How do mortgage applications work?

It’s probably not surprising that 33% of people rank moving house as the third most stressful life event. Since a house is likely to be the most expensive purchase most of us will make, there’s plenty to stress about.

Although applying for a mortgage can be complex, there are simple steps you can follow to make sure you understand the process and are well-prepared. Below, we will explain the mortgage application process, how it works and what you need to consider.

Are you prepared for the mortgage application process?

There are a few different phases you have to go through in the process of buying a home, before you actually apply for a mortgage.

Find out your budget

Firstly, it is usually a good idea to make sure you understand the different types of mortgage available and how interest on them is calculated.

You can then start to figure out how much you can borrow, based on your savings and income, using affordability tools.

Get financial advice

You might consider getting financial advice from third parties, such as a mortgage broker. They will search the mortgage market for a deal that is suited to your particular situation.

Speaking to a broker can be useful because as well as getting access to their expertise, you can also save time on research and get their help with filling out paperwork. Some brokers may charge a fee for their services, and may receive a commission from the mortgage provider.

You should always check that your mortgage broker is on the Financial Services Register, to ensure that they are properly authorised.

You can also speak directly to a bank or building society about what type of mortgage they would be able to offer you. They will ask for some basic information about your earnings and credit history and will try to find out what mortgage product may be suitable for you.

What is the difference between advisor and execution-only mortgages?

Execution-only mortgages are taken out without any help from a financial advisor or a mortgage broker. You will likely have to agree in writing that you are aware of this and any potential consequences if the mortgage turns out to be unsuitable. 

As mortgages can be complex, lenders want to be sure that the people they lend money to are fully aware of the risks and responsibilities.

The stages of getting a mortgage

1. Get an agreement in principle 

An agreement in principle (also referred to as a mortgage in principle) is a lender's initial offer to loan a specific amount based on your provided information. This isn't a final offer but signals that the lender might finance your purchase.

Useful during house hunting, it shows sellers you’re a serious buyer.

2. Find your dream property

The next important step is then to find a property that is suitable for you and within the budget you have set out.

3. Make an offer

Once you have found the right house, you will need to make an offer to the seller. Once your offer is accepted, it's now time to make your mortgage application. 

4. Make a formal mortgage application

Now, you formally apply for the mortgage. You've already given the lender some documents, but they might ask for more information. This will involve a detailed review of your financial situation, including income, expenditure and a full credit check with a credit reference agency.

5. Talk to a solicitor or conveyancer

Hire a solicitor or conveyancer to handle the legal parts of buying your home. They check the legal aspects of the sale to ensure everything is in order, such as the property’s value and any legal issues.

6. Property valuation and approval

The lender will evaluate the property to make sure it’s worth what you are paying. They confirm the property’s value matches the loan they plan to give you.

 7. Exchange contracts and move in

Once all the legal checks are completed the final step is exchanging contracts with the seller. When everything is approved, and the paperwork is complete, the property legally becomes yours. You can now move into your new home.

How long does a mortgage application take?

The time it takes to approve a mortgage application can vary widely, typically ranging from two to six weeks. How long it takes will depend on several factors, including:

• your personal financial situation
• the lender’s current workload
• the results of the property valuation

What documents do you need when applying for a mortgage?

You’ll need quite a few documents before you apply for a mortgage. If you’re planning ahead, start gathering important paperwork now to speed up the process when you apply.

Banks and building societies want to see proof of your income and expenditure including your credit commitments, so you may need to provide:

• Payslips
• Your most recent P60
• Bank statements
• Details of any other earnings such as benefits or investments

If you’re self-employed, you’ll need to provide a tax return and accounts from the last few years.

You’ll also need proof of identity and proof of address, such as a passport, driving licence or utility bills.

What is required will vary between lenders, and may also vary depending on your personal circumstances, e.g. not being a UK citizen. 

However, the above collection of documents should be a good starting point.

What can you do if your mortgage application is refused?

If your mortgage application is declined, there may be a few different reasons the lender has made this decision. Firstly, it might be a good idea to check that all the information you provided is correct. It’s possible for either a borrower or a lender to make a mistake, so review everything carefully.

If you are not earning enough, or you are spending too much, the lender might have decided that you would not be able to afford your repayments. In this case, rethink the size of the mortgage you can get and consider how to  budget your spending.

It is also possible to get something called a ‘guarantor mortgage’. This is when another person, usually a relative or close friend, agrees to accept responsibility for the debt if you are unable to keep up with repayments.

Buying a house with bad credit?

One potential barrier for getting a mortgage can be your credit history, particularly if you have a history of missed payments, defaults or insolvency. Checking your credit report thoroughly before you even apply can help ensure you are aware of any errors or problems that might concern a lender.

If you do have issues, you can find more information in this article on helping improve your credit history.

If you are interested in checking details of your credit history and getting an indication of how creditworthy a lender may find you, you can get online access to your credit report with your Equifax Credit Report & Score. It's free for 30 days and £14.95 a month thereafter.