This is our comprehensive step-by-step guide to owning a home including the most important bit - how to get a mortgage.
It will guide you through each process with essential information and tips to help you realise your home-owning dreams.
How to find a mortgage
Saving for a deposit
You’re going to need to save money for a deposit and to pay for the additional costs that come with buying your new home. These additional costs can include surveys, legal fees, broker fees and moving costs.
When it comes to deposit, the more the better. But the key term to understand is “Loan to Value” (LTV) - simply put, this is the amount you are borrowing vs the cost of the property. So if you have a 10% deposit, your Loan to Value is 90%.
It’s important to understand this because this is a key figure for lenders. At the higher LTV’s - 90% & 95% - the interest rates are likely to be higher. There may be some restrictions on the lending criteria that lenders use to decide if they will consider lending to you - for example, the lender may not consider lending on a flat if you have a 10% deposit.
Every additional 5% in deposit you can put down, the lower the interest rates are likely to be and the higher the number of lenders you may be able to access. It is important to get to the full additional 5% and anything less would not change the interest rates.
Read our guide to saving up for a deposit in a year
Getting your Credit File in Order
Your credit file will play an important part in the lender's decision to lend to you. Making sure it is up to date and accurate gives you the best chance to get a positive outcome. You can check your credit file with any of the big 3 agencies - Experian, Equifax or Transunion. Or you can use any other service including Totally Money, Checkmyfile or Clearscore.
There are some simple steps you can take to make sure it is in order like ensuring your addresses are up to date on all of your credits, making sure all of your payments are up to date and that there is no inaccurate information on your file.
Lenders will look at your credit history and adverse credit such as missed payments, defaults, County Court Judgement (CCJ’s) or bankruptcy. This will affect who can lend to you but does not mean that lenders will automatically say no. The circumstances that led to your adverse credit, how long ago it took place, whether it has been resolved and what has happened since will all play an impact in the lender's decision making. Whilst you can’t control having adverse credit, you can make sure that you stay up to date with your debts going forward.
Read our guide to improving your credit score.
Finding Out How Much You Can Borrow
Every mortgage lender has to carry out an affordability assessment to work out how much they can lend to you. They’ll take into account a lot of factors including -
Income
Debts (credit cards, loans, finance agreements)
Financial Dependents
Age / Mortgage Term
Loan to Value
As a rough guide, most lenders will typically lend between 4.5x - 5x your annual income minus debts.
Lenders won’t necessarily take into account all of your income e.g. they may only take 50% of bonus income or if you’re a limited company director, they may look at your salary, net profit and dividends. These rules vary lender to lender so finding the right lender for your circumstances is important.
Read our guide to working out how much you can borrow.
Also, the independent Money Advice Service has a good online calculator.
Research the property market
Once you’ve worked out how much you can borrow and how much you need to save, you’ve got the budget for finding your new home.
Rightmove and Zoopla will give you access to the vast majority of properties available so that you can build a shortlist of properties you are interested in. Check out comparable properties to make sure you’re paying the right price, understand the area you’re buying in and know how long a property has been on the market.
If you’re chain-free, take advantage of this when conducting viewings and making offers. Sellers may prefer to sell to you faster so use this as a negotiation tool.
Get an Agreement in Principle
When you begin viewing properties, estate agents may start to ask for an agreement in principle. This is a simple document that brokers and/or lenders can produce that confirms how much you may be able to borrow on a mortgage. Agents ask for this as they only want to deal with serious buyers.
An agreement in principle does not mean that you will get a mortgage. It is only an indication of how much a lender may consider lending to you and shows that you’ve passed a credit score.
You’ll find the right mortgage once you’ve agreed an offer on a property.
Get an offer accepted
Once you’ve viewed a few properties and understood the market, you’re in position to put down an offer on any properties that you like. Use your knowledge to your advantage in negotiations - you can always offer a lower price but give the seller a reason to accept your offer.
Remember, the agent works for the seller not for you. But use them to your advantage. The agent doesn’t earn their commission if they can’t get a sale agreed.
Once an offer is accepted, you’ll receive a head of terms letter that gives you the contact information for the parties involved.
