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If you have never worked in mortgages, the process for actually getting a mortgage (especially what’s going on behind the scenes) may be a mystery to you. Even if you have bought a house before, it can still seem like a bit of an enigma. What’s taking so long? What are all these different kinds of valuation? Who are underwriters and what do they do?
Well, if you are prepping for a job interview and need to know the essentials, this guide is for you. We’ll break down exactly what needs to happen, from application to completion, to get the keys to a new home with the help of a mortgage.
NB: These steps don’t always happen in exactly the same order, or to set timescales, or according to the same procedures. But this guide will hopefully give you a clearer picture of all the key milestones involved in buying a home with a mortgage.
If you come across any terms you don’t understand, check out our glossary here.
One of the first questions people need to answer when they want to buy a new home is, ‘What can I afford?’. For anyone who isn’t a cash buyer, this means answering another question: ‘How much can I borrow?’
To do this, consumers can obtain something called a ‘Decision in Principle’ or ‘Agreement in Principle’ (AIP/DIP). This is where a mortgage lender takes some preliminary information from the consumer, runs some initial credit checks, and gives a provisional thumbs up to say it would be prepared to lend a certain amount – subject to more thorough checks further down the line.
For many house hunters looking to buy with a mortgage, especially in a competitive property market, this is the passport to being taken seriously by a vendor (seller). The vendor can see the bidder’s offer is backed up by a potential mortgage offer, which makes it far more credible.
The process for getting an AIP/DIP can be tricky to navigate, and it also counts as a first step in a mortgage application. So, it makes sense for the consumer to start the mortgage application process with the lender they believe can offer the best deal for their needs and circumstances. This is why consumers will often approach a mortgage broker or lender before their house hunt has even begun.
There are two main ways to approach getting a mortgage:
1. The first is to go through a mortgage broker or intermediary (the two terms can be used interchangeably).
There are a lot of high-quality mortgage brokers that can walk clients through the whole journey, research the best deal for the borrower’s needs and circumstances, and guide them through any questions they may have. They will also have access to lenders who only accept applications via a broker, so can consider a wider pool of options than what is typically available to consumers on the high street (although some high street lenders will only accept applications directly from the consumers). Mortgage brokers can be found online or through a recommendation.
Read our full guide on the mortgage advice process from an adviser perspective.
2. The second option is to use a mortgage adviser who works directly for the lender.
This can usually be done in a branch or over the phone, with some lenders offering video appointments to submit the mortgage. This route might be preferred by experienced borrowers who would rather conduct their own research to find the best mortgage deal, as an adviser working directly for a lender can’t provide information on the whole of the market. An AIP/DIP can also be obtained directly from certain lenders via the internet before having to speak to an adviser.
The AIP/DIP is assessed against the information submitted and the applicant’s credit report. This AIP/DIP process is typically automated using the lender systems, thus a ‘human’ will rarely have reviewed the information at this stage.
Done wrong, it can leave applicants with a false impression of their borrowing potential, and in some cases, leave unwanted ‘footprints’ on their credit file (which can narrow borrowing options further down the line). This is another reason consumers may wish to consult a mortgage broker to guide them through the process.
Once the AIP/DIP has been successfully generated, the buyer is now in the best position to begin house hunting.
Once a property has been found and an offer has been accepted, the mortgage journey can get fully underway.
Before the full application is submitted, the consumer will receive a document called an ‘illustration’, setting out the full repayment schedule of the mortgage, the costs involved, the benefits and features, and the potential risks.
Once the lender has been given all the information they need, this is the point where document proofs will need to be supplied.
These may be items such as:
The consumer will also be required to instruct a Licensed Conveyancer (who is often, but not always, a Solicitor) at this stage to start the work required for the legal change in ownership of the property. Conveyancers are often selected from the lender’s approved panel. Occasionally they are provided free of charge as a part of the product specifications. If approved by the lender, the applicants can also select their own conveyancers – this is referred to as separate representation and is often subject to additional cost.
