Guide on getting a mortgage as a company director

Securing a mortgage can be a complex process if you don’t fall into one of the neat categories. Those with a full-time salaried income will typically find it easier to secure a mortgage than those who are self-employed or a company director. Company directors will usually have a more difficult time securing a mortgage, while those they employ will find it much easier.

While getting a mortgage as a company director might be more complex, it certainly isn’t impossible. Many company directors secure mortgages every year, so if you’re hoping to get on the property ladder, read on to discover how to make this process easier.

Can company directors get a mortgage?

The short answer is, yes! Company directors can get a mortgage, but the process for applying for a mortgage will be very different. Proving your income might be a more complex process than for a typical full-time worker. The way company directors get paid is very different from a full-time, salaried employee. And this makes it difficult for lenders to make a quick assessment of how much a person can afford to pay back.

Before the 2008 financial crash, self-employed and company director borrowers could simply state their earnings on a mortgage application. This was known as a self-certified mortgage and it is one of the factors that led to the financial crash.

Many borrowers would overstate their earnings to purchase a bigger property but were then unable to pay back their mortgage. Lenders are now unable to offer this type of mortgage and instead apply stringent affordability checks for the self-employed and company directors.

Affordability for company directors

All lenders will want to check that a mortgage is affordable before they release any funds. This is done through a look into your financial past, and a look into your financial present and future. Your past can be seen through your credit score, as this will outline your past responsibility with money and if you have been able to repay on time.

To determine your current financial situation, and where you might be in 5, 10 or 15 years, lenders will also look at your company finances. As we outlined above, a salaried worker can prove their income through simple things like an employment contract, payslips or bank statements. For company directors, this is a little more complicated.

You will need to share your company accounts, usually for the past three years. Some lenders will accept two or even one years of accounts, but this isn’t very common. Almost all lenders will want to see that you have been trading for at least one year before they will consider a mortgage application.

Demonstrating your income

Limited company directors get paid in a different way to most workers. Your accountant will likely advise you to draw your income in a particular way to help manage your tax liability. These are all completely legal processes, but unfortunately, they can impact your ability to secure a mortgage.

Many company directors will receive a basic salary and then dividends. However, it can be useful for tax purposes to leave some income in the company as company-retained profits. In an ideal world, all lenders would understand that a company director’s basic salary is not an accurate reflection of their full income. Sadly, the mortgage sector is still catching up.

How to secure a mortgage as a company director

The best step is to work with a lender who understands your situation. And the best way to find one is through a specialist mortgage broker. A mortgage broker with access to the whole market will be able to navigate the choices and help you to choose a lender more likely to accept your application.

A specialist lender will be able to look at your different income sources to make a more accurate assessment of your income. This will include your salary, dividends, and any company-retained profits. If you are hoping to get on the property ladder, it’s worth speaking to your accountant about the best way to prepare for this big life event.

Do company directors need a larger deposit?

No, once you have been approved for a mortgage, you will have access to all of the same lending products as full-time, salaried workers. This means that you don’t have to apply for a special type of mortgage. As with all lenders, the bigger the deposit, the better the terms. So if you can afford to increase your deposit amount, it’s worth doing so to secure the best possible deal.

The only instance where you might need a larger deposit would be if you are purchasing a buy-to-let property, or if you are planning to buy a high-value property. Properties worth over £700,000 may be subject to higher deposits, as this will help to mitigate the risk to the bank.

Guide to getting a mortgage

In this guide, we are going to look at how to secure a mortgage, common mistakes to avoid along the way, and what to do if you aren’t accepted the first time. Read on to discover the Niche Mortgage Info guide to getting a mortgage.

The boring stuff

A mortgage is a large loan from a lender to purchase a property. Since the average house price in the UK is now £237,963 and most people don’t have this kind of money lying around, the majority of people turn to mortgage providers to secure the funding.

There are a few different factors you need to know when applying for a mortgage. The amount of deposit you can provide will help to secure a better deal. The length of the mortgage term will also change the mortgage application. And finally, the interest rate structure will determine how your interest rate is determined.

Before the 2008 financial crash, it was common for lenders to offer 100% mortgages. This meant that anyone could approach a bank with proof of income and apply for a mortgage to buy a property, often without the adequate checks.

If a bank has to repossess a home because of missed mortgage payments, they will have to sell the property. If the value of the property has fallen, as many did, they are unable to recoup the full value of the home. This is one of the contributing factors that led to the financial crash. And this is why lenders now ask for a deposit and carry out stringent checks. Our Guide to getting a mortgage will now break all the stages down in more detail.

Deposits explained

The biggest obstacle for homeownership is often the deposit. Lenders will typically want borrowers to provide at least 5% of the property value as a deposit. Though Covid has led to most lenders only accepting deposits of at least 10%. With a smaller deposit, you can expect higher interest rates. Ideally, you should aim to save a deposit that is 20-25% of the property value.

If you are unable to save this amount of money, you could get help from a Government Help to Buy scheme. These schemes are intended for first-time buyers. The government tops up your 5% deposit with a low-interest loan. This allows you to secure a better deal on your mortgage. However, you will then need to pay your loan and mortgage payments, so this could drive up your monthly expenses until the loan is repaid.

Unfortunately, with 100% mortgages now a thing of the past, it has become more difficult for individuals to get on the property ladder. Setting your sights on a smaller property is one way to boost the value of your deposit. Once you have built some equity in your home, you could upgrade to a bigger home.

Your credit score and how it impacts a mortgage decision

Your credit score is a key factor that helps lenders to make a decision. A good credit score and a healthy deposit will give you access to the best rates and mortgage products available. But a poor credit score combined with a smaller deposit might hold you back.

Your credit score will be different according to different credit checking agencies. The three main agencies are TransUnion, Experian and Equifax. Different lenders may use different agencies, and some will look at all three, so it’s important to get a complete picture.

Your credit score takes into consideration the amount of credit available to you, how well you make repayments and other key financial information. Some lenders will automatically reject your application if they see signs of financial instability such as going beyond your agreed overdraft or transactions from betting websites.

Keep a close eye on your finances on the run-up to your mortgage application. You need to make sure you are spending within your means, making all payments on time and avoiding asking friends or family for money.

Lenders will also ask to see the last three months of bank statements. This will not only help to prove that the income you have stated is correct, but it also helps them to spot signs of instability. Avoid extravagant or outlandish purchases during this time. You can get a free check here.

Your income and your mortgage application

Above all else, lenders want to know that your mortgage is affordable. The best way they can confirm this is by looking at your income. Those in full-time salaried employment will have an easier time proving their income.

You may be asked to provide a P60 or your last few payslips. If you have recently started a new job, it may be helpful to wait until you have passed the probationary period before you submit your mortgage application. This will give the lender more reassurance that your income is steady.

If you are self-employed, the process of proving your income is altogether more complicated. Many lenders will ask to see the last three years of your trading accounts. If you cannot provide this – because you have recently switched to self-employment, for example – then you may have to shop around for a lender that understands your situation.

The self-employed may have to jump through more hoops to be able to secure a mortgage, but once approved, they will have access to all of the same lending products. In this sense, there is no such thing as a “self-employed mortgage” only a self-employed applicant.

Understanding brokers

When navigating the mortgage market for the first time, you might be overwhelmed by the options available to you. Many first time buyers make the mistake of going straight to their bank for a mortgage. They assume that the existing relationship they have with the bank will give them some kind of preferential treatment. This isn’t always the case.

We recommend working with a mortgage broker to help navigate the best deals available to you. Having a mortgage application rejected can be distressing to first-time buyers. This is why we recommend working with a broker who will help you to find the kind of deal you are most likely to be accepted for.

A broker can look at the whole market and match you with lenders and mortgage products that suit your lifestyle and financial goals. If you’re determined to pay off your loan as quickly as possible, a broker can help you find a lender that accepts overpayment without a fee. And if you want lower payments at the start of the term, a broker will be able to match you with a great introductory deal.

While a broker will cost money in the beginning, working with one could save you a significant amount in the lifetime of your mortgage. And the expertise they bring to the table could help you to avoid making a significant mistake. Not to mention, it can be helpful to be able to outsource this time-consuming part of the mortgage application process. (please see the list of top questions to ask a broker)

Mortgage timescales

The average time to secure a mortgage from start to finish is only around 30 days, but the actual home-buying process might take much longer. It can be risky to wait until you have found a property you love before applying for a mortgage. Instead, you should apply for something known as a ‘mortgage in principle’.

This is a stripped-back mortgage application that doesn’t go into too much depth. This allows you to start your search in the confidence that the bank is likely to lend you the funds, provided the property valuation is in order and you pass the final checks. A mortgage may be rejected once the mortgage in principle has been granted, but this doesn’t happen often.

As with all administrative tasks, the quicker you can respond with the required documents, the quicker the process will be. This is why it is helpful to be responsive during the mortgage application to keep things moving along. Working with a broker can help to speed up the process, but sometimes the checks and processes take longer.

Common reasons for a declined application

When a mortgage is declined, it’s stressful, but not the end of the road. Being declined by one lender does not mean that you can never secure a mortgage, it may simply mean that you need to wait a while, clean up your credit score and try with a different lender.

The most common reason that a lender will decline a mortgage is that they have uncovered something in your financial history that makes them nervous. This might be a discrepancy in your income, a transaction that hints at irresponsible spending, or late payments. Even something as simple as too many credit applications in a short space of time can be enough for a lender to turn you down.

If your mortgage is declined, try to find out the reason so you can fix it. If the reason is something like a CCJ that hasn’t been removed from your record yet, you can quickly amend this before making a new application.

If possible, try to avoid having any hard credit checks on your record before you resubmit your application. This could mean waiting around three months to submit another application. It might be stressful and you might have to say goodbye to a home you love, but this will increase your chances of being accepted the next time.

Choosing your mortgage rates

There are a few ways you can control the amount you repay every month. Your repayments will be determined by your deposit, your mortgage term and the interest rate. Increasing the mortgage term will lower your monthly repayments but increase the amount you pay back overall. The best way to secure a better deal is to shop around for the best interest rates.

