Stipendium, the platform that simplifies life’s complex events, has compiled a guide on what to expect when it comes to getting mortgage ready, as well as jargon busting some of the most common, and often confusing terms associated with the mortgage application process.
Stipendium has broken down the homebuying process into 12 essential steps via their first product release, Merge, and will be releasing a series of essential guides to help the nation’s homebuyers based on these 12 steps.
- Get mortgage ready
- Book mortgage appointment
- Find a property
- Make an offer and get accepted
- Instruct a conveyancer
- Understand property surveys
- Offer and exchange
- Get new home ready
- Get utility ready
- Exchange contracts
- Moving day checklist
- Completion day
This week, it’s all about booking a mortgage appointment.
What is a mortgage appointment?
A mortgage appointment, sometimes called a mortgage interview, is a meeting between a homebuyer and a mortgage advisor. The overall aim of the meeting is to work out how much money the homebuyer can borrow without over stretching themselves and putting themselves under financial stress or difficulty.
The appointment can be a lengthy one, often taking a few hours, and takes place either in-person or over the phone. Video chats might be offered. Sometimes, the appointment is completed in one, long session, other times broken up into multiple shorter sessions. So make sure you establish how long you will need to set aside and how often in order to get the ball rolling.
Preparing for the appointment
There is a lot of information required for the appointment and a lot of documents that homebuyers need to gather beforehand.
- Photo ID: passport or full UK photocard driving licence.
- Proof of address dated within the last three months: utility bill, bank statement, internet bill, council tax letter, etc
- Proof in income: the last three months of payslips of, if self employed, invoices.
- Bank statements: again, the last three months to serve as proof of income and outgoings.
- Bank details for the account from which monthly mortgage payments will be made.
- Any existing information pertaining to proof of funds such as money saved for a deposit.
- Insurance details, including life insurance, critical illness insurance, and home insurance; if applicable.
- Details about any other mortgages already held in the homebuyer’s name.
- Comprehensive information about the home the buyer is planning to purchase. This includes the address, the type of property, its age, its value, and any survey reports that are available.
- Details of the buyer’s solicitor or conveyancer who is helping them with the legal aspects of the buying process.
During the appointment, the advisor should make an effort to ensure all information is clear and easily understandable for the buyer. But there is no guarantee this will happen and the meeting, as well as the resulting paperwork, could include some industry jargon or phraseology that it’s important to be able to decipher.
Here are some of the most common.
- LTV – Loan to value
This refers to the size or value of a mortgage (loan) compared to the value of the property being purchased, usually displayed as a percentage. For example, if the home is worth £100,000 and the buyer has a deposit of £10,000, they will be taking a mortgage of £90,000. This is an LTV of 90%.
- AIP – Agreement in principle
This is a document that a mortgage lender will provide to confirm that a buyer can borrow a certain amount of money. Some sellers will refuse to accept an offer before seeing this as proof that the buyer can actually afford to follow through.
- ERCs – Early repayment charges
Penalty fees the buyer will have to pay if they want to leave the mortgage early, usually within a specified period of time after first taking the mortgage out.
- HLC – Higher lending charge
Some lenders will apply an HLC to protect themselves when a buyer is taking a loan for the vast majority of the property’s value; typically 75% or more.
- SVR – Standard variable rate
Most mortgages come with offers that mean the first few months or even years will be charged at a lower interest rate than the rest of the mortgage’s lifeline. SVR refers to the rate that kicks in after this initial offer rate has expired.
- Tracker mortgage
A tracker mortgage means that, instead of being fixed month after month, the mortgage rate follows the Bank of England base rate.
- DTI – Debt to income ratio
Refers to the amount of debt a homebuyer has in relation to their income.
A Guarantor is a person who pledges to honour the remortgage payments should the homebuyer, for whatever reason, not be able to afford to pay it themselves. Lenders will usually insist on a guarantor if the buyer has a low income or is unable to provide sufficient proof of their long-term ability to make payments, such as first-time buyers. Guarantors are often family members.
- Repayment mortgage
A homebuyer repays the interest and part of the base mortgage each and every month. This means that the money owed decreases every month until hitting zero after the agreed period of time – 25 years, for example – after which the buyer owns the property outright.
- Interest-only mortgage
The homebuyer only pays off the interest on the mortgage each month and doesn’t, therefore, repay any of the actual capital. This makes the monthly repayments more affordable, but means that after the agreed period of time – 25 years, for example – the initial loan is still as big as it was at the start. It is usually hoped that the buyer will have saved enough money by this point to repay the loan, or they plan to sell the property for more than they bought it, pay back the mortgage and have profit left over for themselves.
Christina Melling, CEO of Stipendium, commented:
“The mortgage appointment is one of the most important meetings a person will have when it comes to their journey to homeownership. So much so that we’ve highlighted this initial process as one of the core steps you’ll take during the homebuying process.
While it can be extensive, try not to worry, nobody is looking to catch you out or scupper your chances of securing a mortgage. It’s just about making sure that the loan you want to take doesn’t cause you any financial stress or difficulty further down the line and so it’s vital that you are completely transparent and provide an honest insight into your financial situation.
To do a thorough job of this, a lot of detailed information is required and while the process itself can be lengthy, getting this information together ahead of time will ensure a far smoother process.”