The process of buying a house in the UK can be quite a long and complex process, and for the majority of people it’s not something that they will do often. For the benefit of those who would appreciate and find confidence through understanding what’s happening now and will happen next, I am compiling a series of blog with tips and explanations.
We start today by looking at what you can do, before things get too serious, to get ready ahead of time. How do you prepare for your house purchase?
You may be surprised to learn that many delays or declines that affect mortgage applications have effectively been created before the process has even begun. The very simple reason is because people are not ready, they have not done some basic housekeeping, and haven’t thought about the information that they will need to provide. Here’s a quick pre-mortgage checklist for you to use:
- Can you prove who you are and where you are?
Whilst buying a house you will be required several times to prove your identity and address. Is your passport still valid, and your driving licence both valid and showing a current address? If you manage your banking, credit cards, and utility bills online, what else could you obtain and provide (such as a council tax) to give evidence of address.
- Look out for small details.
The Electoral Roll is something often overlooked that can impact on some credit scoring models. Make sure that you are listed on the electoral role at your current address before submitting an application, and update if necessary.
- Check your credit file
You may think you’ve not had any issues with credit, and that payments for all accounts have been perfect, but we often work with clients who are surprised to find information on file that they were not aware of. It’s worth obtaining a copy of your credit report, especially if you have moved addresses a few times during recent years. I recommend downloading your credit file,so that you’ll be able to review all of your accounts, credit history, at all addresses. You will be able to see any information that needs to be updated and see your electoral role entry too.
- Debt matters
The amount that you have outstanding on your credit card at the end of each month, or how much you pay towards any loans and finance agreements each month matters – if you can reduce your outgoings and balances before you start looking for a mortgage, this might mean that the lenders, products, and / or options available are made more favourable.
- Assess your own bank statements – Any questions?
Many lenders will request your bank statements. They can be assessed to provide quite a bit of information, and they are often the catalyst for an underwriters’ questions. Make sure you’re confident that if a question is asked you have a good answer. Can you explain any large transactions, whether deposit or withdrawal? Have you exceeded overdraft limits – can you explain why, and what you’re going to do to make this doesn’t happen again?
- How will you prove income?
If you’re employed, you will typically need to have your latest 3 months payslips & a P60. If you’ve just started a new job, a signed copy of your contract and letter from employer may be required. Do you receive any bonuses? It’s likely that 2 years evidence will need to be shown.
If you’re a self-employed as a sole trader, in a partnership, or you’re the Director of a Limited company with more than 20% shares, make sure you have the latest 2 or 3 years HMRC online Tax Calculations & Tax Year Overviews. For Directors, you may be asked to provide company accounts for 2 or 3 years and perhaps an accountants reference also.
- Show them the money!
Lenders will need to know where your deposit is coming from and will want to see proof of the source of funds. If it’s coming from savings, a statement is likely to be acceptable. If the deposit is being gifted by family, you will need to provide a ‘gifted deposit letter’ or a specific form might be requested by the lender.
- What else will you need to spend on?
In addition to deposit money, you will need to set aside funds for property survey, legal costs, and possibly stamp duty too. The rate of Stamp Duty you may have to pay is dependent on where you’re planning to buy. England and Northern Ireland have the same rates, but Wales has its own rates, and Scotland does too. During our first meeting with clients we will try to give an indication of the figure that these amounts will add up to.
- What does the future hold?
Why do you want to buy a house? How does this purchase fit in with the your plans for the short to medium term? How long might the property suit your needs, and would you want to develop or extend it in future if circumstances altered?
A mortgage contract is likely to include small print, and (potentially sizeable) early repayment charges that should be considered. When you speak to an advisor, to ensure that we can find the most suited product for you, we’ll want to understand your plans. However, it’s not all that unusual for people to either struggle to explain, or to have not always though things through!
- Do you know the benefits of speaking to a mortgage broker?
At Moving Experience we believe that everybody can benefit from speaking with a mortgage broker… Of course!! I’m not just saying this, honestly, just because I am a broker. A mortgage broker can help in several ways, including saving your valuable time. A good broker will be able to identify, and apply for, the mortgage and associated products that are best suited to you. The mortgage broker will also have access to products that are not available for applications submitted directly.
I really hope that the above information is a helpful first chapter, and helps you to answer the question “what should I do to prepare to buy a house?”. If the article has raised any questions, or I can help in any way, please get in touch.
Dave Atkinson – 1/11/2019