To get a mortgage, you’ll need to save money for a deposit, find a property to buy and then apply for a mortgage. Don’t worry, a mortgage broker can help with the last bit!
Tired of living in rental accommodation? Desperate to finally be able to hang your own pictures on the wall and pick out paint colours that are just so you?
You might think that you’ll never get your foot on the property ladder, but you could be a lot closer than you think. Here, we’ll look at how to get a mortgage for your first home so that you can finally walk through a front door you can call your own! (And how to get the best mortgage deal.)
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First things first, you’ll want to know if you can actually get a mortgage. So, can you??
Well, every lender’s criteria is different (lenders are the people that give out mortgages). So, it’s impossible to say for sure. However, all lenders will take into account things like:
Your deposit: a mortgage deposit is the money you have to pay upfront when you’re buying a property with a mortgage. The bigger your deposit, the better mortgage deal you can get!
How much you want to borrow: usually, you’ll be able to borrow around 4.5x your yearly salary before tax.
The property’s value: most lenders currently won’t want to let you borrow more than 95% of a property’s value. You’ll need to cover the rest using your deposit. The relationship between how much of your property’s value you’re borrowing versus how much you’re paying upfront is called the loan-to-value ratio (LTV).
Your affordability: lenders will look at your income and expenses before deciding if they think you’ll be able to afford the monthly mortgage repayments. So if you’ve got car finance, or lots of monthly payments for expenses, you might not be able to afford as high mortgage repayments and so have to borrow less. Be prepared to show bank statements from your current account (normally the last 3 months).
How long you’ve been in your job: getting a mortgage with a new job is hard as lenders will want to see at least a few months’ payslips to check your income. Usually, you’ll need to be in your job for at least 3 months before applying for a mortgage.
Whether you’re self-employed: full time employment is much easier to get a mortgage, as if you’re self-employed, it can be tricky to prove your income – which makes it harder to get a mortgage (but still totally doable!). You’ll normally need to be self-employed for at least 2 years before you can get a self-employed mortgage, although it’s starting to become easier to get one after just 1 year.
Your credit score: your credit score (or credit rating) is a number that mortgage lenders use to see how good you are with money. If you have poor credit history, lenders will be less likely to approve you for a mortgage (although there are lenders who specialise in mortgages if you’ve got bad credit). Your score is determined by things like being on the electoral roll, address history and of course your history of things like credit cards and loans.
What the property is like: if you’re hoping to buy a property that’s ex-council, above a shop or cafe, listed, or in a high-rise block of flats, it could be harder to find a lender who’s happy to give you a mortgage.
Your age: age is just a number, but try telling that to a mortgage lender! They’ll want you to finish paying off your mortgage before you hit retirement age, so it’s easier to get a mortgage if you’re still a way off that.
Don’t worry, you don’t have to nail every single one of these factors to get a mortgage. Instead, lenders will be looking at how all of these elements balance together before making a decision.
Plus, because different lenders will be looking for different things, it’s all about finding a lender that can work with what you’ve got. After all, there are more than 100 in the UK so the chances are that at least one of them will consider you!
To find out exactly where you stand, it’s best to get a whole-of-market mortgage broker involved. A whole-of-market broker (also known as a whole-of-market mortgage advisor) will be able to compare all the mortgage deals available from all the lenders out there (or at least, almost all of them).
At the same time, they’ll get to know your circumstances properly so that they can give you a much clearer idea about whether you’ll be able to get a mortgage and, if so, who would be the best lender for you. They’ll also sort out the whole mortgage application for you, but we’ll get to that a bit later!
We highly recommend using a mortgage advisor. Check out Habito¹, a great free online mortgage broker. Or, if you'd prefer to speak to an advisor, check out Tembo¹ and get 50% off their standard fee with Nuts About Money. You could be chatting to an expert it just 10 minutes.
How to get a mortgage
Right, now that’s out of the way, let’s look at what you need to do to get that mortgage. It’s not as complicated as you might think!
Here’s how to get a mortgage in 5 simple steps.
1. Save for a deposit
Okay, okay, so this can be easier said than done. But the first step towards getting a mortgage is to start saving.