Fixed vs variable rate interest

When you start your mortgage journey, you will notice that mortgages fall into one of two categories: fixed and variable rate. With a fixed-rate mortgage, your interest rate will stay the same for the duration of your mortgage. The only thing that will change it will be if you remortgage, but this would be an entirely new mortgage product.

A fixed-rate mortgage will typically be higher than the Bank Of England base rate (currently at 0.1% in October 2020). This is because lenders need to account for increases to the interest rates. A fixed-rate mortgage will make it easier to budget and could allow you to make regular overpayments to reduce the term and cost of your mortgage.

With a variable rate mortgage, your monthly repayments will depend on the interest rate set by your lender. Often, they will be linked to the Bank Of England base rate, but not always. A tracker mortgage will often be set at a percentage above the base rate. So, if interest rates go up, your monthly payments will increase. But if they go down, they will decrease. Many variable rate mortgage interest rates are set by the lender, so they can increase or decrease without notice. Only choose this type of mortgage if you are confident you will be able to make up the difference if the interest rate goes up.

A note on introductory offers

When shopping for a mortgage, you might feel like you are pleading for scraps, but you hold more power than you think. Lenders are keen to get your business, as there is no shortage of lenders out there. Provided you have a secure income and a healthy-sized deposit, there is no reason you shouldn’t be able to secure a mortgage.

With this in mind, think about how you can make your status work to your advantage. Some lenders will offer a fixed term as long as 10 years, which should give you plenty of time to budget, make plenty of overpayments and then remortgage when you hold a greater portion of the equity. You may also find lenders willing to cover things like conveyancing fees to help convince you to sign with them.

With all mortgage products, always think about the lifetime value of the offer and how this will shape your finances in the next 5, 10 or 20 years. Understanding the lifetime value of your interest rates and repayment term will help you to make a rational and sound choice.

We hope you found this guide to getting a mortgage helpful. If you need any help with getting a mortgage then please try our mortgage qualifier via the button below.

What happens with a joint mortgage when you split up?

The breakdown of a relationship is stressful enough at the best of times, but when you hold a joint mortgage together, it can become more difficult to navigate. Whether you are married or unmarried, the law is very clear on how a joint mortgage should be managed when you split up. Put simply, you are both jointly responsible for the mortgage payments, so you need to find a way to come to an agreement quickly.

If the home is not affordable for one person living alone, then you will need to make plans for a quick sale. If one person moves out and refuses to pay their portion of the mortgage, the home could be at risk of being repossessed. In this guide, we will look at some of the options you have for navigating these choppy waters.

What are the options after a split?

If you are heading for divorce, you have a few options with regards to your property.

Sell the home. The first option is to put your home on the market, pay back the remaining mortgage and split the proceeds. If one person contributed more money, for the deposit, for example, this will need to be settled in your divorce financial settlement.
Buy out your ex. If you want to stay in the home and take over the mortgage, you will need to buy out your partner. This might involve taking out a loan to buy out their stake of the equity.
Keep a stake in the property. If one partner is going to continue living in the home and finish paying the mortgage, the other should be awarded a stake in the home equal to their share of the equity. So if you own 80% of the home, they will be entitled to 40% of the value when it is sold.
Finish paying the mortgage. If you have almost paid off your mortgage and your separation is amicable, it would make sense to complete your payments. Once you own the home outright, you can split the proceeds of the sale down the middle.
Secure a guarantor. If one partner wants to remain in the property but cannot buy out the other, you could remortgage with a guarantor and give the other partner their share of the equity.

What if there are children involved?

When there are children involved in the separation, it may be in their best interests to stay in the family home. The parent staying in the home can apply for a Mesher order to prevent the home from being sold for a set amount of time. This is usually until the youngest child turns 18. The property will stay in both parties names, even if one isn’t resident in the property.

How can your lender help?

If you are concerned about being able to pay the mortgage alone while you navigate your separation, speak to your lender. Rather than allowing your repayments to fall behind and risk repossession, find out if your lender can offer any support. They might be able to restructure the mortgage or give you a payment holiday. Remember that you will still be charged interest during this time, so this will lengthen the term of your mortgage and increase the total amount you have to repay.

What if the separation isn’t amicable?

Be sure to protect your rights to the property and make sure you are listed as a co-owner on the HM Lands Registry. This will prevent the property from being sold without your knowledge. Rest assured that nothing can happen to your property without your knowledge. Speak to your mortgage provider if you are concerned.

Can I transfer my mortgage to my spouse?

When you get married, you may want to transfer ownership of half of your home to your partner. How you achieve this will depend on your ownership status. If you own the home outright, then you can simply give one half of your home to your spouse. This will give them legal rights to the property. But if you still have a mortgage, you will have to get your lender’s permission to add someone new to the mortgage.

Transferring your mortgage to your spouse

The first step in transferring your mortgage to your spouse is to speak to your lender. They might have rules against this, and even if it is allowed, they will almost certainly charge you. You could remortgage the property as a joint mortgage, starting from fresh with a new company. Or you could add your partner to your existing mortgage agreement.

What charges will I face?

You will almost certainly face fees from your lender, usually an arrangement fee. But you could also be liable for Stamp Duty Land Tax. Often shortened to Stamp Duty, this is a tax on property purchases over a certain threshold.

