First Time Buyer Mortgages

Yes, you can get a mortgage if you have irregular income, but the reason for the irregularity is important. Here are a few guidelines:

As an employed person with a permanent contract, mortgage lenders will verify your annual basic salary and use an average of any regular overtime, commission or bonus (usually for 3 months).

If you have no minimum guaranteed working hours, the average used will depend on the lender and all will require a minimum employment history of 12 months in the same job role.

If you are self-employed, mortgage lenders will require a minimum 12 months trading and one year’s accounts. The self-employed income declared for tax purposes on an SA302/tax calculation will be used. Most mortgage lenders will use an average of the latest 2 years self-employed figures or the latest years if it is lower.

If you are a limited company director or have a large shareholding you will also be treated as self-employed. Similar to above, the lenders will require a minimum 12 months trading and one year’s accounts. The self-employed income being salary + dividends or net profit declared for tax purposes on your SA302/tax calculation and final certified company accounts can be used.

For more information regarding your own individual circumstance, speak to a mortgage adviser today.

An individuals credit score plays a crucial role in determining your ability to get a mortgage. This is due to mainstream lenders using your credit score, among other factors, to assess your creditworthiness and the level of risk associated with lending you money for a mortgage. However, it is important to note, mortgage lenders will have their own in-house scoring systems you will need to pass and this is when our experience and knowledge will help massively.

Here’s how your credit score impacts your ability to get a mortgage:

1. Eligibility: A good credit score increases your chances of being eligible for a mortgage. Lenders typically have minimum credit score requirements, and if your score falls below that threshold, it may be challenging to qualify for a mortgage.
2. Interest Rates: Your credit score affects the interest rate you’ll be offered on your mortgage. A higher credit score usually leads to better interest rates, meaning you could potentially save a significant amount of money over the life of the loan with a lower interest rate.
3. Loan Amount: A higher credit score may allow you to borrow a larger loan amount. Lenders may be more willing to offer higher loan amounts to individuals with strong credit histories.
4. Deposit Requirements: A low credit score might lead to higher down payment requirements. Lenders may ask for a larger down payment to mitigate the risk of lending to someone with a less favourable credit history.
5. Mortgage Approval: Lenders thoroughly assess your credit report and credit score to determine if you’re a reliable borrower. A history of missed payments, defaults, or bankruptcy could result in mortgage application being declined.

To improve your chances of getting a mortgage with favourable terms, it’s essential to maintain a good credit score. You can do this by:

• Paying bills on time: Avoid late payments on credit cards, loans, and other bills.
• Managing credit utilization: Keep your credit card balances low relative to your credit limits.
• Reducing outstanding debts: Pay down existing debts to improve your credit utilization ratio.
• Avoiding unnecessary credit applications: Multiple credit applications in a short period can negatively impact your score.

Before applying for a mortgage, it’s a good idea to review your credit report for accuracy and address any discrepancies or negative marks.

The good news is even with a poor credit score or adverse credit, there are specialist mortgage lenders who can look to help and do not credit score. Instead, will have set lending criteria you will need to meet, which is why the credit report is important in this situation.

There are several types of mortgage interest rates available to borrowers. Each type offers different advantages and considerations. The main types of mortgage interest rates include:

1. Fixed-Rate Mortgage: The interest rate stays the same for a certain period (usually 2-10 years), making your monthly payments predictable.
2. Tracker Mortgage: The interest rate follows a specific economic indicator (usually the Bank of England’s base rate). Your mortgage rate and payments will change if the base rate does.
3. Standard Variable Rate (SVR) Mortgage: This is the lender’s default rate that you switch to after the initial rate period. The lender can change the SVR, so your payments can vary.
4. Discounted Rate Mortgage: This offers a lower interest rate for a set period (usually 2-3 years). The rate is a discount below the SVR.
5. Capped Rate Mortgage: Similar to a fixed-rate mortgage, but there’s a limit to how high the rate can go. This protects you from big rate increases but lets you benefit if rates drop.
6. Offset Mortgage: This links your savings and current account balances to your mortgage debt. The interest you owe is based on your mortgage balance minus your account balances, which can reduce your interest payments.

