For those of you graduating this year, buying your first home may be something you’re starting to think about.
Stepping onto the property ladder is a big life milestone that should be enjoyed, but applying for a mortgage can feel a little daunting.
In this blog, we sat down with Tom Gwilliam, Specialist Mortgage Adviser at Wesleyan Financial Services, to get answers to the questions you asked at our recent ‘Guide to mortgages’ webinar.
Q: How long do I need to be employed before applying for a mortgage?
A: Most lenders offering mortgages to foundation year doctors and dentists like to see three to six months of pay slips to judge what you can afford to borrow.
This works in your favor too, as by this time you’ll have an idea of what your rotation looks like and how long you’ll spend at a hospital or dental practice. This can give you confidence that you’ll be able to manage a mortgage.
It’s possible that some lenders will offer you a mortgage as soon as you have a contract – i.e., before you start working. The contract will need to have a start date within three months of the mortgage application date, will need to be signed and dated by both employer and employee, and include salary expectations.
The amount you can lend will be based on your basic rate so won’t include any banding uplifts or out-of-hours income. If you wanted to use the additional banding and out-of-hours income in addition to your basic rate, you’ll need three months’ proof of earnings to demonstrate that this income is regular. It’s only at this point that this income can be considered.
Q: How does the lender determine how much someone can borrow? And how does locum work affect their decision?
A: To assess affordability (how much a lender believes you can borrow and pay back), lenders look at three key areas: your income, your expenditure and your credit rating.
Income
The amount you earn, and the stability of your salary, is crucial. Lenders needs to see that you have enough regular income to cover your mortgage payments after all of your expenses.
Expenditure
To calculate your affordability, lenders will also look at your expenditure. This includes, but is not limited to, current debts such as credit cards, personal loans, student loans and car finance. If you’re purchasing a flat, service charge and ground maintenance will also be taken into consideration.
If you’re paying a lot in rent at the time of your application, don’t worry. The lender is only interested in expenses that will continue alongside your mortgage. With that in mind though, you might need to be prepared to cut back on any non-essential outgoings - like expensive gym memberships or takeaway habits.
Credit rating
Everybody has a credit record, which is used by agencies to give you a credit rating (or credit score). The healthier your score, the more likely you are to be approved for a mortgage.
Your credit score is based on various factors, including your debt levels and your bill repayment history. For example, if you have a history of missed payments, it’s likely to mean a lower credit score.
Even if you think your credit score should be healthy, it’s worth checking before you make your mortgage application. You can check your rating for free at any time through the main credit score agencies, Equifax or Experian. Another great tool to use is www.checkmyfile.co.uk.
You need to ensure you are on the electoral roll at your current address and have three to five years’ address history. This will allow lenders to view your credit report much more easily.
If you’ve shared a house at any point, your housemates’ payment history could have affected your own score – and you might need to work on improving it.
Locum work
Lenders will consider locum income when calculating affordability. Most will ask for three to six months’ proof of income to do this. Some may ask for more. There are certain tax stipulations to consider, so it’s always good to speak to a mortgage adviser who can talk through your individual circumstances.
It’s important to have confidence that you can afford your repayments as your mortgage is secured on your home. Your home may be repossessed if you do not keep up repayments.
Q: Is affordability affected by someone else being on the mortgage? What if this person doesn’t have an income?
A: Affordability is calculated by looking at income and expenditure. If there are two people with two incomes applying for the mortgage, this will usually increase the amount you can borrow. This is because although the expenses are greater, so is the income. If the mortgage is based on one income but the expenses of two, this will affect how much you can borrow. This is because the expense to income ratio will be higher in comparison to the expenses of one person.
Q: Can a partner’s income be considered if they’re living in the property, but not named on the mortgage?
A: Typically, lenders won’t consider a person’s income if they’re not on the mortgage application – although they may still carry out a credit check for this person.
Q: What percentage of deposit is recommended?
A: While it’s possible to buy a property with a 5% deposit in some cases, most mortgage lenders require a down payment of at least 10% of the property purchase price. As of March 2023, the average house price in the UK was £285,000. This means a 10% deposit would be £28,500.
With mortgages that are available for 5% deposits – as with anything mortgage-related – you’ll tend to find that applications will be cherrypicked by lenders. In these cases, you’ll need to evidence strong affordability and a high credit report.
Ultimately, it depends on your own situation and what is available to you. To assess your options, its best to seek out professional advice to understand your financial situation further and what options are available to you.
Q: Would buying a property to live in for a couple of years, rather than renting, be a good investment?
A: This is a subjective question and really depends on your situation. The answer can change based on your career, what stage of life you’re in and your financial objectives. You’ll also need to consider how much risk you’re willing to take.
While property has generally been presented as a good investment, this is not always the case. House prices are intrinsically linked to the economy and the socio-geographic location of your property.
The application and underwriting process differs between residential and buy-to-let properties. With this in mind, you should discuss this question with an adviser before committing.
If you would like to know more about applying for a mortgage, check out our guide to applying for a mortgage on the Wesleyan website.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Most buy-to-let mortgages are not regulated by the Financial Conduct Authority (FCA).
All information is correct at time of publication.