At the moment, this threshold is £500,000. If you have over this amount left of your mortgage, HMRC will still consider this to be a transaction, which means you will need to comply with the tax requirements. Even though no money is changing hands – only the allocation of debt – the tax will still need to be paid.

Who will own the property?

You will have to decide on the legal structure for the property. You can choose between tenants in common or joint tenants. If one of you were to pass away, the property would be passed to the surviving spouse and they would own it entirely. If you have children from a previous marriage and want to protect a portion of their inheritance, you could also decide where your share of the equity in the home should go in the event of your death.

When you transfer the mortgage, you will have to decide what share of the equity your spouse will get. Will they have half of all equity to that point? Or will they start accruing equity from the moment they are added to the mortgage? If you owned 60% of your home at the time you added your spouse to the mortgage, they could only ever own half of the remaining 40%, or 20%.

Don’t forget the association of credit

When you enter into financial agreements with your spouse, you are creating a financial link between you. If you fall behind on the mortgage payments, this will impact both of your credit scores and your ability to secure lending in the future. The same goes for opening joint bank accounts. Think carefully before you create these financial links, as they are difficult to reverse.

Which is the best option?

If you both have a steady income and good credit scores, you could remortgage the property and apply for a joint mortgage. This could allow you to negotiate better terms and give you the freedom to pay off your mortgage sooner, particularly if you will not have two household incomes.

Remember that your lender is under no obligation to add a second name to the mortgage, particularly if your spouse does not meet their lending criteria. In this situation, remortgaging with a new lender could be a better option. This option may also incur fees.

If you are approaching the end of your repayment, it might be advisable to repay the mortgage and then give half of the home to your partner.

Can you transfer ownership of a house with a mortgage

Adding another person to a mortgage while you are still making payments is possible, but not always simple. The most common reason you would add another person to an existing mortgage would be to add a spouse to your mortgage agreement. You might also want to give your home as a gift to your adult children by adding them to the mortgage.

You could either achieve this by remortgaging your property or by asking your mortgage provider to add the other person to the mortgage. In this guide, we will look at how this is achieved and what you will need to know before moving forward.

If you’re nearing the end of the repayment

If you are almost finished with your mortgage payments, it would be easier to wait until you own the house in full to pass ownership of it to another person. Once you own the house, you can simply “gift” the entire property or a percentage of the equity to your partner or another person. You would have to choose the legal structure of this joint ownership, which means choosing between joint tenants or tenants in common.

As joint tenants, if one of you passes away, their shares of the property are passed to the surviving owner. As tenants in common, you can decide who will inherit your shares in the property.

Transferring ownership by remortgaging

By remortgaging your property, you could apply for a joint mortgage and this would allow you to transfer ownership of the property to your spouse. Remortgaging a property can make sense if you have reached the end of a fixed-term arrangement. Remember that you will need to pay an arrangement fee and your partner will need to meet the lending requirements. You could also use this opportunity to release some equity from your home.

Transferring ownership by adding someone else to the mortgage

Another common way to add another person to your mortgage is to approach your current lender. They are under no obligation to allow you to add another person to the mortgage, but they may allow this. This will also charge an arrangement fee, so this should also be taken into consideration. The lender will also carry out affordability checks on the new applicant.

What if the person has poor credit?

Poor credit doesn’t rule you out for securing a mortgage, but it does make it more difficult. You cannot simply transfer a mortgage to anyone you want, the lender has to agree to it. And this cannot happen without identity, anti-laundering and affordability checks.

If your partner has poor credit from a previous marriage, this might make it more difficult to secure a mortgage. Working with a mortgage broker with experience in this area will help you to navigate the lenders and find the best deal for your needs.

Lenders don’t automatically rule out applications from those with poor credit, but they will need some reassurance that your money problems aren’t going to impact your ability to pay a mortgage. Taking steps to improve your credit score by always paying bills on time, keeping within your credit limit and avoiding credit applications will do help to convince the lender that you are a responsible borrower.

How can a broker help?

A broker will offer expert insight into the whole mortgage market. They will be able to advise you on the best course of action and how to increase your chances of being accepted. In the case of transferring ownership, they will also be able to advise on the cheapest way to do this without incurring too many unnecessary fees.

First Time Buyers Mortgage Guide Post Covid

First Time Buyers Buying a home is a huge investment, perhaps the biggest one you will ever make. This is why it is important that you understand the process and the external factors that will impact your application. Securing a mortgage for the first time can be daunting. And with so many new terms to learn, you might quickly feel out of your depth. Minimum deposits, interest rates, legal structures and repayment terms can leave you feeling like you need to go back to school.

Securing the right mortgage for your needs is no longer about looking for the lowest rate of interest. In many cases, finding a mortgage that you are most likely to be accepted for is the way forward. As banks tighten their lending criteria, the task of getting a mortgage is about much more than just finding a great deal. By educating yourself on the process of securing a mortgage, you will be in a much better position to secure a great deal, even in a post-Covid world.

