How to secure your first mortgage

Are you a first-time buyer? Here are our top tips to help you apply for your first mortgage

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Getting on the property ladder is a worthwhile goal for many who no longer want to be part of ‘Generation Rent’. Taking on a mortgage is a big financial commitment, however, and your home could be repossessed if you are not able to keep up with the repayments.

The main thing to do before applying for a mortgage is therefore to work out whether you can afford it. The Money Advice Service has a mortgage affordability calculator which you can use to see how much you can borrow. 

So, you think you can afford to take the leap to becoming a home-owner; what do you really need to do to secure your first mortgage?

1. Save for a deposit

Have you saved a deposit? Lenders typically require a deposit of between 15 and 30% of the property’s value. If you are a first-time buyer then some options are available that only require a 5% or 10% deposit, but they are few and far between and usually carry higher interest rates or fees.

To break it down, if you are looking at a property worth £200,000 and the mortgage you are interested in has an 85% loan-to-value ratio (LTV), then you will need to provide a deposit of 15% of the property’s value (£30,000).

2. Check your credit score

Do you know your credit score? This is something that lenders will look at in your mortgage application. It is worth asking for a copy of your credit report from the three main credit agencies: TransUnion, Equifax and Experian. This will allow you to see whether you have a good credit score before you apply for a mortgage. 

If you happen to have a poor credit score, look at ways to improve it such as paying down any outstanding debt, registering to vote or getting a credit rebuilder card.

Even if you have a good credit score, it is still worth reducing any credit card or loan debts you have before making your mortgage application. These are all factors that lenders will consider in their affordability check.

3. Get your paperwork in order

Do you know what you need to apply for a mortgage? When considering your mortgage application, lenders will look at your income (regular salary and additional income such as benefits/bonuses/freelance income) and your outgoings (regular household bills, loan repayments etc).

For most mortgage applications, you will need to provide:

  • Passport or driving licence
  • P60 form from your employer
  • Bank statements for your current account for the last three to six months
  • Payslips for the last three months

If you are self-employed, it is a little harder. It is more likely you will need to provide proof of around 18 months to a full two years of business income, including tax returns.

4. Find a mortgage

Do you know what mortgage you want? There are lots of different mortgage products available, so try to find the one that is right for your needs. If you are a first-time buyer, maybe consider a specific first-time buyer mortgage, which will require a lower deposit. The Government also offers Help to Buy schemes which could make buying your first property more achievable. 

Here are some other things to look at when considering which mortgage to apply for:

Type – There are many different types of mortgage, but the ones you are most likely to come across on the best buy tables are fixed-rate, tracker or discount. A fixed rate mortgage gives you a set interest rate for the term of the mortgage. A tracker mortgage tracks the Bank of England base rate; so, for example, your rate will be 1.99% plus whatever the base rate is. A discount mortgage has a variable rate, where your mortgage rate is set at a certain amount below your lender’s standard variable rate (SVR). 

Fee – What is the fee attached to the mortgage? This is typically around £1,000/£1,500.

Term – How long is the mortgage term, i.e. how long will you have to pay back the mortgage?

Early repayment charge – Does the mortgage charge you for overpayment, paying off your balance early or switching mortgage before the end of the term?

If you need help choosing the right mortgage, you can use an independent financial adviser or a mortgage broker. Alternatively, you can compare mortgage products using financial comparison sites. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

MyWalletHero, Fool and The Motley Fool are all trading names of The Motley Fool Ltd. The Motley Fool Ltd is an appointed representative of Richdale Brokers & Financial Services Ltd who are authorised and regulated by the FCA, and we are permitted in this capacity to act as a credit-broker, not a lender, for consumer credit products (our FRN is 422737). The Motley Fool Ltd does not have permissions for, and does not advise on, investment products and services, but may provide information on investment products and services.

The Motley Fool receives compensation from some advertisers who provide products and services that may be covered by our editorial team. It’s one way we make money. But know that our editorial integrity and transparency matters most and our ratings aren’t influenced by compensation. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. The Motley Fool has recommended shares in Lloyds, Tesco and Barclays.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »