A step by step guide to buying with a mortgage in the current market

8/19/2020

We get dozens of enquiries each week from clients who do not know where to start or have incorrect preconceptions about the basic ingredients for a successful mortgage application.

Don’t worry, we’re here to help so here is a little “Where to start” guide, specifically tuned-in to the Post-COVID19 lending world.

Step One - Do I Qualify?

Here are some broad rules for the current market but, if you do not meet them exactly, please do not let that put you off getting in touch:

1) Deposit

Prior to COVID19, most lenders offered mortgages to people with a 5% deposit. Now they must minimise their risk so your deposit at 10% of the purchase price is where you need to start.
Deposit requirements for lenders depend on many factors, a non-exhaustive list of which are below:

Standard purchase (not including the below stipulations) = 10% deposit minimum
New build (using the government help to buy scheme) = 5% deposit minimum
Adverse credit mortgages (defaults, CCJ’s, payment arrangements etc in the last 6 years) = 20% Deposit minimum
Buy to let mortgages = 25% deposit minimum
Self-employed for less than two years = 15% deposit minimum
Residential interest only = 40% deposit minimum
Residential remortgages = Majority up to 85% of property value, limited availability of 90% products
Non-EU/UK residents (Tier 1/2/Spousal Visa) = 25% deposit minimum

2) Affordability
Income multipliers have not actually altered much since the pandemic but lenders confidence in additional income (e.g. overtime, bonus, or commission) has become much more cautious. Many lenders will now only use income deemed as “guaranteed” as part of their decision.

At lower deposit amounts (by which we mean 10% or 15%) the amount you will be able to borrow will be around 4.5x your annual household income (if you are self-employed, take an average of your last two years net profit). Any remaining credit payments such as loans, car finance or credit cards will be annualised and deducted from the top amount.
Where you have a 20% plus deposit, your affordability could be extended by up to 5x your annual household income. Further, lenders are more likely to ignore smaller monthly loan commitments or credit card balances.

3) Buy to Let Affordability

Again, affordability has not changed much but underwriters are looking to be confident that sufficient surplus funds are available to cover void periods. You may be asked to provide evidence that you are able to maintain mortgage repayments if the property is unoccupied. Some lenders have asked to see savings to cover up to three months of void periods.

4) Time in Employment

Some lenders will allow us to use a job you have just started and, in some cases where you are due to start in the next 90 days. You will have to evidence an original signed contract and possibly a reference from your new employer, arranged by the lender on submission. Probation periods are acceptable in many circumstances.

For commission, bonus or overtime/shift allowances to be considered, at least three months’ payslips will be required to show it is regular.

5) Adverse Credit

If you have any adverse credit markers, we recommend everyone gets a Checkmyfile report prior to applying for a mortgage and providing it to your adviser. You can get your credit report on a one month free trial here.

If you have had adverse credit in the last 3 years it is likely that you will need a 25% deposit, if over 3 years ago you may qualify for products with a minimum of 10% deposit providing arrears are repaid.
Adverse credit can be defined as the following:

A CCJ or default registered in the last 6 years even if it is repaid.
Payday loan/short term credit agreement taken in the last 2 years
Mortgage arrears (not including payment holidays) in the last 6 years
If you have ever been party to a repossession or bankruptcy
Missed/ late payments to utilities or credit agreements in the past 3 years

6) Self Employed
Applications from the self-employed trading for at least two years will be considered, some lenders may accept applications with only one-year trading accounts. You will be required to confirm your income has not been affected by the pandemic, you may be required to provide an accountant led projection for this year’s earnings to confirm this.

7) Furloughed Employees

Lenders can accept applications from furloughed applicants. They will assess income at whatever rate of income you receive from the government UNLESS you have returned to work or are due to in the next 4 weeks. In that case you should be assessed on your normal income.

As before you will not be able to use overtime, bonus, or commission until you have at least three months evidence of receiving it following your furloughing.

8) Mortgage Payment Holidays

Whether you are looking to buy a new home or remortgage/renegotiate a new rate for your existing home, if you took a payment holiday as a result of financial hardships during the lockdown, you will be expected to repay the three month holiday as part of the transaction. This can be accounted for in the new mortgage, however.

Step Two - Speak to a Whole of Market, Independent Mortgage Broker

Don’t be disappointed and don’t waste time looking at the wrong home - It is important seek advice before you go viewing properties.

We can calculate how much you can borrow and monthly cost before falling in love with that the dream home!

To increase your chance of securing your home get your mortgage “agreed in principle” (a credit check from a lender and a thorough examination of your requirements). Most Estate Agents will need a confirmation of funds before removing the property from the market. Furthermore, as part of many agents COVID safe process and to minimise face to face contact, they may not even allow you to view the property unless they know you are a serious buyer and ready to proceed. Ultimately, an agreement in principle will give agents confidence in you and make arranging viewings a smoother process.

Foursquare Financial offers a no commitment, simple review service to swiftly get you “buyer ready”. We are COVID secure and can offer telephone appointments, skype/facetime, or you can even complete the fact find via our online portal. Whatever suits you!

Step Three – Find a Home

Over to you! We can help you with advice on historical local house prices and guide you with offer strategies in dealing with the agent.

At the time of writing (August 2020), the market remains in a state of huge demand with little supply**. This creates a bias towards a “sellers market” so, if its new to market, well presented, well priced and has lots of activity then you need to make your move swiftly and don’t risk losing the opportunity for a few thousand pounds. It is extremely common in the current market to pay the asking price or even a little more for homes with strong demand. This is because there is a lack of housing stock and a high demand for property from buyers.

**Remember that every area has different levels of activity- our experience is based around Bristol, South Wales, Gloucestershire, Swindon and Wiltshire which all would fit the “low supply/ high demand” trend. This may be different in your location.

***Step Four –* *Apply for a Mortgage and Appoint a Conveyancer***

Once you have your offer accepted, we will prepare the paperwork for your mortgage and place your application to the lender. It is important to appoint a reputable conveyancer to help with the transaction and, again, we can help recommend excellent firms to support you.

Now we will do the rest!

If this all still sounds a bit confusing, don’t panic! Just get in touch with one of our friendly, experienced advisors for a chat and we will talk you through it, we look forward to hearing from you!

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