Make Yourself More Attractive to Mortgage Lenders
I’m often asked how lenders assess whether they will or will not lend to you and thought it may help to publish several steps you can take to make yourself more attractive to lenders:
1) 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. It may be prudent to check your credit file before applying for a mortgage as any mistakes can be corrected. The two companies used most often by lenders are Experian and Equifax. You should be able to obtain your credit report relatively quickly (you will each need to apply separately if you are looking at a mortgage in joint names).
2) 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 ensure that you clear the balance each month. Lenders now use an affordability calculation when deciding how much you can borrow, rather than a straightforward income multiple. This means they take your outgoings, including any credit commitments, into account as well as income. If you have a lot of debt, it will significantly reduce the amount you can borrow.
4) Get on the electoral roll: While this doesn’t sound particularly relevant when it comes to buying a home, lenders often confirm your identity by checking the electoral roll. Fraud is a big concern for the lenders, so they will want to check that you are who you say you are.
5) Pull together the biggest deposit possible: The best rates are 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 5 per cent deposit but you will pay a premium on the rate 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 5 per cent of the purchase price as a deposit, you may 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 may have to save for longer.
6) 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.
7) Don’t change banks: I’ve come across several clients who’ve been seduced by ‘introductory offers’ from banks offering “no-hassle transfer” service to get your business. In my experience that, no hassle service can lead to missed or late direct debits. This will affect your credit score. By all means, make a change after the new mortgage has completed but, until then, stay put.
8) Self-employed? Don’t change structure of your business: Similar to the above, some of our self-employed clients have worked as partnerships or sole-traders and have changed to limited company status shortly before thinking of applying for a mortgage. There are lenders out there who will view this as a new entity and you may have to wait until two years accounts have been produced for the ‘new’ business. Again, once the mortgage has completed, feel free to make these changes.
9) Pay everything by Direct Debit Mandate: If you rely on the good old chequebook, there is a chance, just a chance that you may just forget to post off that payment. This could result in a ‘late’ payment showing on your credit record and, for some lenders that would be sufficient to decline your application.
10) Above all – 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.
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