We recently discussed how to make your property search as easy as possible, and our first tip was to get your finances in order. For most buyers, this means sorting out a mortgage.
This can often appear a daunting and complicated process, so we’ve put together some tips that will help you get the best deal you can, so you can get your property search started!
Sort your paperwork out
Your first step should be to ensure that your documentation is all in order. This may sound like common sense, but a sure-fire way to having your application declined is to have inconsistencies in your paperwork – and you’d be surprised how many people make this mistake.
If you have recently married or changed address, for example, ensure that your documents reflect the correct details. Whilst you’re updating and verifying your documents, it’s certainly worth registering for the electoral roll as this has a huge bearing on the scoring system for lenders.
Having a great credit score is a huge help when it comes to getting an attractive mortgage rate, as lenders are keen to lend to those with a good history.
A credit score is a number between 0 and 999 which represents the risk that lenders take when you borrow money from them. A high score means you are considered likely to pay back your loan, so you’ll be more likely to be accepted for a mortgage – and get a better deal – if you have one.
If you want to cultivate the best possible credit score, there are a few steps you can take immediately. Clearing any outstanding debt should be a priority, and ensuring any credit card bills are paid in full each month will help you build up a good payment history.
You can also build your credit score even further if you rent a property through us, as our partnership with Experian means that our tenants’ rent payments count towards their score.
Aside from having a great credit score, the other best way of saving money on your mortgage is to provide a larger deposit.
Spending more on the deposit means you will be able to get a smaller mortgage, so you’ll pay less in the long run, as you can either pay it off more quickly or have smaller monthly payments.
A larger deposit also means you’re a lower risk to lenders, as you take out a smaller loan and the amount you’ve borrowed will be a smaller proportion of your new home’s value, so you are more likely to get a favourable rate. This can also mean that you’re still able to get a mortgage even if your credit rating isn’t great.
Admittedly, saving for a deposit is often the biggest challenge facing most buyers, so we’ve put together some tips to help here.
Fixed rate or tracker?
Your next step should be to decide what type of mortgage you’ll need. Broadly speaking, there are two main types: a fixed rate mortgage and a tracker mortgage.
Put simply, a fixed rate mortgage locks in an interest rate for a specified time period, whereas a tracker mortgage has a variable interest rate which follows, or “tracks”, an external interest rate – frequently the Bank of England’s base rate.
Deciding which one to go for depends on your own situation, but it is also worth taking economic forecasts into account. Tracker mortgages often give you a lower starting rate than fixed rate options, and if the interest rate is likely to drop over the duration of your mortgage, you could end up with much lower monthly payments. However, you’ll need to be prepared for the possibility that interest rates rise over the course of your agreement, which will mean you’ll end up paying more each month.
Alternatively, if you would prefer to know exactly how much you will be paying each month, a fixed mortgage could be the best choice to avoid any unwelcome surprises – even if the initial rate is higher than other offerings.
Now that you’ve sorted your paperwork, built up your credit score, saved for a deposit and decided which type of mortgage to go for, you can start looking for a good deal.
It may seem like the easiest option is to simply take out a mortgage with the same bank that you conduct your personal accounts with, but this will restrict your choices. Shopping around will allow you to get a better picture of what kinds of options are available, and which of these will suit you best.
We’d recommend speaking to an independent broker, who is not tied to a specific bank or product, as they’ll be able to provide you with objective advice about everything we’ve discussed in this article. If you’d like to speak to a broker, we can put you in touch with one here.