Sadly, 100% mortgages (mortgages where you don’t need a deposit) aren’t really a thing at the moment – although obviously, we think they should be! Instead of wasting your time looking, focus on plugging away at your savings to give yourself the best possible chance of getting a mortgage.
Right, so how much do you need to save?
Well, it depends on how expensive a property you’re hoping to buy. Most lenders will let you borrow a maximum of 95% of the value of a property (known as a 95% LTV), which means you’ll need to be able to afford the remaining 5% yourself.
Confused? Don’t worry, let’s look at an example.
Say you want to buy a property that’s worth £200,000. Your lender will probably be willing to lend you a maximum of £190,000 (95% of 200,000 is 190,000). That means you’ll need a deposit of at least £10,000.
That said, the bigger the deposit you can put down the better, as lenders usually save the best deals for people with the lowest LTVs. Why? Well, it means you’re taking on a bigger share of the risk yourself.
Basically, it’s all to do with the worst-case scenario. If you get a mortgage and then, later down the line, you stop paying it, your mortgage lender is going to want to get their money back (makes sense, right?!). They’ll do this by selling your property at auction – normally at a discounted price as they’ll be trying to get the whole thing over and done with as quickly as possible (don’t panic, this is their absolute last resort!!).
The lower the LTV (and therefore, the bigger the deposit you pay), the more likely they are to be able to sell the property for a price that will get them their money back in full. Simple!
If you’re struggling to save enough for a decent deposit, don’t panic just yet. There is help available, like Lifetime ISAs (a type of savings account that helps you save for your first home). We’ll take a look at this and some other schemes for first-time buyers a bit later.
2. Get a mortgage in principle
Once you’ve saved up a bit, the next step is to get a mortgage agreement in principle. You might have also heard it called a mortgage in principle, agreement in principle, decision in principle or mortgage promise.
It’s basically an official document from a lender that says they think you’d get accepted for a mortgage if you applied for one. It also confirms how much they’re likely to lend you.
Although you don’t have to get one, for most people, it’s an important step towards buying a home. Here are a few reasons why.
Helps you budget: a mortgage in principle will give you a good indication of how much a lender will be willing to let you borrow. Based on this, you can go and view houses you can actually afford to buy (assuming everything goes to plan!).
Helps you avoid rejection: if you apply for a mortgage and get rejected, this could negatively impact your credit and make it harder for you to get a mortgage in future. This is because lenders will carry out something called a ‘hard credit check’ which will be visible to other lenders. On the other hand, applying for a mortgage in principle won’t normally affect your credit score as lenders will often just do a ‘soft’ credit check at this point. This means it’s a good way of testing the waters.
Shows you’re serious: a mortgage in principle will show estate agents that you’re a serious buyer and are likely to be able to afford the property you’re looking at. In fact, many estate agents and sellers won’t accept an offer on a property unless you can show them a mortgage in principle. In places where properties are selling quickly, you might not even be able to view properties without one!
Mortgages in principle sound pretty great, huh? However, before you get too excited, bear in mind that they don’t guarantee you’ll get approved for a mortgage. Instead, they’re just a good early indication.
Anyway, the easiest way to get one is to go to one of those whole-of-market mortgage advisors we mentioned earlier (it’s super fast with an online mortgage broker too). They’ll be able to tell you which mortgage lenders are right for you and get you a mortgage in principle from the best one and get the best mortgage deal.
Later, when you’re ready to apply, they’ll handle the whole mortgage application process for you too. For help finding the right mortgage broker for you, check out Habito mortgages.
You can go straight to the lender and apply for the mortgage in principle yourself instead. But let’s be honest, it’ll probably take you three times as long. Not only that, but you won’t have any way of knowing that you’ve picked the best lender, and you’ll be more likely to make a mistake that could lead to you getting rejected.
Ultimately, a mortgage broker can do all the hard work for you and potentially save you thousands of pounds a year. Meanwhile, you get to just put your feet up and watch Netflix. Sounds like a done deal to us!
3. Find a property to buy
You can’t apply for a mortgage until you’ve had an offer accepted on a property. So, now for the exciting part. This is where you get to snoop around other people’s houses pretending you’re on ‘Location, Location, Location’ or whatever other fun property programmes you like perusing in your spare time.
