Planning a mortgage

Requirements

Your income must be sufficient to service the loan and associated costs. The amount you can borrow is based on your income and is normally calculated as income multiplied by a set figure - but taking into account any existing loans and other unusually large items of expenditure.

Proof of income may be required, and this may range from actual salary slips to employer's letters.

If you are self employed, you may need to provide your business accounts for a 3 year period as proof of income or perhaps an accountant's letter or even correspondence with the Inland Revenue.

Points to note:

A high gross income may look attractive, but for the ability to service the loan the lender is looking for unallocated 'free' income.

the lender may be looking for a history of stable credit repayments.

the lender will need full disclosure of:-

Outstanding balances on overdrafts, credit cards, etc. Unpaid bills. Loans - amounts outstanding, term, purpose, payments. Hire purchase agreements. Maintenance payments. Any other regular commitments on income

You will probably have to find a deposit on the house from your savings:

It is not always possible to find a loan which covers the full cost of a new house - the deposit will usually be between 5% and 10% of the purchase price. The greater the deposit, the greater the equity interest in the property, and the greater the cushion you will have against the danger of 'negative equity' 'Equity' means the value which would be left on the sale of your house after the mortgage has been repaid and all costs covered. 'Negative equity' is the amount of mortgage which would remain to be paid off after the sale of the house.

The lender will need to know how financially secure their loan is going to be, and so will check with a number of sources the borrower's financial status.

Each lender will have their own checking system, which is likely to include the following information sources:-

Existing lenders. Credit check, which will show County Court Judgements (CCJs) and any 'letters of satisfaction'. Bank references.

Having gone through an initial interview with the potential borrower, the lender can corroborate the information provided at interview and on any completed application with the above.

A bankruptcy search will also be made.

Lenders' criteria differ, and may be 'open' or 'restricted' depending on the economic climate. In general, however, a stable employment history is likely to be treated more favorably than someone who has job 'hopped'.

Some lenders charge arrangement fees.This is an up-front, once only charge of up to several hundreds of pounds and is usually non-refundable. Lenders have always claimed that the purpose of the fee is to:-

deter 'browsers' and time wasters. to cover some of the initial organisation expenses.

There are also legal fees to pay. The transfer of land, or conveyancing, involves a number of steps incurring different charges. The actual conveyance is usually undertaken by a single party, the solicitor or licensed conveyancer, and the single fee payable will be broken down into the following elements:-

Professional services of the solicitor/conveyancer. Local search to reveal any planning affecting the property. Land Registry fees incurred in registering the transfer of land. Stamp Duty, which is a property sale tax of 1% on all properties costing £60,001 or more.

Insurance is generally required by the lender where a high proportion of the purchase price is funded by a loan e.g. 75% or more.

The Building Societies Act 1986 requires building societies (but not other lenders) to carry out a valuation of all properties on which new loans are advanced. The surveyor will provide different levels of valuation and report:-

Mortgage valuation; a limited inspection merely to determine the suitability of the property as security for the level of loan requested. Buyer's report; a survey reporting on the condition and state of repair of the property, generally giving recommendations of repairs needed and sale potential. Structural survey; a full and detailed survey of structure, not merely state of obvious repair, and full valuation.

REMEMBER You should not use any information contained on this page as the basis of any action until you have discussed matters with your financial adviser.