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Getting Prepared For Your Mortgage in Halifax

Mortgage Advice in Halifax

So, you’ve saved up for your deposit (or got the green light from “Bank of Mum and Dad”) and made the decision to move home. What’s the next step? Put simply, and in the best boy scout traditions, it’s time to get prepared.

Know where you stand

I’d recommend speaking to an experienced local Mortgage Broker in Halifax as early on in the process as possible, so you know how much you can borrow for a mortgage and how much it will all cost. Obtaining an up to date credit report should also be at the top of your list, you don’t want a meaningless squabble with your mobile phone provider holding you back from buying a home. Taking the above two steps will give you a meaningful expectation of how possible this is going to be and what your budget is.

Getting organised

Your Mortgage Broker in Halifax will obtain a fully credit-checked Agreement in Principle on your behalf but you’ll have to prove who you are, where you live and how much you earn. There really is loads of paperwork for you to get together so it’s a good idea to open a file for yourself and start collecting everything in advance.

Proof of ID

In terms of proving who you are you’ll need to produce some photo ID such as a Driving license or passport, if you’re a non-UK national working over here on a Visa you’ll need that too.

Proof of address

In addition to the above, you’ll need to prove where you live. You’ll need to produce a utility bill or original bank statement dated within the last 3 months.

Last 3 months’ bank statements

The analysis of your spending habits has become one of the most important determining factors in whether you’ll qualify for a mortgage or not. Your bank statements should evidence your income and regular expenditures. Lenders will not be happy to see gambling transactions on your account. Nor will they like it if you go over an agreed overdraft limit or if your direct debits bounce regularly.

Proof of deposit

You will have to prove you have the funds in place for the deposit and also evidence this for anti-money laundering purposes. Try not to move monies around your various accounts too much as it will make evidencing the audit trail more difficult. Lenders like to see your savings building up so you’ll need to account for any large credits into your accounts.

Quite often money for deposits has been gifted by family members. These funds need to be evidenced also and the “donor” will need to sign a letter. This is to confirm it’s a non-refundable gift, not a loan.

Proof of income

In terms of affordability, the most important thing is to be able to prove your income. If you are employed this tends to be by way of your last 3 months’ payslips and most recent P60. Lenders can take into account regular overtime, commission, shift allowance and bonus.

If you are Self Employed then you’ll need your Accountant’s help. This will be to request your last 2 or 3 years’ SA302 documents from the Revenue. Following that, they will get the accompanying tax year overview.

A list of your expected outgoings

It’s a good idea to do your homework. Write down an estimate of your anticipated 1outgoings after you move house. You can work out an idea of how much the council tax and utility bills will be. In addition to that, you can work out your regular expenditures, such as food and drink. This will demonstrate how much disposable income you have available to pay your mortgage from.

As you can see from the above, it’s a real paper trail when you are applying for a mortgage but if you want your application to run like clockwork you’ll need to put the time aside to get everything together.

My own view is that it’s better to get all this at the outset and collate everything that the lender could possibly ask for. As this saves time and frustration later down the line if you’re subsequently asked for paperwork you could have had ready at the outset.

Self Employed Mortgages in Halifax

According to the Office of National Statistics, the UK is going through a bit of a Self Employed “boom”. The number of Self Employed individuals rose from 3.8m in 2008 to 4.6m in 2015. This could be down in part to people being inspired to become the new Peter Jones on Dragon’s Den or Richard Branson. More realistically it’s just that work patterns have been changing for several years now.

No longer would someone be expected to leave school at 18 and work for one employer all the way through to retirement. The rise in new engineering and digital occupations, in particular, give rise to Self Employed roles and short-term contracts. However, the uncertain nature of this type of work can make Banks nervous about issuing mortgages.

It’s not impossible to get a mortgage if you are Self Employed by any means but it certainly is a specialist area so here I take the opportunity to help you get prepared if you are in this position and thinking of buying a house.

How many years’ accounts do I need?

At the moment it’s a minimum of one year’s trading with some Lenders wanting a minimum of two. The reason for this is that so many businesses fail in the first year Banks aren’t willing to take on that level of risk.

How is my income assessed?

Most Lenders take the average of your last 2 years’ earnings. Some go off the latest year. This could be good news for you if your profits are increasing.

