To get the best deal you need to make sure your money 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. This is Money has a free credit check trial service that you can use to do this.
New rules ushered in since April 2014 also mean that lenders will have to carry out stricter checks on borrowers and carry more responsibility for their actions.
The Mortgage Market Review is the watchdog the Financial Conduct Authority’s attempt to clean up the home loans market after the easy credit boom of the 2000s that played its part in the financial crisis.
Ultimately, MMR means two things.
The first is the official shift from old-fashioned salary multiple lending to affordability calculations, but in reality many lenders have been pushing this since the financial crisis.
This means weighing up your essential spending, alongside your income and asking questions about your outgoings. A mortgage lender will look at the gap between what you have to spend each month and what you have coming in – and then do its sums from that.
So expect to be quizzed on habitual spending on things like feeding the family, childcare, a car loan, your energy bills and even a mobile phone or gym contract. Mortgage lenders won’t just have to assess your mortgage’s affordability now, they will also need to take a stab at working out what will happen to you in the future and stress test for theoretical interest rate rises.
It will also not be enough simply to tell the lender or adviser about these things, you will need to provide documentary evidence of regular outgoings and what they set you back.
The second big 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’s adviser, or if you go direct the bank or building society’s own financial advice team.
What are the main traps first time buyers need to be aware of when getting a mortgage?
The big hurdle for first time buyers remains the deposit. Lenders now require bigger deposits in most cases and so, although there are deals for 95 per cent of the purchase price, a first time buyer will typically need at least 10 per cent.
The interest rates on offer are higher for those with smaller deposits and lenders are often offering their keenest rates to those with at least 40 per cent to put down.
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 for those on the cusp of the lower band – if they can push a bit further on the deposit size it could qualify them for a better mortgage rate.
For example if they 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.
Is there anything extra people can do to bag themselves a better deal?
Getting the right mortgage is about more than just seeking out the lowest mortgage rate and it’s important that first time buyers shop around.
Firstly, some of the lowest rates can carry a big arrangement fee (it can be a couple of thousand pounds) whereas other deals can carry smaller or no fee or offer help with other costs like valuation fees or provide a cashback.
All these factors need to be factored in to arrive at the best deal for the borrowers requirements, focusing on overall value over the deal period.
As lenders have toughened their criteria in recent years it is as much about knowing which lender will do what as it is about the rate and fee package. A first time buyer trawling the high street could find that they like the look of a deal only to find further down the line that the lender will not lend for one reason or another.
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.