Posted by & filed under Life Insurance, Mortgages.

In the process of applying for a Mortgage, often people question ‘Is it a legal requirement to have life insurance in place before applying for a Mortgage? or ‘Will having life insurance improve the chances in being accepted for a Mortgage?’.

Credius is here to help. In this article, Credius aims to help provide the answers for these questions. Furthermore, we want to help you understand the importance, if any, of having life insurance, within the context of mortgages. In addition, we’d like to provide a step by step guide in getting approved for mortgages.

Can you really get a mortgage without life insurance? The short answer is yes, yes you can, meaning it’s not a legal requirement in the UK. However, that being said, you shouldn’t completely disregard the idea.

Life can be very unpredictable, and it’s in generally in your best interest to prepare for the worst. Death, or critical illness, would often hinder your income.

Having the proper life insurance policy in place would significantly help in paying off the mortgage left in your name. Without life insurance, your loved ones would often have to settle the mortgage repayments.

What is life insurance, and why would it help with your potential mortgage?

Life insurance is something many of us would never dream is relevant to them. I mean, it’s not like we’re going to die any time soon is it?

Well – not wanting to state the obvious, but none of us really know when we’re going to die. It could be in 50 years’ time or equally it could be next week (we’re sorry to be the barer of such gloomy news).

Either way, it’s never nice to think about it but that doesn’t mean we shouldn’t.

Life insurance is a vital part of financial planning for anyone who has dependents. By ‘dependents’, we’re referring to those whose circumstances and material well-being would be affected by your death. So that means your partner, your children or anyone else who is financially reliant on you.

It can make the difference between your loved ones struggling financially and maybe having to move home or, in this case, them being able to pay the mortgage / rent and maintain a similar standard of living while coming to terms with your death.

So how does life insurance work?

Life insurance comes in a variety of forms. At its simplest, it pays out an agreed amount, either as a lump sum or as a regular income if you die within a specified period, known as the ‘term’. Hence it is often called term insurance and this term can be anything, typically from a minimum of 10 years upwards.

Just like with any insurance, you will need to choose a level of cover. Remember, this is the amount you’re dependents will receive if the unthinkable happens so make sure it will cover all the bills and allow them to live comfortably.

Most policies will have some exclusions. For example, they may not pay out if you die due to drug or alcohol abuse, and you normally have to pay extra to be covered when you take part in risky sports so it’s important to check the small print.

If you have a serious health problem when you take out the policy, your insurance may also exclude any cause of death related to that illness.
One last thing to remember is that life insurance is just that, it’s insurance for your life (or lack of it) and will not cover you for illness or loss of earnings in any other circumstances.

If you suspect that you’d benefit more from a critical illness cover, or critical illness cover in combination with life insurance – feel free to contact us by clicking here. Let us talk about how we could help you in finding what you’re looking for.

Where can I find the best mortgage for me?

But before we answer that, let’s understand first – “How much can I borrow?”

The focus of lending has now moved from the traditional multiple of a person’s income to what an individual can reasonably afford and this means lenders will analyse your spending patterns from the last 6 months (for a typical borrower) before determining a “safe and appropriate” commitment that you can make.

They must also include in this payment, an allowance which ensures you would still be able to afford the payments should interest rates increase.

Is the borrowing criteria the same for everyone?

Unfortunately not. If you fit into one of these categories you may need to provide 2-5 years of financial information before a decision can be made.

– Self-employed
– Directors with 25% equity
– Sole Traders
– Partnerships
– Contractors
– Directors of limited companies

So how can I maximise my borrowing capability?

The key to maximising your borrowing potential is preparation. With a lender requiring access to your previous 6 months finances, planning well ahead is key. Here are some quick tips for improving your borrowing capability.

– Clear any short term debts such as small loans and credit cards
– Cut down your regular spending – perhaps put big shopping trips and expensive holidays on hold temporarily
– Use the money you’re saving on cutting down your spending to increase you deposit (an increased % deposit can significantly increase your borrowing power)
– Make sure you are on the electoral role
– Avoid Job Changes
– Check your credit report using a service such as Experian, Equifax, or Call Credit and make sure there are no hidden surprises

Want to know exactly how much you could borrow?

No matter how challenging your circumstances, Credius’ expertise will help you maximise your borrowing potential and ensure you get the deal that’s right for you. Contact us by clicking here.

Alternatively why not check out our Mortgage Income Multiplier and Mortgage Payment Calculators here – Please note these calculators should be used for guidance only.

Which mortgage is the best?

Now you know how much you could borrow, which mortgage is best? Choosing the right mortgage can save you thousands of pounds, but what is the right option – Is it just a case of choosing the lowest monthly payment? There are multiple aspects to consider, and we can help find the most appropriate mortgage for you.

Fixed rate mortgages

If you’re stretching yourself buying a property and want to ensure your monthly payments remain consistent and manageable for a number of years this could be for you. This mortgage brings stability to your monthly outgoings however, your payments are likely to be higher than other products on the market.

Tracker mortgages

Tracker mortgages follow the Bank of England base rate + a small % on top. This means if the Bank of England lower their rates, your mortgage payments are guaranteed to go down. However the same is true in reverse. It’s a gamble which in the right circumstances, could save you £££’s but if the market goes against you, it could really bite into your monthly income.

