Finding a mortgage
How does a mortgage work?
As with any other loan, with a mortgage you borrow money and pay it back in instalments. These instalments include interest and are paid over a period of time agreed between you and your lender. This period of time is known as the mortgage term.
A mortgage differs from a bank loan or credit card because it's secured against your property. So, during the term of the loan, your property provides the lender with security. If for any reason you cannot keep up your monthly mortgage payments or repay your mortgage (upon expiry of the mortgage term), the lender can sell your home to recover their money. This is why it’s vital you only borrow what you can afford.
Your mortgage is likely to be the biggest financial commitment of your life, so think carefully about it. There are several different types of mortgage to choose from, and you need to decide whether you want a rate that changes as interest rates move or one that's fixed, so you know exactly what you'll be paying each month.
Remember, our mortgage advisers can offer you personalised advice to help select a suitable product.
Fixed rate mortgages
A fixed rate mortgage is simply fixing your mortgage payments throughout the term of the deal. The terms is typically two, three or five years, but can be as long as 10 or 15 years depending on what different lenders offer as part of their range.
A fixed rate mortgage would work for you if:
- You want to know what your repayments will be every month.
- You want the security of knowing your payments will never go up during the fixed rate period.
A tracker mortgage follows the Bank of England Base Rate, so your mortgage rate moves up or down in line with this. For example, if your mortgage rate is 3%, the Bank of England Base Rate will be added to that each month. If the Bank of England Base Rate reduces or increases, this will affect your overall monthly rate and how much money you're expected to pay back each month.
A tracker mortgage would work for you if:
- You want to take advantage of reductions in Bank of England Base Rate.
- You don't mind the potential change in monthly payments, up or down.
All Virgin Money Mortgages revert to our Standard Variable Rate (SVR) at the end of the mortgage deal. Our SVR is the interest rate your mortgage moves to once the initial deal period (usually two to five years) has ended.
Repaying your mortgage
Once you've decided which type of mortgage is best for you, you then need to think about how you'd like to repay your mortgage. There are typically two ways to do this – paying capital and interest, known as a repayment mortgage, or paying interest only.
Every month you'll pay your lender a sum of money which includes capital and interest. If you continue to pay this for the life of the mortgage, at the end you'll own your home outright.
In this case, you'd only pay back the interest on the mortgage each month. At the end of the term of the mortgage you'll still be required to pay back the capital and you'd need to make sure you had this to hand in the form of a repayment strategy (an example might be an endowment plan). Interest-only mortgages are more difficult to find for first time buyers and are more commonly used for buy-to-let mortgages.
There's no right or wrong mortgage to choose. Everyone's circumstances will be different, so for one person a fixed product may be more suitable, and for another a tracker could be better. The key is to understand your own financial commitments, both for the short and long term, then weigh up your options to work out which feels best for you.
Using mortgage brokers
Remember, as well as dealing directly with a bank or building society, you can also use a mortgage broker.
A broker is an intermediary who will help you find and arrange a mortgage. They'll be able to review mortgage deals in the whole market, not just from one lender, and they'll guide you through the process to make sure you get the right mortgage for your circumstances.
Some brokers will charge a fee for their services, either upfront or upon completion.
The mortgage process
When viewing a property it's important to leave your emotions at the door. For the first viewing, you're looking to inspect the property. Remember, you don't own it yet, so try not to let your heart rule your head. See the property for what it really is and then there'll be fewer shocks to face later down the line.
1. How much can you borrow?
Simply tell us how much you earn, your regular outgoings and if you have any loan commitments, and we'll work out how much you may be able to borrow. You can use our online calculator.
2. Work out the right deal for you
Once you know what you can borrow, try our mortgage calculator. You can use it to work out monthly payments, view interest rates and find the right deal for you.
3. Get a Decision in Principle
A Decision In Principle (DIP) can give you the reassurance you need to progress with your application. This is a figure that in principle, Virgin Money would be able to lend you.
A DIP can be completed online and is valid for 90 days. Simply pick a mortgage deal, then chose the DIP option. You'll need your address from the last three years, your income, details of your outgoings and details of the mortgage you require. You will receive a DIP once you meet all of the requirements. We will need to do a credit check as part of this. Alternatively, you can complete a DIP over the phone with one of our qualified mortgage advisers.
4. Contact us to make a full application
When you contact Virgin Money you will be required to complete identification verification. During this time we will also make sure you understand all of our requirements and check you are suitable for a mortgage. You will then speak to one of our dedicated mortgage experts. The phone call is likely last 45 minutes to an hour as the adviser will go through an affordability test and your requirements before being able to advise on a mortgage product.
5. We'll provide you with a recommended mortgage product
Once the recommended mortgage product has been presented to you and you are happy with this recommendation we will then ask you if you want to proceed.
While you're on the phone, your Mortgage Illustration will be emailed to you. Read this carefully and query anything you don't understand. You can then start the application while you're still on the phone. This means you will get a completed application form posted out to you, ready for you to sign.
We will then run a decision on your application and you will be informed of the outcome over the phone. If your application is approved we will talk you through the application requirements and collect the fees for processing the application from you. This will secure the rate you have discussed.
6. Your mortgage application and declaration will be posted to you
Your individual requirements will be posted out to you, along with a declaration for you to sign. Complete the forms with any information that you didn't provide over the phone and if you have them available, send us any documents that are required as part of the application.
7. An underwriter will review your application
An underwriter will then make a lending decision and phone you to let you know their decision or if they have any additional requirements.
