While it may be tough to get the funding you need, there are several steps you can take to make yourself more attractive to lenders - By Melanie Bien, director of independent mortgage broker Private Finance
If you think it’s hard enough getting a mortgage at the moment, then brace yourself. It is set to become even more difficult next year as lenders tighten criteria further because they are worried about rising job losses and the impact this will have on homeowners’ ability to repay their mortgages. The Council of Mortgage Lenders has also voiced concerns that the Financial Services Authority’s Mortgage Market Review will make it harder for more than half of all borrowers to get a home loan.
While it may be tough to get the funding you need, there are several steps you can take to make yourself more attractive to lenders:
Check your credit file: Since the credit crunch, lenders have favoured borrowers with clean credit histories over those who have missed payments because they are perceived to be lower risk. You should check your credit file before applying for a mortgage as any mistakes can be corrected. Contact Equifax (www.equifax.co.uk) and Experian (www.experian.co.uk).
Get a credit card…: Lenders will want to see evidence of a credit history. One of the problems first-time buyers often face is that they have never had so much as a credit card. But while you may think this would work in your favour and demonstrate that you are a responsible type of person, lenders want to see that you can pay your debts on time. If you haven’t had any debt, there will be no evidence of this.
3)…but don’t run up huge debts and clear the debt you already have: By all means spend on your credit cards but try to clear the balance each month. Lenders are increasingly using an affordability calculation when deciding how much you can borrow, rather than a straightforward income multiple. This means they take your outgoings into account, and existing debt, as well as income. If you have a lot of debt, it will significantly reduce the amount you can borrow.
Get on the electoral roll: While this doesn’t sound particularly relevant when it comes to buying a home, lenders will confirm your identity by checking the electoral roll. Fraud is a big concern for the regulator, so a lender will want to check that you are who you say you are.
Pull together the biggest deposit possible: There may be more mortgage products than there were a year ago but the best rates are still available only to those with around 25 per cent of the purchase price to put down – and sometimes as much as 40 or even 50 per cent. It is possible to get a mortgage with a 10 per cent deposit but you will pay a premium on the rate – as much as a couple of percentage points - and the credit scoring will be much stricter, so you will be turned down if there are blemishes on your credit file. If you have less than 10 per cent of the purchase price as a deposit, you will struggle to get a mortgage. Speak to your parents or other relatives to see whether they can help out with a loan or better still a gift. If they can’t, you’ll have to save for longer.
Get a mortgage agreed in principle: It’s worth finding out how much you can borrow before you even look at your first property. This will ensure you don’t waste your time, or anyone else’s, looking at properties you can’t afford. Even if you’re not a first-time buyer, the market is likely to be very different from when you last bought so it’s important to arm yourself with as much information as possible.
Seek advice: Even the most experienced of buyers use a mortgage broker as they take the stress out of the process; they identify the right mortgage for you, help with the application and then liaise with surveyors, solicitors and estate agents to ensure the process is as quick and hassle-free as possible. If you are not sure whether you need a tracker or a fixed rate, an independent whole-of-market mortgage broker will be able to advise you. Make sure you use one who will also look at direct-only mortgages as some lenders don’t use brokers: if it turns out that the best deal for you is available direct from a lender, then the broker will tell you so. You may still be charged a fee for the advice so check beforehand.
By Melanie Bien, Director of Indpendent Mortgage Broker, Private Finance. Contact Private Finance on www.privatefinance.co.uk, email Melanie at firstname.lastname@example.org or follow her on twitter.