How to apply for a mortgage
In this episode of the ESPC First Timers Club, Megan is once again joined by David Lauder from ESPC Mortgages. Delving deeper into the topic of mortgages, they discuss the process of applying for a mortgage including how to work out your budget, how to find out about your credit score and the best ways to save money for a deposit. Tune in for some useful tips to consider at the onset of your property purchasing journey.
Key points
Affordability assessment and budgeting
Before committing to a property, buyers should take a realistic look at their current monthly spending habits, including rent, council tax, and utilities. Mortgage advisors at ESPC help clients anticipate future expenses like mortgage payments, insurance, and potential changes to bills, ensuring buyers are financially prepared and aware of any necessary lifestyle adjustments.
Understanding hidden costs
Beyond the mortgage payment, buyers must budget for costs like buildings and contents insurance, potential factor fees (common with flats), and adjustments in utility bills. Advisors emphasize the importance of prioritizing property expenses over discretionary spending, such as holidays, to ensure long-term financial stability.
Impact of dependents on affordability
Having dependents, such as children, reduces the amount a buyer can borrow due to additional financial obligations like childcare, which lenders often equate to loan repayments. Pregnant applicants aren't discriminated against, but lenders assess their post-birth financial situation, including maternity leave income, anticipated childcare costs, and return-to-work plans.
Importance of credit scores
Credit scores are a critical factor in securing a mortgage. Tools like Experian, Equifax, and Check My File allow buyers to access and understand their credit standing. Advisors encourage buyers to review their scores in advance since lenders have specific criteria that must be met to secure favourable mortgage terms.
Saving for a deposit
While some lenders offer low-deposit mortgages (e.g., 5% or even specialized incentives with smaller deposits), having additional savings is crucial for covering solicitor fees, moving costs, and unexpected expenses. A robust savings plan also provides a financial cushion for emergencies like appliance repairs after moving in.
Additional mortgage costs
Mortgage arrangement fees can vary and influence the overall cost of borrowing. Advisors recommend calculating the total cost of a mortgage over its fixed rate term, factoring in fees and interest rates, to determine whether a lower rate with an upfront fee or a higher rate with no fee is more economical.
Saving strategies for a deposit
Consistent saving habits are key. Setting up a standing order to save a fixed amount immediately after payday helps build savings over time. Buyers can maximize their funds by utilizing ISAs, especially Lifetime ISAs, which offer a government bonus of 25% on savings up to £4,000 per year, specifically for first-time home purchases.