officer will naturally ask you a lot of questions about your requirements and your financial status. As frustrating as this might seem, it is actually the lender's responsibility to ask you for this information, in order to ensure that you are being offered the most suitable loan products.
This being said, you will also want to satisfy yourself that you are getting the right deal and Nethouseprices would recommend that you ask the following questions:
- What product do you suggest and why do you think this is best for me?
- What would the repayment arrangements be if I chose this product?
- What is the initial interest rate and when can I expect this to change?
- What will my initial repayments be and what will they be after the introductory period?
- Are there any early repayment penalties?
- Do you charge a fee to arrange the mortgage?
- Are there any other conditions? For example, will I required to use your insurance products?
Make sure that you understand the offer being made and, if necessary, seek further impartial advice from professionals, such as independent financial advisers. A mortgage is one of the most significant commitments we ever undertake, so it's vital to choose the right loan and to be sure that we understand the contract we are signing. Not to put too fine a point on it, you risk losing your home if you don't comply with the terms of your mortgage, so you need to have absolutely no doubts when you reach an agreement with your lender.
What happens next?
If your lender is happy to proceed, you will be offered a mortgage in principle and will be able to make an offer on a house or flat. There are two further factors at stake here. Firstly, you should try to make sure you stick to the amount agreed with the lenders, because there is no guarantee that they will approve a larger loan. In any event, you will need once again to go through the application process - a delay which might well cause you to lose out of the desired property.
Secondly, when you agree to buy a house, the lender will insist on conducting its own valuation survey of the property. This is because title to the property will remain with the bank or building society for the term of the mortgage and, should you default, they will potentially need to sell it, so they obviously want to be sure that they are not lending you more than they could realistically recover from the sale. Some lenders charge a fee for the valuation survey, which is wholly independent of the structural survey you will have performed on your own account.
Once all the paperwork has been exchanged, the lender will transfer the money to your solicitor who will, in turn, transfer it to the seller's solicitor. While the deeds to the property will be sent to the lender, you will be able to pick up the keys to your new home! Congratulations!
Visit us soon for the next instalment of this series, and for the latest news about house prices in the UK.
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