Considering that you are a newcomer to the UK and you have an interest in acquiring a mortgage loan, opening an account with banking companies and getting in touch with the relevant real estate agencies is very important. Taking a mortgage loan may sound very much like a big, scary thing for newcomers, but believe us, it’s possible to handle it. This article will shed light on how to apply for a mortgage loan in the UK among other relevant information. Whether you’re just starting your search or you have started the mortgage process in the UK, we will help you with what to do.

About Mortgage Loans in the UK

A mortgage loan is an example of a loan that covers a property purchase, usually a house or a flat. It is not a short-term loan; usually, it is paid over several years that are made of regular payments which include both the principal owed and the interest rates. Once you acquire and sign a mortgage, the mortgage acts as collateral for the loan, so if you cease making your payments the lender can take over the property through a formal process called foreclosure.

The UK exhibits a highly buoyant home financing market with comparatively high percentages of residents who want to own their shelter, as opposed to other major economies. It can’t be overlooked that obtaining a mortgage in the UK is a basic thing for most people considering buying a house. The UK average house price was recorded at £288,000 in June 2023. Hence, unless you can pay the money in one go, you have to resort to a mortgage to allow for the payment of instalments.

What should be highlighted first is that there are no limitations for a person who is not eligible to become a UK national or is already a British resident to get involved in the UK housing industry. Therefore, if you are wealthy enough, you can acquire property in Britain. However, if the borrower wishes to pay for the property with a mortgage, in that case, the issue may seem to be quite a bit more complicated for those having no tax record in the UK. However, if you think anything may hamper the process, we are here to help you with useful information to get a mortgage loan with ease.

Requirements to Get a Mortgage Loan in the UK

To secure a mortgage in the UK, you’ll need to get through a few essential steps and gather specific documentation:

1. Credit Check: The lenders are basically turning to your credit score as a measure of your reliability in repaying the loan. This step is vital in the UK mortgage application process. To get a loan, in the UK, every lender will check your credibility before approving a loan to you, whether you are a UK resident or a recent migrant. Evaluating your borrowing history determines whether or not you have repaid your loans in the past. Regrettably, even if you had a favourable credit score in your previous location, it doesn’t carry over to the UK. Consequently, you might need to establish your credit from the ground up, even if you had an excellent borrowing track record elsewhere. Building a credit score in the UK is quite important in proving to lenders your ability to borrow and repay loans responsibly. Having an insufficient credit history is often referred to as having a thin credit file. A thin credit file can frequently result in loan rejections because there isn’t enough data available to evaluate your borrowing behaviour. In the absence of sufficient information, many lenders are hesitant to extend credit to you due to the perceived risk.

2. Deposit: In the majority of cases, lenders require a 10% deposit from the property’s purchase price as a minimum. They then finance the remaining amount, usually 90%, after considering the loan-to-value ratio. However, some lenders may accept a smaller deposit, often around 5%.

3. Identification: You will have to use either your passport or the driver’s licence or any other recognized item, as a means of verification of your identity. This is important so the issuer would be sure he is not lending to a scammer.

4. Bank Statements: A bank account is a necessity through which your daily income and spending are verified. It is used to judge the lender how much money their client can afford to pay back every month toward repaying the loan.

5. Payslips (if employed): Generally, banks require you to present 3 months’ payslips in order to show your continuous source of income.

6. Providing a P60 Form (if employed): The annual P60 form, issued by your employer, details the tax you’ve paid during the tax year and helps validate your income.

7. Utility Bills: Utility bills are required to verify your current address. Additionally, if you’re an immigrant moving from abroad, you may need to provide additional documents.

8. Verifying Benefits (if applicable): If you get benefits in the UK, you’ll be asked for proof of how much you are getting from the government.

For people who work for themselves, you might need to provide extra paperwork to back up how much you earn. And remember, the requirements can change depending on where you’re from and your legal status:

– If you’re a UK citizen or have indefinite leave to stay in the UK, these rules mostly apply when you’re applying for a mortgage here.

– Now, if you’re on a visa, don’t worry, you can still get a mortgage loan, but there might be a few more hurdles to jump through. That could mean having at least a year left on your visa, your boss confirming they’ll renew your contract, a decent credit score in the UK, a higher income, often around £75,000 or more, and possibly needing to put down a bigger deposit because of how long your visa lasts.

Is it Difficult to Get a Mortgage Loan as a Newcomer in the UK?

