What is a mortgage?

How much can I borrow?

How long can I have a mortgage for?

What is an 'Agreement in Principle'?

Will I need to provide proof of my income to the lender?

What is a 'self-certification' mortgage?

I've had credit problems in the past. Can I still get a mortgage?

How can I get a copy of my credit reference file?

Do I need to contact banks and building societies myself?

Q:  What is a mortgage?
What is a mortgage?

A:  Basically, a mortgage is a loan provided by a lender that allows you to buy your home. The mortgage is secured against your property, which means that you cannot sell your home without the lender's permission. If you don't make your agreed mortgage repayments, the lender can also "reposess" your property and insist that it is sold.

  

Q:  How much can I borrow?
How much can I borrow?

A:  Lenders take account of two main factors. The first of these is how much you earn, with the second being your regular outgoings.

Traditionally, lenders have allowed a single applicant to borrow a maximum of three and a half times their income. If it is a joint application, the lender will generally allow the couple to borrow the greater of:

o two and a half times their combined joint income, or
o three and a half times the larger income plus one times the smaller income

Recently, some lenders have started to calculate mortgage borrowing based on affordability. With this approach, the lender takes into account both the applicant's incomes and outgoings to work out the level of borrowing that they can safely afford to repay.

Using affordability based borrowing has its advantages, because when interest rates are low the lender will generally allow the applicants to have a larger mortgage that they would have been able to obtain using the traditional income based approach.

  

Q:  How long can I have a mortgage for?
How long can I have a mortgage for?

A:  There is no hard and fast rule here. Traditionally, mortgages have often had a term of 25 years. However, in reality most lenders will allow a mortgage to have any term between 5 and 40 years.

When choosing the term of a mortgage, there are two factors to consider:

o the shorter the term, the higher your monthly repayment will be, and
o most lenders will not allow a mortgage to run beyond normal retirement age, so if you are aged 45 then your maximum mortgage term will usually be 20 years

  

Q:  What is an 'Agreement in Principle'?
What is an 'Agreement in Principle'?

A:  Some people like to have the comfort of knowing the maximum amount that a lender will allow them to borrow before they actually start searching for a property.

To simplify things, most lenders will allow prospective borrowers to make an 'Agreement in Principle' to them. To do this, the borrower fills in a brief summary application form to the lender which contains details of their income, outgoings, employment status and credit history.

Using this information, the lender will then calculate the maximum mortgage that it would allow the prospective borrowers to have.

Usually, the lender will then provide the prospective borrowers with a certificate confirming the maximum mortgage that it is prepared to offer, subject to the information that has been provided to them being correct.

This allows the prospective borrowers to start searching for their dream home, safe in the knowledge that the lender has already confirmed that they are happy to provide the mortgage for it.

  

Q:  Will I need to provide proof of my income to the lender?
Will I need to provide proof of my income to the lender?

A:  Generally, you will need to provide satisfactory proof of your income to the mortgage lender.

If you are employed, the lender will usually ask to see your three most recent payslips plus your P60 (which is the statement of your total income for the last tax year) Sometimes, the lender will also write to your employer to obtain a reference confirming both your salary and also the fact that you are employed by them on a permanent basis.

If you are self-employed, the lender will usually write to your accountant and ask them to provide confirmation of your taxable earnings for the last three tax years. The lender will then take an average of these in order to establish how much it will allow you to borrow.

Some lenders allow self-employed applicants to 'self-certify' their income if they are able to put down a substantial deposit (which is normally in excess of 20% of the value of the property).

Under 'self-certification', the lender trusts the applicant to state what their own income is on the mortgage application form. This income is used to calculate maximum borrowing without usually needing to be verified with the applicant's accountant.

The main benefit of a self-certification mortgage is that it can often be processed quickly, because the lender doesn't need to wait for the accountant's references to be returned - which can sometimes take a couple of weeks.

It should be noted that if you deliberately lie on a mortgage application form, this can have serious consequences for you.

As with all things in life, total honesty with the lender is the best policy.