Most mortgages in principle only last 60 to 90 days, so ideally you’d want to find a property within this time. However, if you don’t, it’s really not the end of the world. Remember that buying a home is a huge investment (probably the biggest you’ll ever make!) so it’s important you take your time and don’t rush yourself.
If your mortgage in principle expires before you’ve fallen in love with a property, you can just apply for another one. Or, you could even just let it expire as you don’t actually need a mortgage agreement in principle in order to be able to buy a property.
The most important thing is that you find the right property for you, at a price you can afford. The rest will follow when you’re ready!
4. Apply for a mortgage
Once you’ve had an offer accepted on your dream property, you can finally go ahead and actually apply for a mortgage!
If you got your mortgage agreement in principle through a mortgage advisor, you won’t have to do much at this point as they’ll already have all your details saved. That means you can just give them the go-ahead. They’ll pull together a mortgage application and submit it all for you while you twiddle your thumbs. Bliss!
If you decided to go straight in with an offer without getting a mortgage in principle, that’s fine too. We’d still recommend getting a mortgage broker involved so they can nail your mortgage application and give you the best possible chance of getting approved. Not to mention the fact that it’ll just be a whole lot less stressful for you!
5. Get accepted for a mortgage!
Last but not least, you’ll just have to hold your breath and wait for your mortgage offer to come through.
You’ll normally get your lender’s decision around 2 to 6 weeks after your mortgage application is handed in, as they’ll need to carry out some checks – this includes something called a valuation survey, where they check how much they think your property is worth. So, it can be a bit nail-biting! Check out the mortgage application process to find out exactly what happens during this time.
Assuming all the checks go okay, it’ll all be worth the agonising wait. As soon as your mortgage offer makes its way through your letterbox, it’s time to ring all your friends and family and scream down the phone to let them know you’re practically a homeowner! Congrats!
Just bear in mind that the home buying process isn’t over yet and, until you get the keys to your new pad, things could still fall through at any moment (although we’re keeping our fingers crossed for you that all goes to plan!). With that in mind, here are two things to remember:
Try not to make any big life changes. If you change jobs suddenly or your income falls, your lender could still get cold feet. So, it’s best to sit tight and act normal until everything’s gone through.
If things do go wrong and your purchase falls through, there’s always a next time. You’ve now proven you can get a mortgage so, as long as your circumstances don’t change massively, you should be able to do the same again. Touch wood, you’ll have better luck on the next one!
Anyway, back to the positives. You’ve got yourself a well-deserved mortgage offer which calls for a big pat on the back and an even bigger bottle of bubbly. Happy days!
What help is there to get a mortgage for your first home?
Of course, saving for a deposit is hard. And earning enough to prove you can afford the mortgage repayments can be hard too! So, you’ll be pleased to hear that there is support available if you’re buying your first home.
Here are some ways that you could get help, either from the government or from family and friends.
1. Lifetime ISA
A Lifetime ISA is the best kind of bank account. It’s a special kind of savings account designed to help first time buyers save to buy your first home (or to tide you over later on in life).
Each year, you can pay up to £4,000 into it. And each year, the government will give you a 25% bonus on any money you put in there. Kerching!
The catch? Well, if you want to withdraw your money for any other purpose, you’ll have to pay a hefty 25% withdrawal fee, which basically means you’ll be giving back any money that the government gave you. So, you really need to make sure you use your ISA for the purposes it’s made for. Plus, you’ll need to buy a house that costs less than £450,000.
Just make sure that you make your first payment into the account before you’re 40, otherwise, you’re not going to be able to use it. Sadly, once you turn 50, you won’t be able to add to it anymore either, so it’s not really designed for anyone other than the youngest buyers.
2. Help to Buy Equity Loan
The Help to Buy Equity Loan is a government scheme for first-time buyers. It basically allows you to borrow up to 20% of a property’s value from the government (or up to 40% if you’re buying in London) on specific properties.
Remember that LTV (loan-to-value ratio) we were banging on about earlier? That’s where this scheme is really helpful. Basically, if you don’t have enough of a deposit to be able to unlock a loan big enough to cover the rest of a property’s price, the government could make up the difference for you. Hallelujah!
Before you get too carried away though, bear in mind that you’ll still have to pay a deposit (at least 5% of the property’s value). And you’ll still need to get a mortgage (for at least 25% of the property’s value).
