The mortgage market is currently more competitive than it’s been for some time, but lenders are still being choosy about who they give a mortgage to and who gets their best deals. You can’t guarantee you’ll be approved for a particular mortgage, but if you follow these tips you will certainly increase your chances of getting the mortgage you want.
Tips from Melanie Bien (who worked for Private Finance mortgage brokers when this article was written):
1. Check your credit report. There are three credit reference agencies (Experian, Equifax and Call Credit). Get hold of a copy of your credit report and find out what it says about you. You can find out how to go about this in the article Get hold of a copy of your credit report.
SAVVY TIP: If your credit file has any mistakes on it – perhaps it links you with someone you were married to or lived with but are no longer ‘financially connected to’ – you should get it corrected. There’s information on how to do this in the article how to get your credit file mistakes corrected.
2. Get the biggest deposit you can. A 10% deposit is the absolute minimum but you won’t get access to many mortgage offers and you’ll find banks are very picky about who they lend to. Many of the best deals are available to those with a 25% deposit, but some are reserved for borrowers with a 35% or even 40% deposit/equity.
SAVVY TIP: This is especially important if you’re close to a threshold (for example, your deposit or equity is just below 10% or 25% etc).
3. Cut your debts. Most lenders now work on the basis of affordability rather than income multiples. This means they take outgoings, such as credit card and loan payments into account. The more of your income that’s going on debt repayments the less you’ll be able to borrow. There’s more on Paying off your debts double quick.
Tips from Ray Boulger, technical director at mortgage brokers John Charcol
4. Understand the credit score or use someone who does. All of the big lenders credit score potential borrowers. If you understand what influences your credit score (and it varies from person to person and is rarely logical, so it’s easier said than done) you can work out whether or not you’re better off applying to a lender that credit scores rather than one that uses a human underwriter.
SAVVY TIP: Credit scoring is a bit of a mystery but, as a start, the fewer changes you have (to your bank account provider, job, address etc), the better.
5. Check your bank statements. Lenders are likely to want to see three to six months of bank statements. You mustn’t have any bounced cheques or returned direct debits and if you’re overdrawn you will have to explain why this is.
6. Get a credit history. Ray Boulger describes the way lenders use credit history as ‘guilty until proven innocent’: “Banks and building societies will assume you can’t manage credit properly until they see evidence that you can.”
SAVVY TIP: Apply for one credit card and pay it off (preferably in full) every month. Mortgage lenders want to see that you can borrow money and pay it back on time. Experts say that having two credit cards can boost your credit score by more than having just one.
Tips from Craig Taggart mortgage broker with independent financial advisers Baigrie Davies:
7. Make sure you’re on the electoral register. Just because you pay council tax doesn’t mean you’ll be added on it automatically and many people who rent don’t get round to registering. Lenders verify who you are by checking the electoral register which is why it’s so important.
8. Close credit card accounts that you don’t use. These days banks and building societies look at the overall amount you could potentially borrow when working out whether or not to lend. If you’ve done a couple of balance transfers or have applied for several cards (especially if you have a large credit limit), close accounts of cards you don’t use. It’s not enough just to cut them up, you need to contact the credit card provider as well.
9. Don’t think defaults for small amounts aren’t important. If you’ve got a ‘default’ on a credit account, where you’ve failed to keep to the terms of the deal (which often happens after you’ve missed three payments) it doesn’t matter how small or large the sum involved is, lenders will be concerned.
SAVVY TIP: What can make a difference is how recent the default is. A default stays on your credit file for six years and one that was registered in the last year will cause far more of a problem than one registered five years ago.
Tip from all three brokers:
10. Use a mortgage broker. Well, you’d expect them to say that but I think a good mortgage broker can be well worth the cost. It’s not just that they can find you a competitive rate but they will know how lenders assess applications and which lenders are targeting which section of the market (first time buyers, remortgages etc). Some mortgage lenders only offer their best deals direct to customers (i.e. not via brokers) and under the rules brokers don’t have to tell you about these. Having said that, a good broker should look at all the available deals. Ask before you sign up with one.
SAVVY TIP: A good mortgage broker can also help you limit the impact of credit history problems. The best option may be to highlight a missed payment rather than hoping the lender won’t notice it, especially if you have a good reason (such as your salary was paid late). I’ve written an article called how to find a good mortgage broker, which explains what to look for.
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