Mortgage Matters - a Case Study!
Getting a mortgage was obviously an integral part of our property search as first-time buyers. We consulted with three mortgage advisors attached to local estate agents. The advice given varied wildly, was often contradictory and in some cases bordered on misconduct. The following account is given to highlight the salient points of our experience in taking this massive step towards buying our first home.
Find a mortgage advisor that suits your needs
Crucially, we found that what a mortgage advisor could do for us largely depended on the catalogue of lenders they dealt with. We needed a lender that considered private child maintenance agreements (not Court Orders) and Tax Credits as reliable sources of income; very many don’t.
The first mortgage advisor we met with, A, told us we could get a mortgage for a property worth £290K, with our deposit. In the end A went on to handle our mortgage application and arrangement (as well as Buildings and Income Protection insurance). This was by no means a smooth process from start to finish. At times my frustration with slow progress almost got the better of me. However, what A lacked in efficiency and impetus he made up for with a thoroughness, clarity and careful line of questioning (see point 4). We would never have realised the value in these qualities had we not been able to compare him to other brokers.
Additionally, we found that a mortgage advisor’s scruples needed to marry with our own, which leads nicely on to my second point…
Be wary of dubious advice
Here, it is worth admitting that I was particularly apprehensive about the mortgage side of things. I had (and have) substantial monthly outgoings on school fees, was repaying a personal loan taken out to cover medical costs, and of course had a dependent (my eight-year-old son). All of these I knew would be issues for lenders.
The second mortgage advisor we spoke to, B, offered us a lower AIP (£25K less). The school fees were the deciding factor, he said, and then had some interesting advice: hide the school fees. The following is not verbatim, but close enough to what was said to me: “Quite often what people in your position do is appeal to Mum and Dad. If Grandma and Grandpa are willing to cover the fees for some 3-6 months, then you can get the higher mortgage”.
The implication wasn’t that my mother would suddenly agree to pay for her grandson’s private education ad infinitum. The implication was that she need only do so for the time necessary for me to collect three months of current account statements without the school fees leaving my account, and any subsequent months whilst the mortgage application was being processed. We thought no more about this. Firstly, my mother had supported us enough in buying our first house by having us all to live with her for a nominal rent whilst we saved for a deposit. Secondly, it just didn’t sit right.
Unscrupulous as this was, our little experience showed that the world of mortgages was a bit of a quagmire. The more we spoke to family, friends and colleagues, the more we heard of mortgage advisors getting their clients the deal they needed or wanted by dishonest means. Our neighbour let us in on a secret: when his mortgage deal was up and he came to renew, it turned out that drastic measures had to be taken to get a lender onside. Instead of declaring the three children that he and his wife had, he was advised to declare none. No dependents. When the man from the bank came to inspect the property, he could see three children’s bedrooms, rooms full of children’s toys and games, school shoes neatly lined up at the door. Apparently, he just found it amusing, the hoops people must jump through. A colleague told me that his wife was avoiding attending meetings with their mortgage advisor as her baby bump could no longer be hidden; they couldn’t risk the it being known that her monthly income would soon be reduced to statutory maternity pay.
Sure enough, the third mortgage advisor that we spoke to, C, was keen to condemn the advice we were given as mortgage fraud, plain and simple. I reassured him that I was merely relaying this dubious advice about concealing school fees and not implying we go down that road! We got our mortgage with complete transparency in our financial arrangements and making concessions (such as clearing my loan) when we needed to.
Make sure your advisor works with the big lenders
To his credit, C had great integrity in a business clearly filled with some dishonest goings-on, but his narrow portfolio of lenders ruled him out. The maximum AIP he could give us was was a staggering £50K lower than the highest figure we’d been given. He worked with a considerable range of lenders but, crucially, omitted one major bank. This bank, he told us, reject 60% of mortgage applications and so were not worth considering. It seemed unusual to us, given the bank’s international standing. Furthermore, I had banked with them my entire adult life, and knew some benefits (reduction in arrangement fees, competitive rates etc.) would be available to us as a result.
So, we had three very different figures from three advisors, guiding us to look at properties ranging from £240K to £290K. It just so happened that after meeting C and feeling despondent, we viewed the first property we were to offer on. It had an asking price of £290K, right at the top of our budget if A’s calculations were correct. My boyfriend was straight on the phone to him: we had found a property we loved, wanted to offer the full amount and needed the AIP in place before we did so. We raised our concerns following our meeting with C and the low AIP he suggested was available to us, so he reassured us by re-entering our figures four times in his calculations to make sure he was on safe ground. He already had our payslips, bank statements, photo ID, proof of deposit etc., all he needed was a push from us to follow through with the AIP. Within 4 hours, outside the normal working day, A emailed us the AIP we needed.
Ask the right questions
When we finally had an offer accepted on a property, we got down to the nitty-gritty of mortgage matters. The application took three hours. A explained everything clearly and in lay-terms. Most importantly, he subjected us to a series of pertinent questions:
- What would happen if one of us died suddenly? Would we like provision in place to pay off the mortgage, or would family step in?
- Who is the breadwinner, and do they want a contingency plan in place if they were to be made redundant or unable to work due to injury or critical illness? Would we still be able to work if we broke an arm or leg? Cover for loss of income due to fracture was an optional extra, at considerable cost.
- Have we each made a will? Do either of us need to amend this when we become homeowners?
- Buildings insurance is a must, but have we considered Contents Insurance? Do we have any extras that need protecting?
Being compelled to answer these and justify our reasoning made it clear to us what we needed to action. These forced us to check what we already had in place in terms of wills, Life Insurance etc. and whether we needed to adjust these or put additional protection measures into place.
For example, being a lone parent for many years meant I already held a Life Insurance policy with Critical Illness cover but, in all honesty, I had forgotten the sum insured and precisely what was covered. I was compelled to get out the paperwork and refresh my memory. The critical illness cover was based on four times my salary; the Life Insurance cover was based on my salary each year between the policy start date to my son’s 30th birthday. This was enough for me, but my boyfriend was the breadwinner and needed to put something in place, which A duly helped us with.
Be the squeakiest hinge
With the mortgage applied for and insurance policies in place, we had to wait 6-8 weeks for our mortgage offer to come through. This was a nail-biting time. Despite assurances that we would not have gotten this far if they weren’t going to offer us a mortgage, I worried incessantly about the outcome.
The bank asked for additional documentation throughout: up to date payslips (as it was over a month since the initial application); further photo ID from my boyfriend to clarify whether there was indeed a hyphen in his surname; a letter from my son’s biological father to confirm our private child maintenance agreement and his commitment to paying this; proof of my continued entitlement for child benefit and tax credits. At first, I assumed best intent and worked on the principle that our mortgage advisor would push through our application as quickly as possible. After all, he could only collect his fee when the purchase was completed. On this basis, I only chased an update each week or 10 days.
However, as time went on I became quite concerned; after submitting yet more documentation (as requested), I realised that it was only when I was phoning and emailing for updates that any progress seemed to be made. He was clearly overstretched, and as is common in such situations, oiled the squeakiest hinge. It became apparent then that I had to phone and email every other day and be the squeaky hinge! If he had any hope of silencing it, he would have to get this mortgage offer through.
It felt like our pockets had been turned out for inspection under a microscope whilst we awaited a decision. Thankfully, it came, and we went on to purchase the house.