Saving for a deposit

The days of 100% mortgages are long gone. Lenders are no longer willing or able to take this risk, so if you’re hoping to get on the property ladder, it’s time to start thinking about deposits. Saving a healthy-sized deposit can help to secure a better interest rate. It will also reduce the amount you pay back in the long term, so it’s worth offering as much as you can afford.

In an ideal world, you would save a deposit that is equal to 20% of the value of the property. This will give you access to the best lending rates and increase your chances of being accepted. If you are unable to save this much, don’t worry, there are ways around this. You could make use of the Government’s Help To Buy scheme, which only requires a 5% deposit. Or you could look into shared equity homeownership.

Sprucing up your credit score

Lenders not only want to see that you have been able to save a sizable deposit. They also want to see that you are generally responsible with your money. To do this, they use credit scores and credit history files to assess your history and experience with money. If you have a history of poor financial management, this could lead to your application being rejected, or subject to a higher interest rate.

Not everyone is well versed in credit history and reporting, but you’ll need to get familiar before you submit your mortgage application. There are three main credit checking agencies in the UK; Experian, Equifax and TransUnion. These companies collect information about your credit cards, bank accounts and other credit facilities such as utility accounts. They also collect information about missed payments, CCJs and bankruptcies.

If you always make your payments on time and keep your credit utilisation under 50% of your limit, you should have no trouble passing this stage of the application. However, if you have a few blemishes on your record, you might want to spend a few months cleaning up your report. At the very minimum, registering to vote at your current address will ensure that the bank can confirm your identity without extensive checks. You can check your score here.

Proving your income

Lenders want to know that your mortgage is affordable at the moment and will be affordable in the future. This means you will need to provide proof of income. For some people, this is as simple as digging out your P60. Your employer should give you one of these at the end of every year. It outlines your income and any tax paid.

If you are self-employed, the process becomes slightly more complicated. Many lenders will ask to see three years of accounts, and some will want to see these prepared by an accountant. If you are unable to provide three years of accounts, the application process might be more difficult, but not impossible. You may have to approach specialist lenders that are more accustomed to working with the self-employed. The more information you can provide, the better.

Lenders may also ask to see the last three months of your bank statements. They are looking for signs of irresponsible spending, so try to keep this in check in the months running up to your application. Some things can raise an eyebrow for lenders, and some will rule you out entirely. Using betting websites is one category of spending that lenders typically don’t want to see on your bank statements.

Choosing your mortgage term

Once you have reached this stage in your application, it’s time to start thinking about mortgage terms. The term is how long you want to spend paying back the mortgage. The mortgage term is typically determined by how much you can afford to pay every month, but it can be helpful to push this to the upper limit to reduce the amount you pay back in total.

Lenders consider a short term mortgage to be under 20 years and a long-term mortgage to be over 30 years. The majority of first-time buyers will opt for a 25-year mortgage, but you can extend this or shorten is as required. While a shorter term will cost less in interest, your monthly payments will be much higher. Conversely, a long-term mortgage will cost a lot more in interest over the duration of the mortgage, but your monthly payments will be lower.

Consider the cost of a £200,000 home on a mortgage with a fixed interest rate of 3%. With a 25 year mortgage, your monthly payments would be £948 and the total amount repayable would be £284,526. But on a 15-year mortgage, your monthly payments would be £1,381 and the total amount repayable would be £249,148. This is a significant difference in the cost of the mortgage.

Understanding how your repayment terms will impact the cost of your mortgage in the long term is vital to securing a good deal. Looking for a deal that offers the lowest monthly repayments could save you a few hundred in your monthly repayments, but this could add up to tens of thousands in interest payments over the life of the mortgage.

Understanding mortgage rate structure

Perhaps the most difficult part of mortgages for first-time buyers to understand is the mortgage rate structure. This is the package that will tell you how much interest you will pay for the lifetime of your mortgage. This can be broken down into two types of mortgage; fixed and variable rate. To help you understand how each type will impact your repayments, we’ve broken them down in further detail below.

Fixed-rate mortgage

With a fixed-rate mortgage, the interest rate will be fixed for the lifetime of your plan. This will allow you to plan and budget, as you’ll always know what your monthly repayments will be. Interest rates in the country can increase or fall, and this will have no impact on your repayment plan.

This type of mortgage will typically be offered based on the Bank Of England base rate at the time of your application. But expect this rate to be higher than other mortgage rates. This is because banks are unable to predict the future and need to mitigate against the risk of a rise in interest rates. Likewise, if the Bank Of England decides to drop interest rates, you won’t be able to take advantage of this.

Variable-rate mortgage

In the case of a variable rate mortgage, your interest rate and your monthly repayments will vary depending on adjustments to the interest rates. In 2009, the Bank Of England base rate fell from 5% to 0.5% in just 12 months. Anyone on a variable rate mortgage during this time would have enjoyed a significant drop in their monthly repayments.

Likewise, if the interest rates increase, you could see your monthly repayments increase, too. So, there is the risk that you could end up paying more every month, but some people are happy with this risk as it means they could also end up paying less.

The interest rate isn’t always linked to the Bank Of England base rate. The lender sets the interest rate, so they can change it as they see fit. Interest rates will typically change depending on the economy. In a slow economy, lenders will typically lower interest rates to encourage people to spend their money instead of saving.

