Mortgage Advice Explained.
Residential mortgages are regulated products in the UK, and mortgage advice is a regulated service. If you apply for a mortgage without receiving any advice beforehand, this is termed an ‘execution only’ mortgage application. In most instances, for a residential mortgage or remortgage you’ll want to first receive advice from a qualified person on your mortgage options. There are two ways to obtain this advice, direct from a mortgage lender, or through a mortgage broker.
If you apply direct to a lender and request their advice, the mortgage adviser working for the lender can advise you only on mortgage products available from that lender. This is known as a ‘direct to lender’ mortgage application. This may work for you if the lender you choose has a suitable product for you, and will accept you as a borrower, but can be a frustrating waste of time if this is not the case. As well as the potential to be put on an interest rate that’s not competitive in relation to the market.
The best solution is to get mortgage advice from a mortgage broker. It is important however to understand the difference in how mortgage brokers trade so that you can establish the best source of mortgage advice for you.
A number of mortgage brokers operate within estate agents offices for example and these brokers are commonly managed through a national company that works with a limited panel of lenders.
Clearly, you as a borrower, wish to find the best mortgage deal available to you with the most competitive rates and here at Right Mortgage we have more than 200 providers to search through, to find you, the best mortgage deal.
How to apply for a mortgage.
First, choose your mortgage advisor. You’ll find that most places now help you to apply Online, dramatically reducing your time and costs and saving you from having to travel to attend meetings in your working day.
Once you’ve chosen the advisor that you’re happy with, go through their application process and the supporting information you’ll be required to provide (more info on this further down this article). That way you can be prepared at the outset.
How the independent advice process works.
A key part of our process is our ability to provide an easy online enquiry form. We’ll then use this information to start the searching process on your behalf, before we speak to you by telephone to clarify detail and get a little extra background. This puts us in the position to advise you of your mortgage options.
Important – we do not run any credit scoring with any mortgage lenders until we have first:
- Established that your application is likely to be accepted by a lender
- Advised you of the mortgage lenders terms and confirmed you are comfortable with them
- Obtained your permission to run a credit check
There are instances where we don’t need to run a credit check until the formal application process – meaning you can obtain a Decision in Principle – finding out what you could borrow – without having a ‘hard’ footprint recorded on your credit file.
Many clients who are less sure of their options and requirements, prefer to telephone and speak to an advisor first. In these circumstances one of our experienced team will have an initial discussion with you to narrow down what you need, and what your options are before moving on to the mortgage offer in principle form.
In order to obtain your offer in principle we need to see background details to support your mortgage application. These will typically include:
- Credit File
- Proof of residency
- Proof of income
- Bank statements
- Proof of deposit (where appropriate)
Once we have confirmed your mortgage offer in principle for you, we are ready to move to full application.
We handle the whole of the mortgage application process on your behalf, checking the documentation provided and certifying it before providing it to the mortgage lender.
Common issues with mortgage applications.
Mortgage lenders consider each application thoroughly. They are charged by the regulator with the responsibility not to lend where it is not appropriate.
Here are some of the key issues that may arise during your application and how to avoid them.
- Electoral register – make sure you are listed on the electoral register by contacting your local authority
- Exceeding your overdraft limit – ensure you do not exceed your overdraft limit at your bank in the months leading up to your mortgage application.
- Payday loans – avoid taking payday loans at any time
- Identification – ensure your identification documentation (passports/driving licences) are current and the data correct.
- Declare everything – for example, some borrowers may fail to mention a credit card balance where they clear it every month. Do not make you own decision on what information is relevant to your mortgage application – leave it to your mortgage broker.
- Make sure your deposit is traceable – do not put your deposit funds into the savings accounts of friends to look after for you.
- Credit file – pay all your credit in full and on time for maximum range of lending options when you apply for your mortgage.
What is the best mortgage for you?
The primary factors with all lending are, can you obtain the money you wish to borrow, and which is most cost-effective way to do so?
We help you establish which lenders would be prepared to consider your application, but how do we establish the mortgage product most suitable for you?
Mortgage products come in three primary forms:
- variable rates – that are set and adjusted by the lender
- tracker rates – that follow an international rate such as Bank of England Base Rate
- fixed rates – they were guaranteed to be fixed for a period of time
Each rate has its own particular benefits and disadvantages and these are covered in more detail on our product pages.
For example, is it important to you to know that your payment will not increase? If so, a fixed rate may be appropriate.
Can you afford higher payments, but prefer to make savings immediately while you can? A tracker rate may be right for you.
Do you need flexibility, and need to be able to repay some or all of your mortgage without penalty? This may suggest a variable rate.
How do we establish the most cost-effective mortgage option for you?
The primary cost of any mortgage is the interest payable, and therefore interest rate is naturally key to correct product selection. But beyond this, mortgage products carry a number of additional costs and fees.
- Valuation fees – the cost of assessing the security property
- Booking fees – common with fixed rates to hold the rate for you
- Application/Administration Fees – charged by lenders to help cover the cost of application
- Product fees – charged against product to help maintain the lender’s profit margin
We will usually assess the total cost of your mortgage through the product period with the inclusion of the cost of all mortgage fees. This enables us to accurately compare one mortgage product to another. For example, a mortgage lender will typically offer one fixed rate with no or low product fees, and another higher rate with a higher product fee. In this case, borrowers with a higher lending requirement may benefit from taking the product with the lower interest rate and higher fee.
Selecting your mortgage product is sometimes not as straightforward as making mathematical calculations. Often there is an overriding requirement which becomes a priority, for example the need to avoid early repayment charges due to an intention to repay the mortgage short-term.
Making mortgages simple.
We like our clients to understand the mortgage product being recommended and how it meets their needs. In order to do this we try to keep our communication simple, avoiding technical terms (although some are inevitably always necessary), and setting out the key information in a clear and concise way.
Dealing with a bad credit history.
Have you got a history of missed payments on credit – defaults, County Court Judgments, IVA’s, bankruptcy? If so, many mortgage lenders, including most of the High Street names are likely to reject a mortgage application from you.
This does not however mean that you will not be able to obtain mortgage lending. There are specialist lenders that are seeking applicants with a chequered credit history and they may be able to assist. Such lenders distribute their products through mortgage brokers, and therefore an independent mortgage broker is your best source of advice if you have a bad credit history.
In bad credit terms, what is important to lenders?
Clients with a bad financial history are likely to find lenders more favourable if the problems occurred 24 or 36 months ago. In these circumstances, there are specialist mortgage lenders that will ignore registered defaults or County Court judgments. Where problems are more recent it can be trickier to place the case – important factors are the timing and size of any default or CCJ.
It is very important when dealing with clients with bad credit history that your mortgage advisor take steps to fully understand that credit history and your situation before any application is made to any lender. Our team will study your credit files, and your bank statements, to make sure we have highlighted any items that may prove an issue for a potential mortgage lender. We do this before running any credit checks, and we always talk you fully through your options before we begin anything that could impact your credit score.
Overall, one piece of advice holds true no matter the type of mortgage you may eventually need. Get expert advice before starting anything, so that you can be sure you’re on the right track from the outset.