Question
I’m looking for a mortgage to buy my first home after spending the last 10 years renting. I live in the North East of England and have found some properties that are within my price range. I have a deposit of £22,000, so I would need a very large mortgage.
I would like some help understanding how a mortgage works please. Once I qualify for a mortgage, what will happen to my payments if interest rates rise? I’ve heard through the news and friends that interest rates are rising. Will I be able to change trades if prices become too high? Thanks for your advice.
Darren’s answer
It sounds like you are in a strong position and have done a good job of keeping a healthy deposit, which is not an easy thing to do!
The first thing you should do is speak to a mortgage broker who can guide you through the process from start to finish, ensuring you get the best deal to suit your circumstances.
To get started with the broker will help you get The decision in principle. This means you’ll have a clear outline of how much you can borrow, meaning you can confidently make an offer on a property.
A Decision in Principle (DIP) can also be known as an Agreement in Principle (AIP) and is an initial assessment from a lender of how much they are willing to lend to you. This paints a picture of your affordability to determine how much they are willing to lend.
The lender will look at key areas such as:
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- income
- Expenses such as credit obligations
- Credit score (likely a simple check that won’t affect your score)
It’s important to note that this doesn’t guarantee you’ll get a mortgage, but it is a good indicator of your borrowing capacity and helps you understand your price range.
When you talk to a mediator, you will also be asked to provide some supporting documents, such as:
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- Proof of income (payroll and tax returns)
- Proof of address
- Recruitment details
- Details of any financial obligations
They may request additional documents during this process.
Once approved, the broker will give you a confirmation or certificate, which you can show the real estate agent when you make an offer.
Once the offer is accepted, the broker can proceed to the full application and then the legal process which they will assist you with.
What about interest rate increases?
In terms of price increases, you can choose a price that does not change for a specified period, known as a “fixed price”. With a fixed-rate mortgage, your interest rate is locked in for a specified period (usually two or five years) and your monthly payments do not change, even if interest rates rise.
Tracker or variable-rate mortgages can go up or down, so if you’re concerned about rate increases, you can choose a fixed rate.
Once you place your order, your price is locked although your broker will monitor prices and if they fall, they can resubmit the order at a lower interest rate.
I recommend speaking to a mortgage broker, who can help you go through the process with confidence.
