To get the best deal you need to make sure your finance is in order. The better your credit rating and bigger your deposit, the more options you will have when looking for a good mortgage deal.
Your first move should be to carry out a simple credit search on yourself, this will let you see what lenders will be looking at when they consider you. The credit reference agencies used mostly by enders are Equifax and Experian.
New rules introduced by the Financial Conduct Authority following it’s Mortgage Market Review (MMR) in 2014 mean that lenders will have to carry out stricter checks on borrowers and carry more responsibility for their actions.
MMR introduced two changes.
The first is the shift from solely using salary multipliers to assess the amount that can be lent, to detailed affordability calculations, which look at income and expenditure. This means weighing up your essential spending, alongside your income and asking questions about your outgoings and then do its sums from that. You will need to provide documentary evidence of income and regular outgoings, normally in the form of three-months bank statements.
The FCA has not set any strict formulas for affordability so every lender will come up with a different amount based on the same set of figures. Lenders don’t just have to assess affordability, but also need to consider what will happen to you in the future and stress test for theoretical interest rate rises.
The second change involves the fact that almost all mortgage sales must now be advised, so to get one will require a conversation with either a qualified mortgage broker, or if you go direct, the lender’s own financial advice team. However the lender’s advice team will only be able to advise you in respect of the product they sell, so it is always best to go to a reputable broker.
So before you apply for a mortgage, get all your finances in order, all the paperwork you need together and have details and figures on things like earnings and outgoings to hand.
The bigger your deposit the better the deal you will get. These days the minimum deposit is 5% and the best deals are available when you have 40% or more. Look at our best-buy tables to see the difference that the the amount of the deposit can take to the cost of the mortgage.
The renewed confidence in the property market and support for mortgage lenders from the government has dramatically improved rates for those with smaller deposits. Rates remain higher but it is now far easier to get a home loan with a 15 per cent, 10 per cent or even 5 per cent deposit.
Bear in mind though that the jump in rates from 5 per cent to 10 per cent deposit mortgages is substantial, so raising that extra cash can really pay off. The golden rule is therefore the bigger the deposit the better, as it will open up a wider choice and better rates. Every 5 per cent deposit will make a difference which is worth bearing in mind especially if you are on the cusp of the lower band – if you can push a bit further on the deposit size it could qualify you for a better mortgage rate. For example if you could squeeze the mortgage from 86 per cent of the purchase price to 85 per cent it will open up a wider choice and better rates.