On top of that, remember that this is a loan, not a gift. So you will need to pay it back! The first 5 years are interest-free (in other words, you can just pay back what you’ve borrowed without any fees on top) but after that, you’ll be charged interest.
3. Shared Ownership
Shared Ownership is a government scheme for people who can prove they can’t afford to buy a home without help. On specific properties, it allows you to buy a share of a home instead of buying the whole thing. You then have to pay your mortgage on the part you own, and pay rent on the part you don’t own.
All sounds well and good, right?
Well, to be honest, we really wouldn’t recommend it. Most people never manage to buy the property outright. Instead, they’re faced with hidden fees and service charges that are expensive and unpredictable.
4. Guarantor mortgage
Lucky enough to have a friend or family member who wants to help you buy a property? Then applying for a guarantor mortgage could be a great shout.
A guarantor mortgage is where someone in a better financial position than you agrees to pay your mortgage repayments if you can’t. This can be really helpful if you’re struggling to prove to a mortgage lender that you’re going to be able to afford the repayments.
Maybe you don’t earn a lot. Or maybe you have a bad credit score which is putting lenders off. By promising to cover the repayments if you can’t, your guarantor will be able to ease your lender’s worries and make it more likely that your mortgage application is approved.
Just watch out though. If you don’t pay your mortgage, your guarantor will be legally obliged to pay it for you, which could even mean putting their house on the line if necessary. So, it’s a big commitment!
Another similar solution is a joint borrower sole proprietor mortgage (JBSP). This is similar to a guarantor mortgage in that it allows your friend or family member to help you get a mortgage. But in this case, they’ll be jointly responsible for paying your mortgage, even though they won’t own any part of the property. With a guarantor mortgage, on the other hand, your friend or family member is just there as a Plan B.
5. Joint mortgage
If you can’t afford to get a mortgage on your own, you could consider teaming up with someone else to get a mortgage and buy a house together, known as a joint mortgage.
You know how we said that you’ll normally be able to borrow around 4.5 x your yearly income? Well, if there are two of you, you can add your incomes together to borrow more.
A bit lost? Let’s break it down.
Say you earn £20,000 a year. On your own, you’d probably be able to borrow around £90,000 (20,000 x 4.5 = 90,000). Now say your friend earns £20,000 as well. That means that together, you earn £40,000 and can probably borrow around £180,000 (40,000 x 4.5 = 180,000). That’s a big difference!
The only thing we would say is that you will jointly own the property. So, things could get a bit messy if you have an argument and fall out. And, if your friend doesn’t pay their share of the mortgage, you’ll be legally responsible. Just saying!
What is a first time buyer?
Good question! A first time buyer is an official term that lenders and the government use to define anyone who hasn’t purchased a property before and is getting their first mortgage. As the government wants people to buy their own homes, first time buyers get special treatment.
The biggest benefit you have is that you get an even bigger allowance before you have to pay Stamp Duty Land Tax (that’s a tax on a property purchase). You won’t pay any Stamp Duty if the property price is less than £425,000. This is called first time buyer Stamp Duty relief.
If you’re not a first time buyer this would only be £250,000. The rate you’ll pay after this is 5% up to £925,000, and then 10% up to £1.5 million, and then 12% above that.
And with mortgage lenders, often they’ll have first time buyer mortgages just for you, which can have different interest rates and criteria.
By the way, if you’ve purchased a property as a buy-to-let before, unfortunately you normally won’t count as a first time buyer.
Ready to get a mortgage?
Whether you need help or you’ve managed to save up enough yourself, getting a mortgage isn’t as hard as you might think – especially if you get a mortgage broker involved. Not only will they be able to help you find the right lender for you, but they can also give you tailored advice on how to make it more likely you’ll get approved.
Not only will they be able to help you find the right lender for you, but they can also give you tailored advice on how to make it more likely you’ll get approved.
You’ll see. You’ll be unpacking boxes in your own home before you know it!
As a reminder, if you need to find a decent mortgage broker check out Habito¹, they provide a great online service for free. Or, if you'd prefer to speak to an advisor, check out Tembo¹ and get 50% off their standard fee with Nuts About Money. You could be chatting to an expert it just 10 minutes.
Find the best mortgage for free
Habito are free, online, search every mortgage deal, and have great service.
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