How to find a mortgage
Now you’ve secured an offer on a property, it’s time to find the right mortgage for your needs. You have a few different routes to finding a mortgage -
Use online comparison sites like Moneysupermarket or Compare The Market - these sites will show you deals for free but won’t tell you if you qualify or provide any advice.
Speak to the bank - you can approach any bank directly and ask for a mortgage. Normally, you’ll be given an appointment with an advisor who will be an expert in that bank's processes and help you through the application process. Again, they won’t typically charge you a fee but they are restricted to their own banks products
Use a broker - brokers help you access the wider market of lenders and advise you on the best product for your needs. They’ll work with the bank on your behalf and are experts in finding and processing the right mortgage for you. Some brokers can’t access the whole of the market (always ask!) and the majority will charge a fee.
Depending on your confidence in the process and your understanding of the market, you can choose the path that makes the most sense for you.
The typical process will involve the following steps -
Data & Document collection - you’ll need to provide the basic facts (see here) and documents (see here)
Advice - if you’re receiving advice, you’ll typically have a conversation about your future plans and needs so that your advisor/broker can help identify the right product type for your circumstances.
Recommendation - if you’re receiving advice, you’ll then receive a recommendation with the best product for your circumstances. Typically, you’ll be given a document to read through with all of the product information.
If you are ever unsure of any part of this process, you should always ask questions. Be clear and comfortable with who you are dealing with, their experience and expertise and that they truly understand your goals when it comes to finding a mortgage. They should be able to answer all of your questions and make sure you understand what you are signing up to.
Here’s our guide to increasing your chances of getting a mortgage.
What information do you need to provide?
Although it can seem intimidating at first, and lenders do require a lot of information, it’s pretty straightforward stuff and you should be able to provide most of it with little effort.
We can break it down into the following sections -
Personal details - names, dates of birth, address history (3 years), contact information, NI numbers
Employment information - job title and employer information (3 years), salary and additional income information.
If self-employed, business name and address, key business info (profit, salary, dividends), accountant contact details
Assets & liabilities - an outline of assets and all outstanding liabilities (loans, credit cards, finance agreements, school fees)
Income & Expenditure - your monthly incomings and outgoings so that it can be shown the mortgage is affordable
Property details - information about your new home including address, build type, age
Mortgage details - purchase price, deposit, mortgage term, preferred product type
Insurance details - any existing insurance e.g. life insurance, either privately or through an employer
Read our guide to the financial details you’ll need to prepare
What documents should you have ready?
Preparation is key to a smooth mortgage application. The better prepared you are, the easier and faster the process is likely to be for you. Applications can be delayed because documents are drip-fed to a lender rather than being given in one go.
Have the following documents ready -
Proof of ID - passport, driving license or identity card
Proof of Address - recent utility bills, a driving license or bank statement.
Proof of Income - recent payslips as well as proof of additional income like bonuses or commission. For the self-employed, your tax calculation forms and tax year overviews for at least two years. You may need to share your accounts.
Proof of deposit - evidence of your savings. If part of the deposit is coming from a gift, a letter may be needed from the person providing the gift.
Lenders may ask for additional documents depending on your circumstances.
Remember, provide the documents the lender asks for rather than everything. The lender will only request what is necessary for their assessment purposes. Additional documents may create further questions or issues with your application.
Applying for a mortgage
Once you, or your broker, have found the right product for you and you’re ready to apply, an application will then have to be submitted.
There are two stages to a mortgage application - the Agreement in Principle and then the full application. As part of this process, the lender will run a credit score - or check - along with an ID check to verify you. Assuming the application is submitted successfully, you will then need to provide whichever documents the lender has requested.
Once an application has been submitted, the lender will go through a two step process - they will assess you as an applicant and then they will assess the suitability of the property i.e. the survey.
It is possible for a lender to be happy to lend to you but not be happy with the property due to a variety of reasons including structural issues, the type of construction, the location e.g. a flat above a pub and so on.