If you would like a mortgage that is linked to the Bank Of England base rate, this is called a tracker mortgage. This will increase or decrease depending on the Bank Of England base rate movements. The base rate is currently at 0.1%, but don’t get too excited. A tracker rate mortgage will be a specific percentage above the Bank Of England base rate. So if your rate was set at 1% above the base rate, your interest rate would now be 1.1%. But in October 2008, the Bank Of England base rate was 4.5%, so your interest rate would have been 5.5%.

The biggest benefit of this type of mortgage can be seen in times of low interest rates. During this time, you should be increasing your monthly payments and overpaying when possible. This will allow you to pay off the mortgage in a shorter term.

Look out for monthly introductory rates

When shopping around, keep your eyes peeled for introductory offers. A mortgage is a huge investment, and lenders want to get as many customers as possible. This is why they create compelling introductory offers to help land your business. This might include a low interest rate for a fixed amount of time, which switches to a variable rate after this period.

The fixed-rate could be a lengthy period, even up to 10 years, so this could be a great way to enjoy some financial security and fix your expenses for this period. If you can use this time to overpay your mortgage every month, you could remortgage your property once the fixed period has come to an end and be in a much better position.

Other expenses to consider

Buying your first home will come with quite a few unexpected expenses that could catch you off guard. According to Money Saving Expert, the additional costs of buying a home have increased by 300% in the past 10 years. Make sure you factor in the following expenses when purchasing your first home.

Arrangement fee

This is charged by your lender for setting up the mortgage. This might be a fixed amount or a percentage of the mortgage value. While some will ask for this payment upfront, others will allow you to add this to the cost of your mortgage. Remember that this means you will be paying interest on the fee, so it might be better to offer a smaller deposit and pay this off upfront.

Valuation fee

Before a lender will approve your mortgage, they need to check that the property is worth what you are planning to pay for it. This will protect them from loss if they have to repossess your home. The valuable part of the application process is paid to a third party valuable company to provide a bank-approved valuation.

Legal fees

Legal fees cover a number of different steps, and all of these can be referred to as ‘conveyancing’. This is a process that includes all of the legal checks, the handling of the deposit, and the legally transferring the property ownership into your name. Some lenders will cover the cost of conveyancing in their introductory offer, so this is a great way to save money for the move.

Post-covid mortgage recap

Applying for a mortgage post-covid is still a complicated process, but this could be an excellent time to get on the property ladder. If your job is secure and you’ve taken the opportunity to boost your savings, this could be the ideal time to secure an excellent rate on your mortgage and see what other perks the lender can offer. You’ll never know if you don’t ask, so always be inquisitive and informed throughout the process to make sure you’re getting the best deal available.

What Do UK Mortgage Underwriters Look for On Bank Statements?

When you are applying for a mortgage, you may be asked to supply your bank statements as part of the application process. This is common for self-employed applicants as well as salaried employees. While this may seem daunting, it’s an essential part of the mortgage process.

A mortgage underwriter will examine these statements and use the information to help inform their decision to grant you a mortgage. If you’re getting ready to apply for a mortgage and want to make sure your application is in the best possible shape, you may want to keep an eye on your spending.

What is an underwriter?

Mortgage underwriting is the process used by banks to determine how much of a risk it will be to lend money to an applicant. If you have a steady income, responsible finances and pay your bills on time, this will look a lot better than someone who is in debt and persistently late with their payments.

The underwriting process is all about deciding if the risk of lending to you is worth the reward (the interest you pay). It might not be a fun subject, but you need to understand this before going forward with an application.

Why do they look at your bank statements?

Lenders look at your bank statements as these are a window into your finances. It helps them to see patterns in your spending, your level of fiscal responsibility and helps to confirm if your income is what you’ve said it is.

If you have told the bank your monthly expenses are much lower than they actually are, your bank statements could be used to dispute this. This is why it’s important to be honest and accurate in your financial disclosures in the earlier stages of your application.

Trying to reduce your monthly expenses to be able to borrow more money will backfire unless you can show that you have actually reduced your monthly expenses.

What do mortgage underwriters look for?

Proof of income. The first thing a lender will look for is a regular source of income. If possible, this should arrive in your bank on the same day each month and it should be the same amount. While you might think an increase in income is a good thing, fluctuating income is seen as a sign of financial instability. This is particularly true for the self-employed who may have different income levels every month.
Regular savings. Transferring money to a savings account can also make you look like a responsible borrower. However, dipping into your savings for small amounts could have the opposite impact.
Responsible overdraft use. An overdraft is considered a good thing, provided you are using it correctly. Your salary should bring you above your overdraft every month, and you should never exceed your agreed amount. Bank charges outside of your overdraft interest could be considered a bad thing.

What are the common red flags?

