Your journey to becoming a homeowner shouldn’t start at the estate agents.
It starts by working out how much you can afford and what mortgage you’re able to get, thus avoiding viewing properties you could never afford.
That includes the key terms and figures you need to look out for and whether you should use a bank, broker or comparison site.
Getting a mortgage isn’t enough: you need one that’s affordable and won’t surprise you with hidden charges, because buying a home is an incredibly expensive business.
Here’s how to do so as cheaply and easily as possible.
What information do you need?
Before approaching a bank, comparison site or broker, you’ll need information about your savings and income.
It’s a good idea to look at property prices in your desired area on Rightmove or Zoopla, and how big a mortgage you’re likely to need, relative to your savings. Read our article about deposits if you don’t yet know.
In terms of figures, you’ll need to provide your income (including bonuses), the deposit you can put forward and your expenses.
Some banks’ mobile apps can provide a breakdown of expenses, or calculate them using the Money Advice Service’s online planner.
Don’t forget student loan, car and credit card repayments, as these affect your ability to borrow.
Going straight to your bank might seem easy, but it could be expensive.
Your bank only has an obligation to offer you its own products, which may be more expensive or simply not suitable for you.
Keep in mind that getting rejected for a mortgage impacts your credit score, making you less likely to get other, more suitable mortgages.
It is true that some mortgages, such as those by First Direct, can only be accessed through a bank, but the opposite is true, with many specialist lenders operating exclusively through brokers.
It is for this reason that we advise going to a broker, with a little help from a comparison site.
Savings accounts, credit cards and insurance are all worth researching on comparison sites – so why not mortgages?
The problem is that beyond the interest rate, mortgages are incredibly complicated.
The mortgages with the lowest rates may not be available to you for a multitude of reasons, including being a first home buyer, buying a new property, having a low deposit or buying in the ‘wrong’ part of the country.
Again, be careful not to make an application that could be rejected.
Comparison sites are best at giving you an idea of the rates on offer, once you know the deposit you have available, the mortgage amount you need and whether you want a fixed or variable loan (explained below).
Having the rates in mind before you go to a broker can help you be sure you’re getting the best possible deal.
You can compare mortgages on loveMONEY’s comparison site; other sites are available.
There are several advantages to using a mortgage broker.
Firstly, they do much of the work for you, comparing mortgages and then recommending those which are most suitable for you.
They then make the application on your behalf and chase up the mortgage lender, whilst keeping you update.
You will still have to do some paperwork and dig out documents, but the broker can provide independent advice throughout.
Before we go on, a quick disclaimer: loveMONEY also got expert tips from three different brokerages in the creation of our first-time buyer series.
Habito is a free digital broker which uses algorithms to provide a mortgage recommendation in minutes, with human brokers taking over from there. It also searches the direct-only deals mentioned above.
London & Country Mortgages is the largest independent broker in the UK and operates over the phone and online, checking broker deals. It doesn’t charge any fees whatsoever.
Which? Mortgage Advisers are part of the consumer magazine and check both broker and direct-only deals. Although the initial consultation is free, they charge a fee of £499 (£399 for full Which? members).
All three of these brokers are independent, which is important as some firms are tied to particular lenders or estate agents, potentially compromising their ability to give you good advice.
Habito and London & Country are free to use because they receive commissions from lenders, but this won’t make your mortgage any more expensive and shouldn’t affect their recommendations.
If you want face-to-face service, you are more likely to have to pay a fee.
What to check
When discussing a mortgage, there are various factors to keep an eye on.
Your broker should be able to give you these details upfront; check them later in the Key Facts and Mortgage Offer documents.
Repayment vs interest only
This isn’t much of a choice, given very few lenders offer interest-only mortgages to first home buyers, but you’ll still be asked.
Fixed vs variable
You should decide on this first because it affects the interest rates you will pay.
Fixed-rate mortgages mean your interest rate won’t change for the initial period, usually two or five years.
They provide security, which can be useful given the high costs of buying and furnishing a property can leave you with little left for emergencies or rate rises by the Bank of England.
However, fixed-rate mortgages typically have higher interest rates than variable rate mortgages, and you won’t benefit from falls in the Bank of England rate.
Your interest rate (APR) determines your mortgage repayments.
Bear in mind that whilst a 0.05% difference might not seem much now, once applied to hundreds of thousands of pounds and 25 years of repayments it could amount to thousands.
Loan to value ratio
This is the ratio between the amount of money you want to borrow and the deposit you already have (read more about this here).
A high LVR loan could put in you in reach of more expensive properties but could be disproportionally more expensive.
Keep in mind that schemes like Help to Buy can help if you’re struggling to get a big enough mortgage.
These fees can be up to £2,000 and should be factored into calculations with the interest rate.
Many lenders will allow you to roll these fees into the mortgage, so they don’t have to be paid up front; ask your broker if they can do this.
Rolling the fees into the mortgage means you won’t have to pay them if your offer for a property falls through.
This is usually 25 years, but can be varied: the shorter the length, the higher the repayments.
A good broker should ask about your aspirations, including how long you want to hold a property for, and they should be upfront about any restrictions, such as early repayment charges you might have to pay.