Whether you’re a first-time buyer or a homeowner looking to remortgage, the world of mortgages can feel riddled with pitfalls, and even making a small mistake could end up costing you dear.
That’s why we’ve put together this list of mortgage mistakes that anyone could make if they’re not careful – have a read to learn how to avoid getting caught out.
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
Contents
- Not checking your credit score
- Not getting an Agreement in Principle (AiP)
- Not shopping around for a mortgage
- Not doing enough research on the property
- Re-applying for a mortgage immediately after a rejection
- Staying on your lender’s Standard Variable Rate
- Overpaying your mortgage without checking the charges
1. Not checking your credit score
Your credit score is a measure of how well you have handled your borrowing in the past, from simple credit card use to personal loans and mortgages. Lenders will look at your credit score when you apply for a mortgage so they can gauge whether you’ve managed debts responsibly.
If you have a good record of making repayments on time, your credit score should be in good shape, but if you’ve struggled with repayments or had loan applications declined, it may not be so healthy.
It’s really important to check your credit score before applying for a mortgage, because a weak score can easily cause your application to be rejected – a lender will generally take a low credit score as a sign that you can’t make repayments reliably.
What’s especially frustrating is that being rejected for a loan will normally hurt your credit score even more, meaning that the problem only gets worse.
If you aren’t sure what your credit score is, you can check with one of the three main credit scoring agencies in the UK – Experian, Equifax and TransUnion (formerly Callcredit). If you’d rather not pay to access your credit score, ClearScore* offers a free credit checking service that accesses Equifax data.
Other options include MoneySuperMarket’s Credit Monitor tool*, which enables you to check your credit score and report free of charge using data from TransUnion and offers free personalised tips to help it grow. Experian also has a free service that enables you to sign up and check your credit score with them and Totally Money offers a similar service using TransUnion data.
If you find out that your credit isn’t in great shape, don’t despair – there are a few ways that you might be able to improve it and boost your chances of being accepted for a mortgage, though bear in mind that it won’t be a quick process. Read about how to get started in our article Seven steps to improve your credit score.
2. Not getting an Agreement in Principle (AiP)
A mortgage Agreement in Principle (AiP), also known as a ‘mortgage promise’, is a form of certification you can get from lenders to show how much you are likely to be able to borrow. This can be really useful for planning your budget and having a sense of where to place your expectations when it comes time to officially apply.
Bear in mind that an AiP is not a guarantee that any lender – even the one who provided it for you – will definitely accept an official mortgage application from you. While it can help speed up the application process, they’ll still look at your income and outgoings in more detail when it comes to making a final decision. Think of an AiP as a test run that can produce a helpful guideline to follow when you’re ready to apply properly.
You can find out more about how mortgage agreements in principle work and why it’s worth getting one in our guide What is a mortgage agreement in principle?
3. Not shopping around for a mortgage
There are all sorts of reasons why you might be tempted to stick with a particular lender when applying for a mortgage. Perhaps your impulse is to apply for a mortgage from your bank, or if you are looking to remortgage, you might understandably look at your current lender’s offerings first.
In any case, you should never limit your own options when it comes to applying for a mortgage. Shopping around and seeing what’s available to you across the entire mortgage market is vitally important, and could potentially help you save hundreds – if not thousands – of pounds a year.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
4. Not doing enough research on the property
Before pulling the trigger on a mortgage application, it’s really important that you know everything about the property you are about to buy. Even if you’ve had a good look around and feel happy with both the home and the local area, there are lots of factors to take into account and issues that might be invisible to the naked eye that you should check for.
For example, as the buyer it’s up to you to arrange a survey of the property if you want to investigate for hidden defects. Most qualified surveyors will be members of the Royal Institute of Chartered Surveyors (RICS), and it’s usually wise to pick one yourself, rather than one recommended by the estate agent. The cost of a survey will vary depending on the type of home you’re buying and how thorough you want the survey to be, but RICS HomeBuyer reports are the most popular option that will generally flag any important issues. You can find out more about the differing types of survey that are available in our guide Which property survey should I get?
Beyond this, you should be thinking carefully about whether the home is likely to be accepted for a mortgage. Even if you are happy with it, there are plenty of reasons why a lender may not be so keen to offer a loan on it, such as its location, the length of the lease if there is one, or even what the property is made of. Read more in our article 10 reasons you might not be able to get a mortgage on a property.
5. Re-applying for a mortgage immediately after a rejection
Whether you are buying a home or looking to remortgage, there are few things as demoralising as having a mortgage application declined. It can be a serious blow to your plans and be a huge cause of stress, but it’s important to not panic and plan your next move thoughtfully.
Above all, you shouldn’t just rush into another mortgage application if your first one gets turned down. As we said earlier, having your mortgage application declined typically hurts your credit score a bit, which means you are even less likely to be accepted the next time around.
Instead, you should take stock and try to figure out exactly why your application was turned down. It could be a problem with your credit score, but it may also be that the lender doesn’t think you can afford the repayments, your deposit isn’t big enough, the property is unmortgageable or there was an error in your application. If you haven’t already, it can be a good idea to speak to a mortgage broker who might be able to help you pin down what went wrong so you can get it right next time.
Read more about what to do in this situation in our article What to do if your mortgage application is declined.
6. Staying on your lender’s Standard Variable Rate
If you own a property already and are reaching the end of the introductory rate on your mortgage in the next few months, it’s a good idea to start looking for a new deal you can switch to.
This is because at the end of an introductory deal you’ll usually roll onto your lender’s Standard Variable Rate (SVR), which is almost guaranteed to be a fair bit higher than the rate you’re paying at the moment. A difference of just a few percentage points can translate to hundreds – sometimes thousands – of pounds a year when it comes to mortgage repayments, so it’s really important that you aim to minimise the length of time spent on your lender’s SVR and have a new deal lined up.
You don’t have to wait until your current rate runs out to start searching for a deal – most lenders will allow you to secure a new one up to six months in advance, so get cracking as soon as you can and see if you can avoid your lender’s SVR altogether. Read more about the benefits of remortgaging in good time in our article Five good reasons to remortgage right now
7. Overpaying your mortgage without checking the charges
If you have the funds available to contribute a bit extra towards your mortgage each month or even repay a sizable sum all at once, this can be a hugely tempting idea – after all, the more you repay now, the smaller your monthly payments will get and the sooner you’ll be mortgage-free altogether.
However, don’t just make these overpayments without checking the terms of your mortgage first, and speak with your lender if there is any uncertainty. You’re usually allowed to overpay up to 10% of your mortgage balance each year without suffering a penalty, but this is not always the case.
If you have a lump sum that exceeds the amount you can overpay penalty-free, consider splitting it up across several repayments or seeing if there is another way the money could benefit you, such as contributing it to your pension. Read more in our article Should you overpay your mortgage or top up your pension?
Final thoughts
Applying for a mortgage can be a nerve-wracking experience, especially if you think you’ve found your dream home, so if you need some guidance on the process, check out our article How to apply for a mortgage – everything you need to know.
Alternatively, to read about some more common mistakes people make when buying a home and learn what to watch out for, read our article 11 Common mistakes homebuyers make (and how to avoid them).
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