These are just some of the things lenders may consider to be poor spending habits. If possible, you should avoid the following:

Gambling sites. There have been cases where lenders have rejected applications because an applicant has too many gambling-related transactions on their bank statements. Gambling websites are an obvious red flag, as it could show an out-of-control gambling habit.
Regular borrowing. They will also look for other sources of income. If you regularly receive cash gifts from an unspecified source, such as your parents, this could hint that you are financially irresponsible and often need to be bailed out. This is why managing your income and expenses is vital in the months running up to a mortgage application.
Have you accurately represented your spending habits? If you’ve stated on your application that your entertainment expenses are just £50 a month, but the lender can clearly see that you are spending more than £300 a month on entertainment, this could bring your application into question. Make sure you are accurate in your representation of your spending habits.

What can I do to improve my bank statements?

When you are getting close to applying for a mortgage, it’s time to start thinking about getting your bank statements in shape. You will likely be asked for 3 months of statements, so you need 3 months to prepare. If you want help getting your finances in order, working with a mortgage broker through Niche Mortgage Info can help.

During this time, do the following to keep your spending in check:

Avoid gambling websites, even for withdrawals. You don’t want any gambling websites to appear on your bank statements at all.
Stay within your overdraft limit. If possible, don’t dip into it at all.
Avoid borrowing money for any reason. If a friend or family member owes you money, get it in cash or ask them to wait to return it.
Make all payments on time to avoid late payment fees.
Make sure you always have enough money to cover your bills so you don’t have any payment reversals due to insufficient funds.

10 Benefits of Using a Mortgage Broker

Navigating the mortgage application alone can be incredibly stressful. This is why many people turn to brokers to help make the process easier. A broker will not only help you to find the best deal, but they can also help to increase your chances of being accepted while also helping with key parts of the application.

But a broker can do so much more than just introduce you to the best lender for your needs. Read on to discover 10 of the biggest benefits of working with a mortgage broker.

1. Save money on mortgage fees

Mortgage rates and fees are changing all the time. To keep on top of it all would be a full-time job. Which is why it helps to have someone on your side who does this for a full-time job. Navigating the mortgage world alone is complicated and overwhelming. With a broker on your side, you’ll have access to their expert knowledge and experience to help you find the best deal. Yes, you may have to pay broker fees, but if they find you a better deal on your mortgage, you could make this back instantly in fees.

2. Save time managing the process

Applying for a mortgage is a time-consuming process. Working with a broker can help speed things up. As we mentioned above, you’ll have access to their expert knowledge, so they can help guide you through the process. Rather than spending Friday night Googling all of the terms you don’t understand from your mortgage application, you can trust your broker to guide you in the right direction. And when you save time on the mortgage process, you can spend more time planning your big move.

3. Get advice from a trusted source

Have you ever mentioned to friends that you’re thinking about getting a mortgage? Suddenly, a switch is flipped and everyone is an expert. Get this, not that. Avoid this, and don’t even think about this. Make sure you don’t forget to ask for this. There’s no end to the well-meaning advice, but ultimately, this is all it is.

If you want to get advice from a trusted source, a mortgage broker will prove to be invaluable. You’ll soon learn that very few people in the housing industry are in the best position to give you advice, but the broker works for you.

4. Reduce your paperwork

Applying for a mortgage is a paperwork intensive task. If you aren’t fond of ticking boxes and repeating the information over and over, a broker can help to cut down some of your workload. It can also help to reduce the chance of a mistake on your application leading to your application being rejected. If you want a little extra support, a broker can really help.

5. Increase your chances of being accepted

Many people assume that being rejected by one lender means that they are unable to get a mortgage. This isn’t the case. And you can actually increase your chances of being accepted if you approach the right lender. This is why working with a broker can be so helpful, particularly if you have an unusual application. Finding the right lender on your own will be a trial and error task, which can delay the application process by months and even years.

6. Speed up the process and move faster

Working with a broker means that you can preempt a lot of the follow-up questions and requests from your chosen mortgage provider. This can vastly speed up the process and get you moving into your dream home faster. If you want to get moving quickly but don’t want to devote too much time to the application process, a broker will help.

7. Access their insight

A mortgage broker will know the current market inside out. They deal with applications all the time, so they know the lenders and their requirements in incredible detail. This kind of advice and support cannot be found from any other source throughout the home-buying process. If you want to make sure you are approaching the right lender with your application, you need a broker on your side.

8. Use their sophisticated systems

Brokers aren’t just a fountain of knowledge. They also have access to software packages that can help to streamline the application process. If you were to go about buying a home without the help of a broker, you would have to approach each lender individually to find out if they would be willing to work with you.

Brokers flip this process on its head and start with you. Using their sophisticated systems, they build a profile of your personal circumstances that allows them to focus on the lenders that will give you the best deal.

9. Cut through the noise

It’s difficult to know where to turn for advice when you’re buying a home. Any advice from friends and family might not be relevant, because every application is different. And while speaking to your bank might help to clear up questions you might have about their mortgage products, they won’t be able to offer advice on the wider market. Working with a broker allows you to cut through this noise and get the answers you need. The mortgage advice industry is incredibly murky and loud at the best of times, so you need to know that the advice you are getting is relevant to you.

10. Long term support

Your broker will work diligently to help you find the best possible mortgage product and speed up the home buying process. But their support doesn’t stop there. The best brokers will offer long term support, often getting in touch again when you have the option to remortgage.

