Buying a home is one of the biggest financial decisions most people make.
For many buyers, a mortgage makes that purchase possible. However, there is more to getting a mortgage than simply finding the lowest interest rate.
You will need to consider your deposit, income, spending, credit history and the type of property you want to buy.
The process can seem complicated at first. However, breaking it into clear stages makes it much easier to understand.
What Is a Mortgage?
A mortgage is a loan used to buy property or land.
You normally provide some of the purchase price yourself as a deposit. A mortgage lender then lends you the rest.
For example, you might buy a home for £200,000.
If you provide a £20,000 deposit, you would need a mortgage of:
£200,000 − £20,000 = £180,000
You then repay the mortgage over an agreed period.
This is known as the mortgage term.
How Much Deposit Do You Need?
The deposit is the amount of the purchase price you provide yourself.
For example:
Property price: £200,000
Deposit: £20,000
Mortgage required: £180,000
In this example, the deposit is 10% of the property price.
Therefore, the mortgage covers the remaining 90%.
The relationship between the property value and mortgage is known as the Loan-to-Value (LTV).
What Is Loan-to-Value?
Loan-to-Value shows the size of your mortgage compared with the value of the property.
For example, if a home is worth £200,000 and you borrow £180,000:
£180,000 ÷ £200,000 × 100 = 90%
Therefore, you have a 90% LTV mortgage.
A larger deposit results in a lower LTV.
This can be important because lenders often offer different mortgage deals at different LTV levels.
How Much Can You Borrow?
Mortgage lenders need to decide whether you can afford the loan.
Your income is important. However, lenders consider much more than your salary alone.
They may also look at your:
- regular spending
- loans and credit commitments
- credit history
- number of dependants
- employment
- other income
- deposit
- property
- mortgage term
Therefore, two people earning the same salary may not be able to borrow the same amount.
Check Your Finances First
Before applying for a mortgage, it is useful to understand your current finances.
Start with your income.
Then look at your regular spending and debts.
For example, consider:
Loans
Credit cards
Car finance
Childcare
Maintenance payments
Other regular commitments
This can give you a clearer idea of how much money you have available each month.
It may also highlight areas you want to address before making an application.
Check Your Credit Reports
Mortgage lenders normally check your credit history.
Your credit reports contain information about how you have managed borrowing and payments in the past.
Therefore, it can be useful to check your reports before applying.
Look for incorrect information. Also, make sure your address and other details are up to date.
If you find an error, you can contact the relevant organisation or credit reference agency.
Consider the Full Cost of Buying
Your deposit is not the only money you may need.
Buying a property can involve several other costs.
These may include:
- legal or conveyancing fees
- survey costs
- valuation fees
- mortgage fees
- moving costs
- property taxes, where applicable
- insurance
- repairs or improvements
Therefore, avoid putting every available pound into the deposit without considering the other costs of moving.
Keeping some money aside for unexpected costs can also be useful.
Get a Mortgage in Principle
A Mortgage in Principle gives you an indication of how much a lender may be willing to lend.
You may also hear it called an:
Agreement in Principle
or
Decision in Principle
It is not a final mortgage offer.
However, it can help when deciding which properties are within your budget.
An estate agent or seller may also ask whether you have one before treating an offer as serious.
Start Looking for a Property
Once you understand your budget, you can start looking for a suitable home.
Try not to focus only on the purchase price.
Also consider the ongoing cost of living in the property.
For example:
- Council Tax
- energy bills
- insurance
- maintenance
- service charges, where applicable
- factoring charges, where applicable
- travel costs
A home may be affordable to buy but expensive to run.
Therefore, look at the wider picture.
Make an Offer
Once you find a suitable property, you can make an offer.
The process differs across the UK.
For example, the buying process in Scotland is different from the process in England and Wales.
Therefore, it is important to understand the system that applies where you are buying.
An accepted offer does not always mean the purchase is legally complete.
There are still several stages to go through.
Apply for the Mortgage
Once you have a property and your offer has progressed, you can make the full mortgage application.
The lender will normally ask for information about you and the property.
You may need to provide documents such as:
- proof of identity
- proof of address
- payslips
- bank statements
- evidence of your deposit
- details of existing debts
- proof of other income
Self-employed applicants may need to provide different or additional evidence.