8. We'll instruct a valuation on the property
Your application will be subject to a satisfactory valuation. We'll instruct an independent valuer on your behalf to check the property is priced correctly and is suitable for your mortgage. Your mortgage valuation however is not a comprehensive survey. You should get your property surveyed to check the condition and avoid any unexpected surprises once you've moved in. You can find out more about the different types of survey in the Getting prepared section.
Your solicitor may also use this time when we are considering your application to start to carry out the necessary searches on the property. These might include local authority, drainage and environmental searches.
9. We make you a mortgage offer
Once the valuation is complete, we can finalise the financial checks and write to you and your solicitor with a formal offer. This will include the amount of money we are willing to lend you to buy the property. Check your new Mortgage Illustration with the one you were previously given to make sure there are no discrepancies.
10. Exchange contracts
The contract is a legal document that describes the legal title of the property and the price, and sets a date for completion. It sets out what will happen if either side fails to do what they've agreed, and mentions anything you have agreed (e.g. that fixtures and fittings are included in the sale). In Scotland this stage is called ‘concluding missives', but the purpose is the same.
Make sure you read through the contract and query anything you don't understand, because once you've exchanged contracts you're legally bound.
This stage is complete once:
- The conveyancer has approved the contract;
- You have signed it;
- The two conveyancers exchange contracts;
- Your deposit money goes to the seller's conveyancer.
Sealing the deal
What paperwork do I need?
When applying for a mortgage, having a few things to hand can help speed up the process. Lenders will need proof of your income, outgoings and identity, so provide them with as much information as possible to make the process easier.
Remember, it's important the figures on your application form, match those on your documentation.
Usually three monthly payslips are needed to verify your income.
In addition to payslips, your latest P60 from your employer may also be used to verify your income.
You may be asked to provide proof of your identity and address. Passports, bank statements and utility bills are good examples.
Gifted deposit letter
If your deposit was a gift, a letter must be obtained from the person, or persons, who gave the deposit. This letter will need to confirm the deposit is a gift and the person doesn't expect this to be repaid, either while the borrower(s) owns the property or if it's sold.
Printed bills or statements
Some lenders may not accept online printouts of your bills or statements, so you may need to have hard copies available. If you need to order them from your bank or utility provider, they may take a few weeks to arrive.
If you decided to apply for a mortgage with us, we'll take you through any documentation you will need to progress your application.
What if I'm self-employed?
If you're self-employed, lenders may have different rules on how you evidence your income. You just need to be prepared for what the lender will require from you. Lenders may have different rules depending on whether you're self-employed, a partner or a director.
For those considered self-employed, any income you declare will need to be proven for the last two years. This is usually done with a statement of your accounts, prepared by a qualified accountant. Lenders will assess your profit and will want to see if this has declined over the past two years. They could also ask to see information on the year ahead, to make sure you'll remain profitable. If you self-assess, you'll be required to provide your SA302 tax document.
Being self-employed might mean your income isn't as regular as it would be if you were paid a salary by an employer. For example, you might have quiet periods of the year, or months when you do better than others. All of this will be taken into consideration during your mortgage application and you should be prepared for this to effect how much they may lend.
If you're a partner in a business, lenders will usually class you the same as self-employed applicants. For directors of limited companies, Virgin Money will consider salary + share of net profit after tax.
You'll still have access to the same products as everyone else, so long as you have the required deposit and provide all of the paperwork needed to pass the affordability check.
Why do we do things the way we do?
In the past, some people took mortgages on properties they couldn't afford, meaning they fell behind on their payments and in some cases lost their homes. The new rules, following the Mortgage Market Review in 2014, help lenders assess your needs and circumstances and whether you can afford a mortgage.
As part of the review, lenders put practices in place to make sure mortgage borrowing is responsible. Here are some of the highlights of what we do and why:
We provide advice on all mortgage sales via our qualified mortgage advisers. Our advice is offered over the phone where it is tailored to your circumstances and requirements to ensure we recommend the most suitable product for your needs. To provide you with the best outcome based on your circumstances, an advised call can take anywhere from 45 minutes to an hour and a half. We assess your affordability to check you can afford the loan repayments now and in the future. This means we take a close look at your income and your outgoings.
We will complete a hypothetical stress test to see what effects an interest rate increase would mean to your monthly payments and your ability to pay these.
We make you aware of the risks. You'll have seen the risk warnings on most mortgage provider's websites, brochures, flyers etc. It's important to make sure you're aware if you don't keep up the repayments on your mortgage, your house could be repossessed.
Obstacles you might come across
There's no denying buying your first home can be stressful. As much as we'd like to support you and hold your hand along the way, there might be occasions when things don't go to plan.
Here are a few potential bumps in the road:
Your credit check fails
Even one late payment, three years ago, could scupper your credit check. Read our advice on why credit checks are so important and how to spot any deal breakers before you apply.
You made mistakes on your application form
Check it and check it again. Making accidental mistakes and needing them corrected at a later stage will not only slow things down, but could affect your chances of being made a mortgage offer. Take the time to do it right. Make sure the figures you put on your application form match the evidence you submit.
Your affordability check doesn't go how you thought it would
Although the affordability check considers more than just your income now, the lender needs to be sure you have enough money coming in to make your monthly mortgage repayments. Read more about how much you can afford on your income.
Your new property is worth less than expected
Lenders will ask for a valuation to check the property is worth what you're offering for it. However, in some cases, this valuation might come in under what the seller is currently asking for. Other surveys conducted as part of the buying process might also highlight unexpected damage. If this results in you needing to carry out repairs, you might want to consider negotiating a lower price.
Up next...Moving day
Don’t risk losing your home – keep up those mortgage repayments