Getting your first mortgage is a lot harder than it used to be. According to The Telegraph, in the five years following the 2007 credit crunch, UK banks cut the number of mortgages they offered first-time buyers by 75 per cent. To get that original mortgage, you'll need to show the lender you're a good money manager. It pays to be organised. The way you collect and present evidence to demonstrate your credit-worthiness will make all the difference.
Gather your pay-slips and bank statements. Put them in date order, with the most recent items first. Include your last P60 form, which summarises your annual earnings. You'll need a minimum of three months' records. If you're self-employed, you'll need a full set of accounts that go back two years. List your assets, such as any savings you have or any other valuable property that could act as security for the mortgage loan.
Collect all your bills for the past three months. Include items such as electricity, gas, water, council tax, home insurance, road tax and motor insurance bills. Your mortgage lender will want to see all your credit card statements, too. Be prepared to explain any missed or late payments. Lenders are highly likely to refuse loans if they think your credit history is patchy.
Plug any gaps in your financial records with a written note showing your best estimate for income or outgoings. Reconstruct any missing records by cross-checking with your bank statements, to prove the accuracy of your calculations. Before approaching the lender, pay off as much personal debt as you can, such as smaller outstanding loans on things like store cards. Aim to show you are a capable manager of your household budget.
Money up front
Save money regularly to raise a deposit for your first home. Lenders will insist you put up 10 per cent of the property's price before they'll give you a mortgage. To get lower monthly repayments, you'll need to come up with even more hard cash, perhaps 25 to 40 per cent of the property's price. If you can bump up your deposit, you'll ultimately save money, by paying much less in interest.
Ask relatives to help, if you are struggling to raise the deposit. Some mortgage agreements specifically allow parents to offer a share in their own property as security for your loan. Consider a cheaper property if you can't raise a realistic deposit. Housing associations also offer schemes where you buy a share of a property and then pay rent on the rest. With deals like this, you'll need a much smaller deposit.
Consider Government-backed schemes, if you're a buying a newly built home. You'll stump up a smaller deposit, while the builder and the Government pay insurance to cover the lender if you can't manage the repayments. The NewBuy scheme is gradually extending across the UK, while the MI New Home scheme operates in Scotland. There are links to both in the Resources section.
Treat your mortgage application like a job application. Show you're highly organised and dependable. Check you've included all the required contact information in the paperwork. If you've been at the same address or with the same bank for a long time, point this out. Details like this show you're steady and reliable. Make sure you're registered to vote, as lenders will check. Follow the "About My Vote" link in the Resources section to register.
Go through your financial records with a highlighter pen. Underline when you've made regular savings and when you've paid bills promptly, especially credit card bills. Don't assume your lender will notice. Point out that you're a credible money-manager, who can commit to a payment scheme. Some mortgage advisers even suggest that if you don't have one, you set up a store card and make purchases with it, just so you can demonstrate you're good at managing debt.
Ask your boss for a written testimonial, to show you're in reliable employment. It helps if you've been in your current job for at least a year. You might even think about putting off any career move until after you've landed your mortgage deal. Aim to make a good impression. Dress smartly when you go to meet your lender and present your financial records, neatly filed in a loose-leaf folder.
Shop around for the best mortgage deal, as fees and interest rates vary markedly.
Use an online mortgage calculator to work out what you can afford. You'll find calculators from The Money Advice Service and the consumer advice experts Which?, in the Resources section.
Be wary of "interest only" mortgage deals, where you just pay off the interest on the loan each month. They look cheap, but if you haven't saved enough to pay off the bulk of the loan when the mortgage ends, you could lose your home.
Tips and warnings
- Shop around for the best mortgage deal, as fees and interest rates vary markedly.
- Use an online mortgage calculator to work out what you can afford. You'll find calculators from The Money Advice Service and the consumer advice experts Which?, in the Resources section.
- Be wary of "interest only" mortgage deals, where you just pay off the interest on the loan each month. They look cheap, but if you haven't saved enough to pay off the bulk of the loan when the mortgage ends, you could lose your home.
- The Guardian: Ten of the best ways to improve your chances of getting a mortgage
- The Telegraph: It’s never been harder to get a mortgage
- The Money Advice Service: Tips if you’re struggling to get a mortgage
- Mail Online: Misery over mortgages that can’t be paid back
- Moneyfacts: Improve your chances of getting a mortgage
- BBC News: Mortgages – how to get the best deal
- Money: How to get your first mortgage