Finance

Which? Mortgage Clinic – Part 4

Mortgage Clinic

As a first time buyer, understanding mortgage terminology and knowing what mortgage is right for you can be difficult, so David Blake at Which? Mortgage Advisers has joined up with First Time Buyer, to answer your mortgage-related questions

Q What paperwork do I need to get ready ahead of applying for a mortgage?

A There are a number of things you can do to get off the starting blocks as quickly as possible, although these may require getting all that mounting paperwork organised!

Firstly, you’ll have to prove your identity, so make sure you have your passport ready. If you don’t have a passport then a driving licence should suffice, or possibly a tax code notification letter from HMRC.

Lenders will be conducting a number of affordability checks to ensure you can meet the cost of repayments, both now and in the future. Bank statements will play a key role in evidencing this by clearly illustrating your income and outgoings. Most lenders will want to see at least your latest month’s bank statement, while some may ask for more. Consider your overdraft use, as it could flag an issue with you managing your finances.

Your regular utility bills, other evidence of outgoings, along with statements relating to any other debt you’re currently repaying may also be requested. A lender  will ‘stress test’ your finances to check whether you could still afford repayments should interest rates go up, or if your circumstances were to change.

Lenders will look for a consistent income track record, so be sure to have at least three months’ payslips and your p60 to hand. If you’re self-employed, lenders will generally expect to see at least a two year record of your earnings – for which you’ll need your tax returns or accounts and bank statements.

Poor or patchy credit history can present a real issue, so make sure you’re on the electoral register and run credit reports on yourself, to see if there are any debts, missed payments, or even fraudulent activity, that could throw a spanner in the works.

Q What are the differences between the mortgages available on the high street and the mortgages you get through a mortgage broker – what’s best?

A Choosing the right lender may leave you overwhelmed. There are several different types of mortgage and thousands of different mortgage products – with a myriad of fees and charges attached. You can go directly to a high street provider, or consult a mortgage adviser or broker, and each of these avenues has their own set of pros and cons.

A high street mortgage lender, like your bank or building society, is able to provide you with mortgage advice on their own range of mortgage products. An independent mortgage adviser on the other hand, may be able to offer you products tied to a certain lender, a range of products from different lenders, or best of all, they will search the ‘whole of the market’.

It’s worth noting that both can offer you exclusive deals. Your bank or building society may be able to provide you with preferential rates if you hold an account with them, while a mortgage adviser may have an agreement direct with a lender.

You may need to pay a fee for independent mortgage advice, but an adviser’s knowledge can really help you navigate the options available. Some charge a flat fee, while others charge a percentage based on the amount you borrow, but it’s also possible to obtain free mortgage advice.

If the adviser earns commission from the lender, a good mortgage adviser will let you know the fee they are earning, if any at all.

It pays to shop around, so it’s worth exploring both avenues if you have the time. In this competitive market, time scales can be tight, so it can be good to have someone like a mortgage adviser do the legwork for you. They should also be able to advise on how long a lender’s application typically takes and their service levels thereafter – these are as important as the mortgage rate itself.

Q My friends and I are looking to buy our first property together. There would be three of us in total. Is this possible and is there anything we should be aware of?

A The main attraction for considering this approach is the added spending power that comes from grouping together. However, while it’s possible, most lenders will restrict the number of applicants to two, so you may find the number of lenders to choose from restrictive. It’s also likely that only two of your incomes will be assessed, despite there being more of you joint holding the mortgage.

A mortgage is a significant financial commitment, so you need to consider how any life changes could impact your or the co-owners’ ability to make repayments. Consider things like what will happen should one of you become unemployed, or need to relocate for work.

Anyone named on the mortgage is jointly liable for it, so it’s essential that you each seek independent legal advice. Also consider how you will set up the ownership of the property, whether that be as ‘joint tenants’ (where you each have equal right to the property); as ‘tenants in common’ (where you each own a share in the property); or a ‘deed of trust’, whereby your solicitor will set out the varying percentage shares of the property each tenant owns.

For further help and advice from Which? Mortgage Advisers, please visit: which.co.uk/ftbmortgages, or call 0808 159 4852

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