I’m a Director of my own Limited company – does this mean I’m employed?

Yes and no. Yes, you are employed but no, the lenders do not assess you as an employee unless you own less than 25% of the shares. Most lenders add your salary to your declared dividend to calculate your annual earnings with the odd one using net profit (this can be good if your business retains some profit).

My net profits don’t reflect the true picture of my business – what can I do?

This is a familiar question but there’s not much that can be done. Your mortgage application is assessed on the income declared (net profit or salary/dividend) to the Revenue. If you want to get a mortgage then you need to have paid some tax.

How much deposit do I need?

This is the same as an employed applicant. A minimum of 5%, although it may be more if you only have one year’s accounts.

Will a bigger deposit help me?

The more deposit you are able to put down the better deal the lender is likely to offer you. This means you will have a wider choice of lenders, in terms of the maximum mortgage that will be made available to you. Although this doesn’t make a massive difference.

I’m a contractor – am I treated differently?

Yes, it can be. lenders do seem to like Contractors at the moment. If you’ve built up a good track record then the lenders can consider taking your “daily rate” and applying a multiplier to this, rather than your net profit. I have seen lenders offer bigger mortgages to contractor applicants using this method, especially for IT contractors.

Can I self-certify my income?

Unfortunately, “self-certs” were widely abused in the pre-credit crunch days and there is no sign of this type of mortgage returning.

Taking out a mortgage as a sole trader, partner or Company Director can certainly be more complicated. More so than it would be for an employee. Some lenders are more flexible than others. In my opinion, it’s a good idea to get a local Mortgage Broker in Halifax on your side early on in the process. This is so you have realistic aspirations from the start. Long gone are the days when your local Bank Manager could “take a view” on your circumstances just because you are a loyal customer. The lenders lean increasingly upon their computerised credit scoring systems. Like lots of things, it’s just knowing where to look.

The Different Types of Mortgages Explained

The Different Types of Mortgage

When you start out looking for a mortgage you will soon realise that there are lots of different options available. If you are a First Time Buyer in Halifax, you will probably be shocked to how many there are.

Below you will see a list of the most popular types of mortgages available on the market and hopefully.  If you have any questions regarding any of the below mortgage options, then please do not hesitate to contact us.

What is a Fixed Rate Mortgage?

A fixed rate mortgage means that your mortgage payments are going to stay the same for a set period of time. You can set the length of which you want to fix your payments for, typically this being 2, 3 or 5 years or longer. No matter what happens to inflation, interest rates or the economy you know that your mortgage payment, usually your biggest outgoing, will not change.

What is a Tracker Mortgage?

A tracker mortgage means that your interest rate will track the Bank of England’s base rate. So in other words, the lender that you are with does not actually set the rate themselves. You will be paying a percentage above the Bank of England base rate. In an example, if the base rate is 1% and you are tracking at 1% above base rate, that means you will be paying a rate of 2%.

What is a Repayment Mortgage?

When you take out a repayment mortgage this means that each month you are paying capital and interest combined. So as long as you keep your payments going for the full length of the mortgage term, the mortgage balance is guaranteed to be paid off at the end and the property becomes yours.

This is the most risk-free way to pay your capital back to the lender, in the early years it is mainly the interest that you are paying and your balance will reduce very slowly especially if you have taken out a 25, 30 or 35-year term. This situation switches in the last ten years or so of your mortgage, where your payments are paying off more capital than interest and the balance will come down much faster.

What is an Interest Only Mortgage?

Whilst many buy to let mortgages are set up on an interest-only basis, it is much more difficult to get a residential property on an interest-only basis.

It is much less likely for lenders to offer an interest only product now.  However, there are certain circumstances where this can be an option. These include downsizing when you are older or have other investments what you will use to pay the capital back. Lenders are very strict when it comes to offering these products now and the loan to values are a lot lower than back in the day.

What is an Offset Mortgage?

With an offset mortgage, the lender will set you up a savings account to go alongside your mortgage account. How this works is that let’s say you have a mortgage balance of £100,000 and £20,000 is deposited into your savings account, you only pay interest on the difference, so in this case £80,000. This can be a very efficient way of managing your money, especially if you are a higher rate taxpayer.

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