This kind of long term support can help to take the stress out of negotiating rates in the future, ensuring that you never pay more for your mortgage than you need to. And if you decide to sell your home, you’ll already have someone in your corner who knows your circumstances. They will always be ready to get to work and help you find the best mortgage products.

Can I Sell My House with Mortgage Arrears?

If you are struggling to keep up with your mortgage payments, you might be wondering if selling the property is an option. Many people ask us: can I sell my house with mortgage arrears? This will depend on a number of factors and will nearly always be linked to your personal circumstances. While one person might be able to sell a house with mortgage arrears and walk away, another person might end up owing more money than is made from the sale. Read on to discover the steps you need to take if you want to sell a house with mortgage arrears.

First things first: speak to your lender

The first step you should take when you’re struggling to make your mortgage payments is to get in touch with your lender. If you are expecting your financial situation to improve in the future, they may be able to come to an arrangement to help you through this difficult stretch. But you will never know until you get in touch with your lender.

Your mortgage would typically be your largest expenses every month, so if you are struggling to make your mortgage payments, you may be struggling with other debts. If there is no obvious way to increase your income to cover the shortfall, selling your home might be the only option. This could give you a lump sum that would enable you to pay off your debts and move on.

Get a valuation

If you decide to sell, you will need to get a valuation on the property. This will help you to determine if the sale of the property would be enough to pay back any outstanding amount on your mortgage and your mortgage arrears. If the property has increased in value since your first bought it, you could walk away with a lump sum that might allow you to get your life back on track. But it doesn’t always work this way, particularly in a harsh economic climate. If the value of the property has fallen below what you owe the lender, this is called negative equity.

What if there is negative equity?

Negative equity occurs when a property loses value. This might happen due to a downturn in the housing market. If the value dips below what you still owe on the mortgage, this is called negative equity. If you sell a home with mortgage arrears with negative equity, you will still owe your lender money after the sale. This is called a shortfall and it could leave you worse off. You would need the lender’s permission to sell the property if there will be a shortfall.

In this situation, a homeowner may be tempted to give back the keys to the property and relinquish ownership to the bank. This is known as voluntary repossession. In this situation, a lender would ask you to sign an agreement saying that you will still pay any shortfall after the sale of the property. So if the home is sold for less than the value of your mortgage, you will still owe for the outstanding amount, in addition to any mortgage arrears.

Could you “trade down”?

If you aren’t dealing with negative equity, you could choose to trade down to a smaller property. This is a popular choice for those in mortgage arrears who are not expecting their finances to improve. Finding a less expensive property to purchase and then selling your current property would allow you to reduce your monthly mortgage payments. You will also be able to pay off any arrears and you may even be left with a lump sum to help pay off any other debts you may have accrued.

Has Lockdown Lifted Your Savings?

The lockdown has forced many of us to rethink how we live our lives. While some workers have been furloughed to help companies stay afloat, others are working from home, ditching their usual desk for the kitchen table.

One unexpected side effect of the lockdown for some people is that their financial situation is looking a lot stronger. This may be a blessing in months to come, as we don’t yet know the full impact the COVID-19 outbreak will have on the economy.

The lockdown created the perfect conditions for those trying to save. In particular, those who may have struggled to put away money every month because they were tempted by social plans may have been forced to curb their spending.

Reduced expenses

The biggest impact the lockdown will have had on personal finances is the change in monthly expenditure. With many offices closed, many people are working from home, which means they no longer have to pay for their daily commute. Some car insurance companies have also agreed to freeze insurance payments for those who do not need to use their cars during this time.

Banks have given borrowers the opportunity to pause their mortgage, loan and credit card payments, giving them some breathing room for the first time. Anyone stuck in their overdraft month after month may have been given respite from the usual monthly interest charges, giving them a chance to break the habit.

But the change to our way of life won’t have an entirely positive impact. People can expect to see their energy bills increase as we all spend more time at home. And those who didn’t previously have a home office setup may have been forced to foot the bill for upgrading their office tech.

Change of priorities

While spending on entertainment, travel and holidays has all but disappeared, other things may have become more expensive. Food shortages at the start of the pandemic may have forced you to choose a different supermarket for your weekly shop. You may also have had to opt for more expensive products.

The outcome?

The lockdown has had an unexpected impact on our finances. While some things may be more expensive, overall, the cost of living decreases when you can’t go shopping, go on holiday, or enjoy restaurants and cinemas. The result is that some people have become unexpected lockdown savers. While furlough wages may be lower than a full-time wage, some people have used the time away from work tasks to take on additional work and boost their income.

Research suggests that around 16% of people feel better off now than they did at the start of the pandemic. Hitting pause on the world economy, and allowing people to hit reset on their finances has allowed many to get back on track with their finances. After paying off credit card debt and clearing overdrafts, this has left many people with extra disposable income which they can then save.

Keep the habit going

Those feeling more financially buoyant as a result of the lockdown may be wondering how they can keep this going once things return to normal. If you’re saving for a deposit for a home, the lockdown may have given you a head start.

When things return to normal, it’s important that you don’t spend more every month to “make up for lost time”. Instead, get into the habit of putting away money in a savings account at the start of every month. This will allow you to budget with the remaining funds, rather than waiting to see what is left at the end of the month.