Buying your own place for the first time is a hugely exciting prospect but it can also seem daunting as you navigate your way through how much you need to save, whether your earnings are sufficient, and the paperwork required. You may naturally have lots of questions and could be wondering if it’s affordable.
Are you hoping to get on the property ladder this year but wondering how to go about applying for a mortgage? Find out how to start the process and what’s currently happening in the property market with our answers to some key questions.
What’s your best first step?
Our initial advice is to talk to a good broker who can advise you on the best type of mortgage to suit you and your personal circumstances. A reputable broker will take the time to find out as much as possible about your situation and will make a recommendation based on what they think will best suit your needs.
While there is nothing to stop you from going direct to a lender, a good broker will be up to date on changes in the mortgage market and how they might benefit you. For instance, last year, when many lenders withdrew 90 per cent mortgages due to increased demand, it became a challenge for first-time buyers who didn’t have a sizeable deposit to get a mortgage. To some extent it still is, though this is now changing.
However, some lenders introduced flash sales for 90 per cent mortgages that lasted for just 24 hours. A broker would be able to alert you to this and act quickly on your behalf. They will also have access to some competitive mortgage products that may not always be available direct to the general public.
Is now the right time to buy?
You may be wondering what’s going on in the market right now. Will prices go up or down? Should you wait for a while and save a little longer? Do you have enough saved up to get a mortgage in the first place?
In many ways, whether or not you should move now is a personal choice. Over the last 12 months, the property market has been very buoyant. This is largely due to pent-up demand after it was closed during the first lockdown as well as the stamp duty holiday. The stamp duty holiday – which can save buyers up to £15,000 on a property purchase – is due to end on 31 March this year so many buyers have been rushing to benefit from the saving.
When the stamp duty holiday ends, first-time buyers will pay zero stamp duty up to £300,000 of the value of a property provided the purchase price is no higher than £500,000.
In essence though, the stamp duty holiday got the market moving again after the first lockdown.
The market is expected to slow down a bit in the second quarter of this year, but it is still expected to be reasonably steady. Property website Zoopla predicts prices will rise by one per cent this year. But forecasts vary – Halifax predicts a fall of between 2-5 per cent and Knight Frank a one per cent rise. And predictions do change. The bottom line is that if you feel that now is the right time for you to buy your first place and it’s what you want then you should go ahead and look into it.
How much can you borrow?
You may be wondering how much can you borrow and whether you can get a 90 per cent mortgage. It has been a challenging time for first-time buyers, but things are fortunately starting to change. ‘Last year the market was very unkind to first-time buyers,’ says MBA’s Sales Manager Phil Leivesley. ‘Lenders withdrew products mainly due to capacity. Some decided to withdraw from the first-time buyer market. However, we are beginning to see more lenders come back into the market as demand for mortgages has reduced slightly and this is the key thing – lenders couldn’t cope with demand before but now the market is beginning to calm down a bit. I think the second quarter could be a good time for first-time buyers – we could see lower pricing and more opportunity coming onto the market.’
What do you need to be earning?
Some lenders are more risk averse than others and there is a lot of variation in terms of what lenders are prepared to offer. How much you can borrow is generally between 4 to 4.5 times your joint income or sole income if you are applying on your own. Lenders will perform a thorough affordability assessment which takes into account your current and future outgoings as well as your income to make sure you can afford the mortgage. The size of your deposit may also influence the lender’s affordability calculation. However, you are only likely to receive an enhanced figure if you have a deposit of 20 per cent or more.
While we often tend to focus on earning enough to obtain a mortgage, it’s also important to make sure you’ll be able to afford the monthly payments. Check your income versus your outgoings and make sure it’s realistic for you to get a mortgage or make any cutbacks you need to make now.
What paperwork do you need?
Getting your paperwork in order promptly will save you a lot of time and worry later on. Before you approach a mortgage broker or lender, make sure you have the following paperwork ready to hand over:
If you’re employed…
• Payslips for the last three months
• Your last P60
• Bank statements for the last three months
• One utility bill to prove your current address (not a mobile phone bill)
• Your passport and driving licence
If you’re self-employed…
• Three years of audited accounts, signed by your accountant (some lenders will take two years)
• Two years of your SA302 or equivalent tax computation from your accountant
• Bank statements for the last three months for your personal and business accounts
• One utility bill to prove your current address (not a mobile phone bill)
• Your passport and driving licence
A few other key points…
Get on the electoral register – This will improve your credit score so if you have moved recently and your details are not up to date, contact your local council to get your details on the register.
Check your credit report in advance – Use a free online credit score company such as Experian or Equifax to get a full credit report. Have it ready to give to your mortgage advisor.
Don’t hide any bad history – Make sure you let your mortgage broker know from the beginning of any previous problems that may affect your chances of getting a mortgage such as a default on a loan or a County Court Judgement (CCJ). It’s best to be open about any past issues from the start. It doesn’t mean you won’t be able to get a mortgage and telling your broker about it in advance could save them time when they search for the right product for you.