Each type of mortgage interest rate has its pros and cons, and the most suitable option for you will depend on your individual financial circumstances, risk tolerance, and preferences for stability or flexibility. This is why it is important to speak to a mortgage adviser at PLS Financial Services today.

An Agreement in Principle (AIP) and a Formal Mortgage Offer are two distinct stages in the mortgage application process, each serving a different purpose. Let’s understand the difference between them:

1. Mortgage Agreement in Principle (AIP):

An Agreement in Principle (AIP) is also commonly known as a Decision in Principle (DIP) or a Mortgage in Principle (MIP). It is a preliminary indication from a lender of how much they may be willing to lend you based on an initial assessment of your financial situation. The AIP helps you get an idea of your borrowing potential before making an offer on a property.

To obtain an AIP, you typically provide basic financial information to the lender, such as your income, employment status, and existing debts. The lender then performs a soft credit check (a check that does not impact your credit score) to assess your creditworthiness. Based on this initial assessment, the lender offers an indication of the amount they may be willing to lend you.

An AIP does not guarantee that you will receive a formal mortgage offer. It is only an indication of the lender’s potential willingness to lend, subject to further verification and a full mortgage application.

2. Formal Mortgage Offer:

A formal mortgage offer is issued by the lender once they have completed a comprehensive assessment of your application. It sets out the specific terms and conditions of the mortgage, including the loan amount, interest rate, repayment schedule, and any special conditions.

To receive a formal mortgage offer, you must submit a complete mortgage application to the lender. The lender will then conduct a more detailed assessment, including a thorough credit check, verification of your income and financial documentation, and other relevant checks. Once they are satisfied with your application and all necessary checks, they issue the formal mortgage offer.

A mortgage offer or principle is not a legally binding contract. The lender still has the right to withdraw the offer, although this is rare. It is important to read the offer carefully and understand the conditions stated. Your solicitor will sort out all of the legal steps involved in purchasing a new property, known as conveyancing – see our blog on the conveyancing process here.

The process of buying a house becomes legally binding at the exchange of contracts stage. This is when both the buyer and seller are legally committed to the sale. After contracts are exchanged, the seller must sell, and the buyer must buy at the agreed price. If either party pulls out after this point, they could face serious legal consequences.

Before this stage, either party can withdraw from the sale without any major legal implications. However, once contracts are exchanged, pulling out of the transaction could result in the loss of the deposit, and the party in breach may be sued.

It’s important to note that the exchange of contracts is usually handled by solicitors and often takes place a few weeks before completion. The completion date, which is when the property officially changes ownership and the money is transferred, is usually set for a specific date during the exchange of contracts.

Residential:
The amount you can borrow for a mortgage depends on several factors, including your income, credit history, monthly expenses, and the lender’s criteria. Typically, lenders use an affordability assessment to determine the maximum loan amount they can offer you. This assessment ensures that you can comfortably manage mortgage repayments without undue financial strain.

Most lenders consider a loan-to-income (LTI) ratio of up to 4.5. This means that they will typically lend up to 4.5 times your gross annual income. However, some lenders may offer higher LTI ratios for certain borrowers or circumstances.

To get a rough idea of how much you might be able to borrow, you can follow these steps:

1. Determine your gross annual income (before tax and deductions).
2. Multiply your gross annual income by the LTI ratio (usually 4.5).

For example, if your gross annual income is £40,000, the rough estimate of the maximum mortgage you might be able to borrow would be 40,000 x 4.5 = £180,000.

It’s important to note that this is a simplified calculation, and actual borrowing capacity can vary significantly based on individual circumstances, such as credit score, existing debts, monthly expenses, and lender policies. Additionally, some lenders may consider other factors, such as bonuses, overtime, or self-employed income, when calculating your borrowing capacity.

Buy-to-Let:
For buy-to-let mortgages, stress testing is carried out, but with additional considerations. Lenders typically assess rental income as well as the borrower’s personal income and will use the rental income to determine the maximum borrowing amount available. The stress test usually includes verifying that the rental income can cover the mortgage payments even if interest rates increase. The required rental coverage varies, but lenders may often require rental income to be around 125% to 145% of the mortgage payments.