Applying for a mortgage

Work out how much you can afford to borrow. Apply for your mortgage early, so you can act quickly when you find a property you like. It may be difficult to get a mortgage if you are self-employed or have had debt problems in the past.

If you can't get a mortgage you may be able to apply to a different lender, or complain about the way you have been treated. If you can't get a large enough mortgage you may be able to apply to purchase the property through the Co-ownership scheme.

How much can I borrow?
How long a term?
What to do first
When you've found a property
Mortgage application problems
Are you selling as well as buying?
If you are turned down
If you can't get enough mortgage to buy

How much can I borrow?

Anyone over 18 can apply for a mortgage, though a lender will take your income and situation into account when deciding whether to give you one. When deciding how much to borrow remember:

interest rates may rise, increasing your monthly payments,
your income may decrease if you want to go part-time or start a family.

Buying on your own

Your lender will usually offer you a mortgage of no more than 2½ or 3 times your annual income. It may be less than this if you'll have high regular payments to make, such as maintenance payments or credit debts.

Buying as a couple

Your lender will usually offer you a mortgage up to 2½ or 3 times the higher income plus one times the lower income

Self employed or irregular income

If you're self-employed or have an irregular income, you will usually need to provide the lender with accounts for the last three years. You may need to access a specialist lender through a mortgage broker. You may also have to find a large deposit.

How long a term?

Most mortgages are for 25 years - this is called the term of the mortgage. If you can afford higher monthly repayments, a 20 year mortgage will cut the total interest you have to pay.

Some lenders may insist on a shorter term in some situations, for example if the property is leasehold with less than about 60 years left on the lease. Your lender may also agree a loan for longer than 25 years, provided this would not take you past retirement age.

What to do first

Fill in an application form from your chosen lender. The form will ask for details of:

your income,
your savings,
your outgoings,
your employer,
your bank,
any previous mortgage or landlord.

Your lender will usually run checks with credit reference agencies for any history of bad debts or repossessions of property previously owned. You can check yourself what information the main credit reference agencies, Experian and Equifax , hold on you - their websites give details of how to do this.

Based on your application, the lender may give you a mortgage certificate or other document stating in principle how much you can borrow. This can be useful if you need to show the seller that you are a serious buyer.

When you've found a property

You must apply formally for a loan when you have found the property you want. You can usually borrow up to 90 to 95% of a property's value. You usually have to find the rest of the purchase price as a deposit. The 'value' is what the lender's valuer thinks the property is worth. This may be less than the asking price.

You will have to pay the lender's valuer to value the property. You may get the valuation fee refunded once the mortgage is finalised. If the valuation is lower than the asking price, you will have to decide if:

you can find the extra cash upfront,
the seller is likely to accept a lower offer from you.

Be careful about borrowing a very high percentage of the property's value, even if your lender says you can. You will have higher charges to pay if you do. If property prices fall in the future, you run a greater risk of getting into negative equity . This is where the property is worth less than what you still owe.

When working out how much you can put down as a deposit, don't overlook the other upfront costs of buying such as:

solicitor's fees,
an arrangement fee to the mortgage broker or lender,
a mortgage indemnity guarantee especially if you are borrowing 90% or more of the purchase price,
stamp duty on properties over £125,000,
moving costs.

There may be conditions if the lender agrees a loan. For example, you may have to carry out certain repairs or improvements within a specified period. The lender may withhold some of the loan until you have done this.

Some lenders let you assume that you must use one of their selected insurers for buildings insurance . You should be able to insist on a different one if the premiums are cheaper. For a leasehold property, the freeholder usually arranges buildings insurance. However, you will still have to pay a share of the premium.

Mortgage application problems

It may be difficult to get a mortgage if you are self-employed or had debt problems in the past. You might also be turned down if there are problems with the property. A specialist lender may still be able to help you.

I can't afford a deposit

Most lenders are unlikely to lend you 100% of the value of the property, even if you could afford the repayments. Most high-street lenders will lend up to 90 or 95%. If you borrow above 90%, you may have to pay for mortgage indemnity guarantee insurance. This could cost you several hundred pounds.

If the lender will not lend you as much as you need, you may be able to get a top-up loan from an insurance company or bank. Be very wary of overstretching your finances in this way. If you borrow 100% of the value, you run a greater risk of negative equity if property prices fall.

I am self-employed

You will usually need to provide the lender with accounts for the last three years if you are self-employed or have an irregular income. You may need to go to a mortgage broker to find a lender who specialises in borrowers in your situation, rather than use a high-street lender. You may also have to find a larger than normal deposit.

I'm near retirement

Some lenders may be concerned that you won't be able to keep up the payments once you stop work, but a broker may still be able to help. You may have to pay off the mortgage in a shorter time. This will mean higher monthly payments.

I have a poor credit record

Your lender will usually run checks with credit reference agencies for any history of:

bad debts,
repossessions of property you have previously owned.

If you are not sure about your credit rating, check the iinformation the main credit reference agencies, Experian and Equifax, hold on you. Their websites give details on how to do this.

If you have a poor credit record (an 'adverse credit rating'), a specialist broker may still be able to find you a lender.

I'm on a low income

If you are on a low income co-ownership may be a possibility. You may be able to buy a share of the property and pay rent on the remaining share. You usually have the right to buy the remaining share when you can afford to.

Property problems

You may hit problems with the lender if the property you want to buy is:

in poor repair,
leasehold with only a few years left on the lease,
not a typical house or flat (for example, it's a flat over a shop,
built of unusual materials, rather than brick and tile.

Ask a mortgage broker which lenders are most likely to accept your application. You may have to pay a slightly higher than average rate of interest for properties like this.

Are you selling as well as buying?

When you sell one home and buy another, you don't necessarily have to start all over again with a new 25-year mortgage term. You can arrange for the mortgage on the new property to have the same mortgage term end date as on your previous home. This will be particularly useful if you have an endowment or ISA mortgage. If the loan on the new property is bigger, your monthly payments will be bigger, too.

If property prices have fallen since you bought your last home, there is a risk that selling it might not make enough to pay off the amount you owe the lender. This is called being in negative equity.

If you are turned down

You may have been turned down for a mortgage because of:

your income,
your employment status,
problems with the property.

It may be worth applying again to a different lender, though you may have to tell them that your previous application was refused.

If the problem is a bad debt registered with a credit reference agency, you should check that the agency's details about you are correct. If you can prove that they are not, you can get the agencies to correct your record and inform the lender that there was a mistake.

If you think you have been treated unfairly by a mortgage broker or lender, you can make a formal complaint. Under the Mortgage Code the firm must have a complaints procedure.

If you can't get enough mortgage to buy

If a lender makes you a mortgage offer which isn't enough to buy a property, it might be possible for you to buy the property through the Co-ownership scheme.

Northern Ireland Co-Ownership Housing Association (NICHA) runs the Co-ownership scheme in Northern Ireland. Co-ownership gives people the chance to own a home of their own.

Co-ownership allows you to part-buy and part-rent your home. You can buy as much as you can afford initially, leaving you the option to buy the rest at anytime. Your mortgage payment is much less, and the rent is an affordable one. When the 2 amounts are combined, the total is less than a single large mortgage payment.

The scheme is aimed mostly at first time buyers and people on low incomes. You can buy any property apart from Housing Executive or housing association properties. You must be a first time buyer, over 18 and in full time employment.