Welcome to the second instalment of simplifying the process for first-time buyers where we talk you thorough the financial considerations of buying a house.
In this article you will:
- Appreciate financial preparation: LDN Finance will guide you through assessing your finances, understanding credit score importance, and smart saving strategies for your deposit.
- Recognise the importance of pre-approval: Discover the benefits of getting a mortgage Agreement in Principle, and how it can strengthen your position as a buyer.l
Working out how much you can borrow
In addition to carrying out their own credit score, each lender will also perform an affordability calculation. This determines how much they will be willing to lend to you.
A number of factors are important when it comes to mortgage affordability. Each lender will perform a calculation based on your income, your outgoings – which will include any debts, but also your regular spending – the length of your mortgage term and the specific mortgage type you are applying for.
Mortgage affordability calculators exist online, but these are often very basic and don’t give a true reflection as to the amount you can borrow. Lenders also treat different income types in a different way, which can add complication if your income is more than simply a basic PAYE salary. A mortgage adviser will be able to help guide you and provide an accurate borrowing figure that is achievable.
Saving for a Deposit: Tips and Strategies
Saving for a deposit can feel like a big challenge. But with good planning and steady effort, you can reach that savings goal.
Here are our top three tips to kick-start your savings:
- Create a realistic budget: Keep a close watch on your income and expenses. Find places where you can spend less and save more.
- Set up a dedicated savings account: Look for high-interest savings accounts that help first-time buyers. Using websites such as moneysavingexpert.co.uk can help you to compare the current options available.
- Be mindful of Stamp Duty: Stamp Duty Land Tax (SDLT) is a tax payment made to the government if you buy a property or land over a certain price in England and Northern Ireland. For first-time buyers, you’ll pay SDLT if the property is over £425,000. However, from 1st April 2025 this value decreases to £300,000. To find out how much SDLT you may have to pay, use our stamp duty calculator for an estimation.
- Watch your spending! Counting the pennies in the run up to applying for a mortgage will put your in good stead long-term, giving lenders more confidence in your spending habits.
Many first time buyers are given help towards their deposit by family members. This is known as a gifted deposit, and lenders are generally receptive to these. If you are a tenant, it is also possible to have some or all of your deposit gifted by your landlord, although in this scenario they would need to sell the property to you at a discount from the market value.
The Mortgage Application Process Explained
Applying for a mortgage has several important steps. Knowing each step and what happens next can reduce stress and help you feel more in control. Explore our process explanation to help you handle each part with confidence.
Step-by-Step Guide to Applying for a Mortgage
Let LDN Finance simplify the application process with a clear roadmap:
| Step to take | Description |
| 1. Get prepared | Speak to a mortgage adviser to determine how much you can borrow, and how much this will cost. |
| 2. Get Pre-approved | Secure an Agreement in Principle (AIP), which confirms that you have passed a lender’s credit score and that they are prepared to lend to you. |
| 3. Find Your Dream Home | Begin your house hunting journey, confident in your budget. |
| 4. Make an Offer | Once you’ve found the perfect property, submit an offer through the estate agent. |
| 5. Formal Mortgage Application | If your offer is accepted, work with your mortgage adviser to submit a formal mortgage application. |
| 6. Underwriting and Valuation | The lender will review your application, the supporting documents and the property itself to assess the risk involved. |
| 7. Mortgage Offer | If approved, you’ll receive a formal mortgage offer outlining the terms and conditions. |
| 8. Solicitor | Once your solicitor is in receipt of the mortgage offer they will work on the legal paperwork that is required before setting up ‘completion’ of your purchase |
Documents You Will Need to Apply
As part of the application process, you’ll need to collate important documents for the lender to review. Gathering these documents ahead of time can help make your application process run smoothly. Lenders typically ask for:
- Proof of Identity: A valid passport or driver’s license.
- Proof of Address: Typically a bank statement or utility bill sent to the address for where you are currently living
- Proof of Income: The most recent 3 months payslips if you are employed on a PAYE basis, the most recent 2 years Tax Calculation Forms and Tax Year Overviews if you are a self-employed sole trader or partner, and the most recent 2 years Company Accounts if you are a Limited Company director
- Bank Statements: Your bank statements from the last three months.
- Proof of Deposit: Statements from your savings account/evidence to show where your deposit funds come from.
Understanding the Role of Mortgage Brokers
Mortgage brokers– like our team at LDN Finance – are specialist advisers who help to find and get you the best mortgage deals for your situation. They connect you with lenders, using their knowledge of the market and current products to negotiate good rates and terms for you.
Mortgage advisers can save you time by navigating the challenges of the mortgage market, and provide invaluable insight due to their experience. They provide fair, unbiased advice and take care of much of the paperwork for you.
The Importance of Mortgage Pre-approval
Getting your mortgage pre-approved is important. This is called an Agreement in Principle (AIP) or a Decision in Principle (DIP), and provides you with assurance that the mortgage lender is prepared to lend to you. This document is a indicative commitment from a lender which sometimes also confirms how much money they might lend you. However, this is only subject to completing a full application and the lender having the necessary property inspections, including a valuation, done.
How to get Pre-Approved for a Mortgage
Having this Agreement in Principle shows that you are a reliable buyer to estate agents and sellers. It proves that you are serious and can handle the finances required when purchasing a home. An AIP/DIP may also boost your chances of getting your offer accepted, especially when other people are making offers too.
Getting pre-approved with a mortgage provider is a relatively straightforward process, and requires you to share some basic financial details. This includes your income, expenses, and how much deposit you have. After that, the lender will do a credit check and perform a search of your credit report.
Once the lender looks over your information, they’ll give you an Agreement in Principle. Most lenders provide you with a certificate or letter which confirms this.
This document is usually valid for a short time, often 30 to 90 days. If you find a property within that time, you can move forward with the formal mortgage application. If this initial period expires you may need a new Agreement in Principle.
Remember, a AIP/DIP is only the first step, and doesn’t guarantee you will get a final mortgage offer, but it will improve your chances of securing one. The lender will still perform a thorough check when you apply formally.
Keen to learn more? Be sure to check out Part 3 for the next instalment in our series. Get in touch today to find out more about preparing to get a first-time buyer mortgage.