If you’re planning on buying a house this year, you’re not alone. Indeed, new research by Market Financial Solutions has revealed that one in five adults are planning on buying a property in 2022, with that number rising to one-third of 18- to 34-year-olds.
When you’re buying a property, there’s lots to think about. So, one way to put yourself in the best position when it comes to searching for your dream home is to get “mortgage ready”.
Read on for some useful tips about how to get mortgage ready if you are planning to buy a property this year.
1. Work out your budget
Before you start planning anything, you should first figure out a budget. As well as saving for a deposit and any other costs that may occur, you will also need to work out how much you can afford.
When you apply for a mortgage, prospective lenders will look at how you manage your income and expenditure, so it’s important to demonstrate that you know how to budget effectively.
If you’re struggling to figure out your budget, speak to us. We can help you establish your borrowing potential, what you can realistically afford, and what your repayments are likely to be.
2. Save for your deposit
If you’re purchasing a property in 2022, the chances are you’ll need to save for a deposit. Most lenders will need at least 5%, but the more you put down, the better the choice of deals and lenders you’ll usually have.
One helpful tip to save for your deposit is to set up a standing order from your current account to your savings account on the same day you are paid. This way, saving should feel like just another “bill”.
Another great tool for saving for a deposit is a Lifetime ISA (LISA). LISAs are available to anyone between 18 and 39 years old and are designed to help first-time buyers to get onto the property ladder.
Money saved in a LISA can only be withdrawn without a penalty charge if you’re using the money as a deposit for a first home or you have reached the age of 60. Better yet, the government gives you an extra 25% bonus for every pound you save up to the value of £1,000 a year. So, if you save £4,000 each year, you will receive an extra £1,000 as a bonus.
3. Make sure you are registered to vote
Registering to vote may seem like a strange thing to consider when you’re trying to get mortgage ready, but it can greatly improve your standing with lenders.
Prospective lenders can access the information you provided when you registered on the electoral roll, meaning they can accurately source your previous addresses and your identity. This can save time, as lenders may have to ask for other forms of identity if you aren’t registered to vote.
4. Check your credit report
Your credit file contains information about your credit history, your identity, and any existing credit you have in your name.
There are three main credit reference agencies that hold this data:
Lenders use the credit report supplied by these agencies to build an image of your credit when you apply for a mortgage. So, it may be worth requesting your credit report from all three agencies before you apply for your mortgage to ensure that any information they hold is correct.
These agencies must provide you with a copy of your credit report for free on request – you can access them online, or you can get a paper copy directly from the agencies.
5. Get your paperwork in order
Paperwork is essential when you’re applying for a mortgage, and lenders will ask for lots of it. They will typically ask for:
- At least six months’ worth of bank statements
- Up to three months’ worth of payslips (or 12 weeks’ worth if you are paid weekly)
- Your most recent P60 form
- Proof of benefits
- Proof of identity.
If you’re a sole trader, are self-employed, or are earning income from multiple sources, you are typically required to provide an SA302 tax self-assessment. These are provided by HMRC and give a brief summary of your earnings and reported income. You may also have to provide two- or three-years’ worth of accounts.
Preparation is key when you’re applying for a mortgage, so having your paperwork in order can relieve any stress involved and speed up the process.
6. Ensure you have enough money for any costs
When you’re buying a house, you should factor in the other costs that you may face.
For example, you may have to pay Stamp Duty Land Tax (SDLT) – a tax in Northern Ireland and England attached to property or land above a certain price.
If you are purchasing a property in Scotland, you may need to pay the Land and Buildings Transaction Tax (LBTT), or the Land Transaction Tax (LTT) in Wales, both of which are the equivalent of the SDLT in England and Northern Ireland.
You may also face other costs, such as legal fees, estate agent fees, and paying for a surveyor. You should take these costs into account before you decide to take out your mortgage, as you’ll need to budget for them.
7. Make sure your bank account is in order
As mentioned previously, lenders usually require at least six months’ worth of bank statements to build a profile of your spending and saving habits.
Due to this fact, it can help to have a “clean” bank account before providing these statements. This means paying your bills on time and not running up any new bank charges or new loans.
You should also avoid showing any signs of constantly dipping into your overdraft or making payments to things like payday loans or gambling companies, as these can be potential red flags for lenders.
8. Get an agreement in principle
An “agreement in principle” (or AIP) is an estimate from a mortgage lender of how much they might be prepared to lend you in order to buy a property. It also shows whether a lender is prepared to agree to the mortgage you want, presuming you can evidence the information you have provided.
Your AIP provides lenders information about your finances, and an indication as to how much you can borrow; it is based on the information you supplied about your income, spending and debts.
It is well worth getting an agreement in principle, as it gives you a good indication whether a lender will give you the mortgage when you come to apply. It can also help you to demonstrate to potential sellers that you’re ready to proceed.
Speak to us and we can help you to get your mortgage agreed in principle, putting you in a great position when it comes to making an offer.
Get in touch
If you’re thinking of buying a home in 2022, we can help you to get “mortgage ready”. Email firstname.lastname@example.org or call (0207) 808 4120 now to find out more.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Think carefully before securing other debts against your home.
Buy-to-let (pure) and commercial mortgages are not regulated by the FCA.