Discounted mortgages

The favourite mortgage of a first time buyer. These mortgages typically have very low headline rates which are discounted from the standard variable rate for a number of years. They might be great if you want to make the lowest monthly payments possible, but the rate will not remain constant, so you may find your payments increasing over time and you will be locked in for a number of years.

Cashback mortgages

The headline sounds great and could be ideal if you need a bit of extra cash for furniture when you first move into your property. However dig a little deeper and you’ll probably find that you’re paying a higher interest rate and a higher monthly payment so that the lender can claw their money back.

Offset mortgages

Offset mortgages have the potential to save you thousands of pounds over the duration of your mortgage IF you manage your money and save well. With an offset mortgage you’ll only pay interest on the sum amount of debt between your mortgage, your savings and current accounts (providing they are with the same lender).

Repaying your mortgage

So you’ve chosen your mortgage type, now you need to consider how you want to pay it back. Mortgages can be paid back in two main ways. The first – known as a repayment mortgage, pays off a little of the underlying debt each month, as well as interest on the loan and at the end of the term the mortgage is cleared.

The second is called an interest only mortgage. With this type of mortgage, you pay-off the interest on the loan but not the capital. At the end of the term you will be expected to repay the capital in a lump sum. How you fund this is up to you.

With so many options to choose from, taking impartial and professional advice could save you thousands of pounds over the life of the mortgage. Contact Credius today for a free initial meeting by clicking here.

What documents do I need to apply for a mortgage?

Back “in the day” applying for a mortgage used to be a simple case of bringing in 3 months of payslips, a proof of residence and proof of ID – job done. The self-employed could simply fill in a form stating their earnings and everything would be fine.

Now however, the rules have changed so take a look at our checklist below to make sure you’re prepared for when you take that step.

Proof of your identity:

This will need to be a valid passport or driving licence.

Proof of your current address:

Such as a household bill in your name no less than 3 months old

Proof of your income:

Your latest P60 and at least 3 recent salary slips (this will depend on the lender)

Prove of affordability:

Evidence of how you manage your money. This will include at least 6 months of statements (it totally depends on the lender) from your current account and details from any loan / credit accounts.

Additional Income:

If you have documents to prove any other income you wish to be considered in your application such as Child Benefit, Maintenance Payments, Disability Allowance, Pension – you’ll need to show these with your application too.

Special Circumstances:

If you fit into one of the following criteria it is highly likely you will need additional documentation:

– Self-employed
– Directors with 25% equity
– Sole Traders
– Partnerships
– Contractors
– Directors of limited companies

The additional documentation will include at least 1 year of trading accounts, signed off by your business partners and your accountant and a corresponding tax statement from HMRC.

Although all lenders will ask for documentation to enable you to apply for a mortgage, they will all have different attitudes to risk and different lending criteria. Credius has access to a wide range of lenders which can accommodate the majority of personal situations so for more advice and the potential to save £££’s on your mortgage. Don’t hesitate to contact us for a free initial meeting by clicking here.

What’s next?

Kindly note: Your home may be repossessed if you do not keep up repayments on your mortgage.

So assuming you have all the necessary paperwork in place, now what’s next is to secure the mortgage for the property of your choice. We could have several paragraphs to guide you through this process, however we think it’s best we provide free initial meeting on this matter (Contact us by clicking here). As this part can be completely different from person to person, depending on each individuals’ circumstance. After the property and mortgage has been secured, we can now move onto the final step – completing the sale!

Completing the sale – The final step for your mortgage!

Kindly note: Your home may be repossessed if you do not keep up repayments on your mortgage.

This is it, the final step to owning your dream home.

In England and Wales, the Exchange of Contracts is the last stage of the legal process after which you cannot pull out (without losing your deposit and any legal costs you may have incurred).

The final contract between you and the seller is prepared when:

– The solicitor (or licensed conveyancer) and you are satisfied with the final outcome of all the enquiries
– The surveyor’s report has been received and any necessary action taken
– The lender has completed their valuation report and you have received you formal mortgage offer
– Arrangements about the payment of the deposit have been made
– The date of completion has been agreed.

Both you and the seller will have a copy of the final contract which you must sign. These signed contracts are then exchanged and at this point both you and the seller are legally bound by the contract to move forward with the sale / purchase of the house.

If you drop out at this stage no matter what the reasoning, you are likely to lose your deposit.

So when do you pick up the keys?

Completion of the purchase takes place between 1 and 4 weeks after the exchange of contracts. This is the perfect time to arrange removal companies and schedule in any maintenance that might need to take place on the day or first few days of you owning the property.

On the day agreed for completion:

– The mortgage lender releases the money.
– The deeds to the property are handed over to your solicitor or licensed conveyancer.
– The seller must hand over the keys and leave the property by an agreed time.
– You will receive your legal documents about 20 days after completion after your solicitor has sent them to the Land Registry – Congratulations! We hope you enjoy your new home.

We hope you have found this guide useful. Furthermore, We understand that we may have not have completely answered all questions regarding your situation. For a free initial meeting assessment on how we could help find the most appropriate life insurance and / or mortgage deal that suits you. Please contact us by clicking here.

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