How to deal with the mortgage minefield – 10 top tips
The hopes and dreams of millions of home-owners and first-time buyers have received a number of positive announcements from the Government recently. We have seen dramatic cuts in interest rates, an announcement of a stamp duty amnesty on properties worth £175,000 or less, a new shared equity scheme for families earning less than £60,000 and earlier financial support for people struggling with their mortgage repayments.
But the lack of readily available mortgages seems to be little sign of ending and lenders remain very cautious, whether they are assessing re-mortgages at the end of a fixed rate deals or when looking at new applications.
The good news is that it is possible to improve your chances of securing the mortgage you want. These steps could help improve your chances.
1. Do your market research
There is a massive range of information and resources on personal finance websites, newspaper supplements and specialist magazines. Take a look at them so you know exactly what types of mortgage products are currently available. It can be advisable to look at a range of price comparison sites that will match your personal circumstances to the lenders’ offerings. Alternatively, talk to a specialist mortgage broker as they may have access to mortgage deals not widely publicised. The Council of Mortgage Lenders offers a wide range of advice and is worth taking a look. www.cml.org.uk
2. Calculate what you can really afford
Work out a detailed budget including fees, stamp duty, moving costs, council tax, mortgage repayments and major running costs such as utility bills. Remember that we’re currently suffering from quite high inflation, so factor that in. Don’t be tempted to break your upper limit, even if you consider the property is a bargain, or you could risk joining the 18,900 people who unfortunately had their homes repossessed in the first half of 2008 (according to the Council of Mortgage Lenders).
3. Assess your current credit rating
Take a look at your credit report – this is what your lender is most likely to do when you apply for a mortgage or re-mortgage. Your credit report lists current and past loans, credit cards, previous mortgages and other credit accounts, your payment history and other details that help lenders to decide if you can comfortably afford to repay what you owe. If you are buying with a property with someone else it is worth while getting them to check their credit report as well.
If either one of you has had credit problems including missing repayments to bankruptcy, it could well count against you both. It is quick and easy to view your free credit report now.
4. Rectify any misunderstandings
Check carefully through your individual credit report. Look for errors or misunderstandings that could negatively affect and lower your credit score. For example; accounts that you know you have paid off that are not marked as closed. If you find anything of concern within your credit report contact the specific lender with evidence and ask them to update your records. If there are special circumstances explain problems you have had in the past; maybe you missed a few repayments because you were ill but have had no issues prior or since – you are able to add a note to your report. Again, be prepared to provide evidence.
5. Understand how lenders make decisions
Most mortgage lenders take the information you provide on your application form and from your credit report and give each item a value. The total value is calculated and used to form your credit score. It is designed to assess the chances that you will repay what you owe, on time and in full. The higher your credit score, the easier you may find it to borrow the money you request.
6. Improve your credit rating
There are some simple things you can do to boost your credit score. Are you registered to vote at your current address?
If not, you could be damaging your chances, because lenders use the electoral roll as a precaution against fraud, to be sure that you are who you claim to be and live where you say you do.
Do you have any unused dormant accounts?
Close them now – lenders will look at how much you might be able to borrow on your existing accounts, not just how much you currently have owing. They also prefer to see a limited number of well-run accounts, so you may consider taking out a single, more cost-effective consolidation loan rather than setting up a number of smaller deals. Try price comparison sites to see what’s available.
7. Don’t make multiple mortgage applications
It is not a great idea to send off a series of mortgage applications with the aim of receiving a positive answer and securing one of them. Every time you submit a mortgage application the bank or building society will access your credit report and leave a record on your credit report. If other lenders see a large amount of these, they could think you’re shopping around or even that a fraud is being planned to be committed.
8. Be realistic with your mortgage applications
There is no point applying for a mortgage designed for someone with 50 per cent equity when you have only 10 per cent, or applying for a mortgage product that requires a 20 per cent deposit when you simply don’t have the cash. Every bank and building societies’ targets a specific group of people with each of their mortgage products. It is wise to ensure you match the profile before you apply.
9. Don’t give up and despair
If you’re re-mortgaging, you could have to accept that you will have to pay more than you did with the original mortgage product. Your current bank or building society may be able to offer you a replacement mortgage. If it’s a first buy or you think the time is right to return to the market after a break and you still can’t get what you want, then you have a number of options. For example, you could wait while you save up a larger deposit, work on improving your credit history or gamble that prices will continue to fall.
10. Monitor your credit status
Regular checks on your credit report are like part of a financial MOT, they enable you to see what you owe, how well you are coping and if there are any areas that need your specific attention. If you like what you see the chances are that prospective lenders will too. You can see what the lenders see by looking at your free Experian credit report here.
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