In their assessment of you, they will verify your income and your individual circumstances to ensure you are a good candidate for a mortgage. Once this is done, they will instruct a survey through their own surveyor. Although you may pay for this, this survey is done on behalf of the lender only.
Only once both parts of the application have been approved will the lender issue a mortgage offer.
The Survey
The lender will need to check that the property you wish to purchase meets their criteria. Different lenders have different rules on what is considered acceptable so if you are buying an unusual property, bear this in mind.
There are a variety of characteristics that can make a property harder to borrow against. Examples include flats above commercial premises, flats with deck access, properties with an unusual construct type e.g. concrete build, or a thatched roof. You should bear this in mind when looking for a property - if you struggle to get a mortgage on it now, anyone looking to buy from you in the future may also go through the same issues.
There are three different types of of survey that can be conducted depending on your preferences -
Basic survey - this is for the lenders purposes only but will highlight any obvious, significant issues with the property.
Homebuyers report - this is done on your behalf and goes into more depth about any potential issues.
Structural report - this is the most comprehensive survey possible and the surveyor will provide as much information as possible.
The cost of the different survey types differs from lender to lender and will also be dependent upon the property value.
For mortgage purposes, you are only required to take a basic survey but you can choose to pay for a more comprehensive survey either through the lender or privately. If you are buying an older property, it is normally worth considering a more comprehensive survey to allay any concerns about the property. It’s better to spend a bit upfront to find out if there are any potentially expensive issues with your new home. Don’t rely on the basic survey to identify all the issues.
You can find out a bit more about the different types of survey here.
Find out more about what happens during the conveyancing process.
Your mortgage offer
Once the lender has approved you and your new home, they will issue you with a mortgage offer. This is the first time that you’ll officially know that they are happy to lend to you and the mortgage is guaranteed. You aren’t obliged to take the lenders offer but they have said that they’ll give you the money if you want it.
Make sure you read through the offer carefully to understand any special conditions that have been applied. A different copy will also be sent to your solicitor.
If you are happy with the offer, you may need to sign a document confirming that you intend to proceed - this varies lender to lender.
You now need to liaise with your solicitor to get everything ready to complete on your purchase.
Legal Work
When you put an offer down on a property, the sellers will expect you to have a solicitor in place to aid with the purchase.
It is worth talking to a few solicitors and deciding on how you would prefer to work with them. With solicitors, you get what you pay for so skimping may not be the best idea. A good solicitor will know what questions to ask and be proactive in looking after your needs throughout the purchase.
A good place to start is the Law Society’s ‘Find a solicitor’ tool or search using one of the many conveyancing comparison portals such as MoneySupermarket, GoCompare and ReallyMoving.
Solicitors are often busy so they can be difficult to get hold of. Bear this in mind when assessing your options and ask how they would normally keep you up to date. You may prefer a solicitor you can go to visit in person so focus on local options. However, if this isn’t as important to you, there are firms that take a more digital approach.
You may not always talk to your solicitor but rather someone that works for them. If there are specific issues that you are concerned about, make sure you raise these early and keep on top of your solicitor to ensure your purchase is handled in a timely manner.
Your solicitor will provide you with further guidance about the property - there may be no issues from a mortgage perspective, but there can still be issues from a legal point of view.
They will also handle the transfer of funds from you and your lender to the seller.
Exchange & Completion
Once your solicitor has done the necessary background checks on the seller and asked all the relevant questions, they will let you know if you are good to go with your purchase.
Once you are in this position, you can then agree to an exchange and completion date. Exchange is the first time when you become legally bound to the purchase (in England & Wales. Scotland has different rules). Once you’ve exchanged, there are financial repercussions for pulling out of the purchase. You’ll need to provide part, or all, of your deposit at the time of exchange.
Typically, once you’ve exchanged contracts, you’ll agree a completion date. In a normal purchase, this is done a week later so there is enough time for the funds to be sent to your solicitor by your lender. On your completion date, your solicitor will send the funds to the other side and you’ll be given the keys to your new home.
Congratulations - you’re officially a homeowner!
CreditLadder can help you improve your credit score
If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.
CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.
Remember the information provided in this article is for information purposes only and should not be considered as advice.