Taken a step further; many major banks and residential buildings in the UK provide mortgages. Thus, you will be able to get an agreement in principle easily. However, in order to get the best mortgage loan, you may encounter lots of difficult problems. Here are some things to think about when you’re looking around for the best loans:

• Think about how much interest you’ll be paying and whether it stays the same or can change. You can pick between fixed rates, where it stays steady, or variable rates, which might go up or down.
• Look at how much time you are willing to have at the expense of giving up your mortgage. The longer the time frame, the lower the monthly payment, but you’ll be spending more interest to be paid in total.
• Ensure your expenses allow the instalment settlement within the budget limit. You would not like to be troubled about money because of payments every month in the future.
• You should keep an eye out for any extra fees or charges that come with the mortgage, like arrangement fees or penalties if you pay it off early.
• Check if the mortgage you need offers any flexibility, like being able to switch to a different type later on if you want.
• Look out for any special deals or discounts you might qualify for, like lower rates for first-time buyers or cashback offers.

Noteworthy, you can find 100% mortgages in the UK, but they’re not that easy to get. These kinds of mortgages are what we call guarantor mortgages. We must also mention that you don’t need to put down a deposit, but you do need someone close to you, like a family member or friend, to step in and promise to cover your mortgage payments if you can’t. However, your guarantor usually has to put up their property or savings as a guarantee. So, this is why it’s risky for most people to consider these kind of mortgages.

How do You Apply for a Mortgage Loan in the UK as a Newcomer?

1. Check your credit report: Look at your credit report, which is a document that shows if you owe any money that needs to be paid before you start saving. If you’re new to the UK, see if you already have a UK credit score as this is quite important for a UK mortgage. Use credit reference agencies like Equifax to check and keep track of your credit score.

Tips to Help You Build Your Credit Score in the UK

• Get your ID and address sorted: Before you can start applying for bank accounts or loans, you’ll need to prove who you are and where you live. This means having a fixed address in the UK and providing evidence like council tax bills in your name at that address.
• Open a bank account: Having a bank account is vital for managing your finances in the UK. It’s where your salary will likely be paid and shows that you’re planning to stay in the country for a while.
• Register to vote: If you’re eligible to vote in the UK, make sure you’re on the Electoral Roll. Lenders often use this information when you apply for a loan, so being registered can help your creditworthiness.
• Set up direct debits: Once you have your bank account, consider setting up direct debits for your regular bills like utilities or your mobile phone contract. This ensures your payments are made on time, which can boost your credit score.
• Build your credit history: After you’ve been in the UK for a while, think about getting a credit card to start building up your credit history. There are options specifically for people with limited or no credit history. Remember to use it responsibly, sticking to your credit limit and always making at least the minimum payment each month.
• Be mindful of credit applications: Each time you apply for credit, it leaves a mark on your credit history, whether you’re approved or not. Avoid making multiple applications if you know you’re unlikely to be accepted, as this can negatively impact your credit rating.

2. Save for a deposit: Start saving up for a deposit early as house prices in the UK can be really high, especially in places like London. You can consider options like Lifetime ISAs, especially if you’re buying your first home or start a money club with friends and family to boost your savings.

3. Talk to mortgage lenders: Once you’ve saved up a decent deposit, talk to different mortgage lenders to find the best one for you. Research their interest rates, mortgage terms, and how much deposit they need. Think about using a mortgage broker or financial advisor as they can help you find the best deal.

4. Get a mortgage agreement in principle: After agreeing on terms with a lender, they’ll offer you a mortgage agreement in principle. This shows how much they’re willing to lend you. Remember, these agreements usually have an expiry date, so it is advisable to act fast.

5. Find a property and make an offer: Start looking for your dream home using websites like Zoopla and Rightmove. Book a viewing to see the property in person and if you like it, you can make an offer. If the seller accepts, congrats! You’re on your way to owning a home in the UK.

6. Exchange contracts: You won’t need to make your first mortgage payment until you’ve exchanged contracts and completed the sale. Your lender will tell you when and how to make that first payment. After fulfilling all the requirements and the terms of the bargain, you would be given a mortgage loan.

Conclusion

Getting a mortgage loan in the UK is not as easy as it sounds. It may even be worse for someone who is a newcomer especially because such a person may not have built sufficient credit history. If you wondering how to get a mortgage loan in the UK then we hope this article has been of tremendous help to you.