The exact requirements vary between lenders.
The Lender Checks Affordability
The lender will assess whether it believes the mortgage is affordable.
This is more detailed than simply multiplying your salary by a set number.
The lender may consider what could happen if your circumstances or mortgage costs changed.
For example, it may consider whether repayments would remain manageable if interest rates were higher.
Different lenders use different lending rules.
Therefore, one lender may offer a different amount from another.
The Property Is Valued
The lender also needs to consider the property.
It will normally arrange a mortgage valuation.
This helps the lender decide whether the property provides suitable security for the mortgage.
However, a mortgage valuation is mainly for the lender.
It should not automatically be treated as a detailed survey of the property’s condition.
You may want a more detailed survey depending on the property and where you are buying.
Receive the Mortgage Offer
If the lender is satisfied with you, the property and the application, it may issue a formal mortgage offer.
This sets out important details of the mortgage.
These may include:
- amount borrowed
- interest rate
- monthly repayments
- mortgage term
- fees
- early repayment charges
- other conditions
Read the offer and supporting documents carefully.
Make sure you understand what you are agreeing to.
Complete the Legal Work
Your solicitor or conveyancer handles the legal side of the purchase.
This can include checking ownership, searches, contracts and other legal matters.
The exact process depends on where in the UK you are buying.
Your solicitor will also work with the mortgage lender before the money is released.
Complete the Purchase
The final stage is completion of the purchase.
At this point, the purchase money is transferred and ownership changes according to the legal process that applies.
You can then take possession of your new home.
However, your responsibilities as a homeowner have now started too.
Your Mortgage Continues After You Move In
Getting the keys is not the end of the mortgage journey.
You will normally make monthly payments for many years.
Therefore, keep an eye on your mortgage.
In particular, know:
- your interest rate
- your monthly payment
- when any fixed deal ends
- whether early repayment charges apply
- whether you can make overpayments
- how much you still owe
This can help you plan ahead.
What Happens When a Fixed Deal Ends?
Many mortgages have an initial fixed-rate period.
For example, the rate may be fixed for two or five years.
When that period ends, you may move onto the lender’s Standard Variable Rate (SVR) unless you arrange another deal.
Therefore, it is useful to review your mortgage before the fixed period ends.
You may be able to choose another deal with your current lender or remortgage elsewhere.
Should You Use a Mortgage Broker?
You can approach mortgage lenders yourself.
Alternatively, you can use a mortgage broker.
A broker can help you understand available mortgage options. Depending on the service offered, they may also recommend suitable mortgages and manage parts of the application.
However, brokers do not all work in the same way.
Some charge fees. Others receive commission from lenders.
Also, some brokers consider a wider range of lenders than others.
Therefore, understand the service and any costs before agreeing to proceed.
What If Your Mortgage Application Is Declined?
A declined application does not always mean you cannot get a mortgage.
There may be several reasons for the decision.
For example:
- affordability
- credit history
- existing debt
- income type
- deposit size
- property type
- lender rules
However, making several applications quickly may not be helpful.
Instead, try to understand why the application was declined before applying again.
Don’t Choose a Mortgage on Interest Rate Alone
A low interest rate can look attractive.
However, it does not tell you the full cost of the mortgage.
Also consider:
- arrangement fees
- valuation fees
- cashback
- incentives
- early repayment charges
- mortgage term
- flexibility
Therefore, compare the overall cost and features rather than one headline rate.
Getting a Mortgage: The Main Steps
The process can be summarised simply:
1. Work out your budget
2. Build your deposit
3. Check your finances and credit reports
4. Consider the costs of buying
5. Get a Mortgage in Principle
6. Find a suitable property
7. Make an offer
8. Apply for the mortgage
9. Complete the lender’s checks
10. Receive the mortgage offer
11. Complete the legal work
12. Complete the purchase and move in
The exact order can vary, especially between different parts of the UK.
The Key Point
Getting a mortgage is not simply about finding a lender willing to give you the largest loan.
The aim is to find a mortgage that fits both the property and your finances.
Therefore, consider the deposit, monthly repayments and other home-owning costs together.
Also, think beyond the first few years.
A mortgage can last for decades. So, understanding what you are agreeing to at the beginning can help you make a more informed decision.