  

Q:  What is a 'self-certification' mortgage?
What is a 'self-certification' mortgage?

A:  Some lenders allow self-employed applicants to 'self-certify' their income if they are able to put down a substantial deposit (which is normally in excess of 20% of the value of the property).

Under 'self-certification', the lender trusts the applicant to state what their own income is on the mortgage application form. This income is used to calculate maximum borrowing without usually needing to be verified with the applicant's accountant.

The main benefit of a self-certification mortgage is that it can often be processed quickly, because the lender doesn't need to wait for the accountant's references to be returned - which can sometimes take a couple of weeks.

It should be noted that if you deliberately lie on a mortgage application form, this can have serious consequences for you.

As with all things in life, total honesty with the lender is the best policy.

  

Q:  I've had credit problems in the past. Can I still get a mortgage?
I've had credit problems in the past. Can I still get a mortgage?

A:  Lenders judge each mortgage application on its own individual relative merits.

In the past, if you had County Court Judgements (known as CCJs), mortgage arears or personal bankruptcy your chances of getting a mortgage were slender to non-existent.

Nowadays, most lenders have adopted a sympathetic approach towards those who have experienced credit difficulties in the past (naturally depending on the severity)

Provided that you have learned from your mistakes and can demonstrate that you are now 'back on track', it is perfectly possible to get a mortgage from a 'high street' lender at a reasonable rate.

If you have current CCJs, there are also a number of specialised lenders who may be able to help you.

  

Q:  How can I get a copy of my credit reference file?
How can I get a copy of my credit reference file?

A:  Mortgage lenders will carry out a credit referencing check as part of the mortgage application process. To do this, they will use one of the three main credit reference agencies in the UK which are Experian, Equifax and Callcredit.

Under the Data Protection Act, you are free to ask these organisations to send you a copy of your credit reference file so you can check it for accuracy.

To do this, you will need to write to them stating your full name, date of birth, current address and details of any other addresses that you have lived at over the last six years. You will also need to enclose a cheque for £2.00 made payable to the respective credit reference agency to cover processing costs.

This is called a 'Statutory Credit Report'. Don't get misled by the 'enhanced online versions' that these companies would prefer to sell you for £10 to £12 each.

The 'Statutory Credit Report' is really simple to read, and contains all the information that you need to know. It will usually arrive in less than 7 days, so just pay £2 for it and keep the other tenner in your pocket!

As each agency may hold different information about your credit history, you should consider obtaining a copy of your file from each agency.

Callcredit PLC
Consumer Services Dept
Park Row House
Leeds
LS1 5JF
Tel: 0113 244 1555
http://www.callcredit.plc.uk/consumer/order-your-report

Equifax PLC
Dept 1E
PO Box 3001
GLASGOW
G81 2DT
Tel: 08705 143700
https://www.econsumer.equifax.co.uk/consumer/uk/sitepage.ehtml?forward=gb_elearning_credit14 (right hand side option)

Experian Ltd
Consumer Help Service
PO Box 8000
NOTTINGHAM
NG1 5GX
Tel: 0870 241 6212
http://www.wiseconsumer.uk.experian.com/

Copy and paste the above links into your browser window. If any of the links get changed, simply visit the respective websites and do a site search for 'Statutory Credit Report'. All credit reference agencies are LEGALLY OBLIGED to provide you with a copy of your file, and cannot charge you more than £2 for the Statutory version.

You should expect to receive a copy of your credit reference file within seven working days, although it may take slightly longer at peak times.

  

Q:  Do I need to contact banks and building societies myself?
Do I need to contact banks and building societies myself?

A:  With literally thousands of different mortgage proucts available at any time, it may be worth using an Independent Mortgage Broker to find the most suitable mortgage for you.

An Independent Mortgage Broker has a legal obligation to find the most suitable mortgage product for you from the entire marketplace. They do this using highly advanced mortgage sourcing software which is updated daily and contains information about every mortgage product currently available in the UK.

By using an independent broker, you will invariably save a great deal of time, effort and frustration - as a good broker will do all of the hard work for you.