It’s now time for an underwriter to assess the application. Underwriters are the decision-making role in the process, and will ultimately determine whether the mortgage application is approved. They will assess the application against the lender’s criteria, conduct anti-money laundering and fraud checks and review affordability. They will assess the documentation uploaded in detail to ensure that the lender’s requirements are satisfied.
The underwriters take a more holistic approach to assessment and will likely either ask for additional information or documentation in order to complete their assessment.
Once they are satisfied with the information received, they will agree to lend to the consumer (subject to valuation).
All properties to be purchased with a mortgage require a valuation. This is predominantly to ensure that the purchase price agreed between buyer and vendor is supported by market data and a professional assessment. The valuation can be instructed before or after full underwriting has taken place, depending on the lender.
There are many types of valuation:
1. Desktop or Automated Valuation
This is a computer-based assessment which pulls sales data from the postcode and local area to determine whether the figure provided is consistent with the market activity. This data is then collated into a report which is generated via Automated Valuation software.
2. Full Mortgage Valuation
This valuation is conducted in person by a RICS-qualified property surveyor. They will conduct an inspection of the property in person, identify any visible defects within the property and will conduct market research to determine an accurate valuation figure of the property. These reports are produced by the valuers themselves and are instructed by the lenders by valuation panels. The reports are often completed on a pre-prepared template provided by the lender and the valuers are also armed with the lender’s property criteria and will tailor their assessment of the property to it.
3. Drive-by Valuation
Although antiquated and typically unused, a drive-by valuation is self-explanatory in nature. The valuer will drive by the property itself and complete their report from market data and impressions obtained from the property’s structure. These are typically redundant as they lack the assurance that there are no issues inside the property like dampness or other damages.
4. Re-type (Scotland only)
In Scotland, a home report is conducted by law during the purchase process. These are independent of that of the lender and are not on the standard valuation form for mortgage purposes. A retype is a process where the home report is converted (or re-typed) into the lender’s typical valuation template. This retype is typically conducted by the valuation panel the lender subscribes to.
Once completed the valuation report is returned to the lender to be assessed by the Underwriter.
Now that all the documentation has been received and the valuation has been completed, it is passed back to the underwriter to conduct the final checks on the application. If everything has been satisfied and they have no other requirements then they will approve and issue a formal mortgage offer.
The mortgage offer will be sent to the applicant, solicitor and mortgage brokers. At this stage, the consumer’s contact with the mortgage lender will be minimal as it is passed over to their legal representatives to complete the final stages of the mortgage process.
The mortgage offer will reconfirm all of the information about the loan, a set of payment and product terms and a list of conditions.
If going through a broker, the consumer will typically receive a formal letter or report around this stage, setting out what has been recommended and why, the discounted alternatives, a breakdown of the costs involved, what the risks are, and the next steps.
The conveyancers will now complete the legalities and work required to transfer the ownership of the property from the vendor to the buyer. This work involves the following:
Once all of the legal checks have been finalised and the mortgage offer made, the buyer and vendor are ready to exchange contracts. This is the point where the buyer and vendor enter into a binding legal contract to complete the transaction, and the buyer must provide a deposit (usually the equal to the deposit specified on the mortgage application, e.g. 10% of the property value).
Completion usually occurs shortly after exchange – this is when the mortgage funds are transferred via the conveyancing solicitors from the mortgage provider to the vendor, allowing the transaction to complete. Once the funds have been received, the buyer will be able to pick up the keys to their new home and move in.
The story doesn’t end when the mortgage comes into force. A mortgage is a multi-decade commitment for a consumer, so the lender and any intermediaries involved must take care to provide a high-quality ongoing service throughout the lifetime of the product.
The servicing department of the lender is responsible for any post-completion queries or requests required during the term of their mortgage.
Some of these tasks and requests are:
People’s circumstances change over time, and it’s rare for a consumer to take out one mortgage and retain the same product until it is paid off. People might go through several house moves in the course of a lifetime, and consumers and brokers alike are often keen to seek out the best remortgage deals – especially after the expiry of a cheaper introductory rate. This is why long-term consumer relationships are so important in mortgages, as the perfect solution for a borrower today might not fit so well a few years down the line.
