A key factor behind the credit crunch, were mortgages that were easily available and once the global banking system started to implode, it was one of the first things to give. Lenders cracked down on loan-to-values and tightened up criteria, making it hard for all but the most angelic homebuyers and remortgagors to get a loan.
Lenders have warned that they expect to offer fewer mortgages this year than before the financial crisis, although things are improving. So how do you increase your chances of being one of the approved few?
1. Your credit score matters
Get a copy of your credit report which is held by credit reference agencies, before applying for a mortgage. This will allow you to see what lenders see when they review your application. Try to improve your credit rating If it isn’t looking that great. Ensuring you are on the electoral roll and closing down credit card accounts which you no longer use are some of the simple things you can do which can give your score a boost.
2. Pay off loans
Don’t miss any credit card payments or loan repayments.” said Andrew Montlake. These stay on your credit record for six years and can make a big difference to how your mortgage application is received. Lenders who have turned a blind eye to the odd blip before the credit crunch may now turn you down.
And if you have kept up with loans but still have outstanding debts, see if you can clear them before you apply for a mortgage. Lenders will take into account any regular monthly commitments and reduce the amount they are willing to lend accordingly when assesssing how much you can afford to borrow. But if you can’t clear your debts, don’t overpay each month. Horne says: “Perversely, if you have a personal loan and have, quite sensibly, elected to pay it off quickly by opting for the maximum payment each month then your ‘net disposable income’ would be less than someone who has opted to pay it off over a longer term.
3. Get your paperwork in order
Digg out all the necessary paper work sooner than later by speeding up the application process. This will improve your chances of getting the mortgage you want before it is withdrawn. Montlake says: “The typical things a lender will want are your last three months’ payslips, your last P60, your last three months’ bank statements, if you have a mortgage already your last mortgage statement, and proof of your address.” When it comes to bank statements, check whether a print out from your online account is enough, or if the lender will insist on a copy from your bank.
4. You can make it easier by buying with someone else.
If cant store up a decent deposit on your own, you might want to think about buying with someone else. This could boost your chances of securing a decent mortgage, particularly if they’ve got an excellent credit history and a higher income than you. But remember that this is a big commitment, so you’ll need to sit down and work out with the other person what would happen if one of you wanted to move in future.
5. Save lots
The best savings rates are oversubscribed very quickly
The mortgage market does appear to be thawing, but the days of 100% mortgages show no sign of returning, and you will need to save at least 10% of the purchase price of a property before any lender will even consider you. For better deals, you will need more – 25% will open up some good rates, which is an improvement on the situation last year but still means trying to pull together many thousands of pounds.
Having a big deposit may not just help you get a better rate, it could also smooth out other potential problems with your application. “If you are only putting down 10%-15% lenders are a lot more prudent than when there is a 30%-40% deposit,” Montlake says.
6. Use someone else’s savings
You can always call on your parents or other relatives to help If you can’t raise a big enough deposit on your own. Lenders are generally happy with “pay us back later” loans family members may be able to offer buh are not realy keen on loaned deposits which you have to repay monthly. Generous parents who can gift cash outright are even more welcome.
Even if your folks are not in a position to hand over money, they may be able to help in other ways. Skipton building society has a similar deal for its members.
7. Purchase the right property
Its likely your lender gets more conservative if you want a quirk property. Some rule out flats above certain types of business or homes with flying freeholds or made out of unusual materials.
Besides, lenders have also become incredibly wary of new-build flats, in the past couple of years particularly those in city centres. And they have different definitions of new build: “Some say properties occupied in the last three years, some say any properties occupied in the last year,” Boulger says. Most will lend on these flats but reduce the maximum mortgage they are prepared to give you.
8. You’ll need proof of income
Mortgage lenders will want to see proof of how much you earn, so you’ll probably need a P60 form which you get every year from your employer and show a summary of your pay and how much tax you’re being charged. It’s likely you’ll be asked for six months’ worth of bank statements so the lender can take a look at both how much you have coming in as well as your outgoings.
9. Dont mess around with your mortgage application
Once you’ve commenced your mortgage application, don’t mess around with it and start changing figures as this could hold up your property purchase. David Hollingworth said; “Changing the figures further down the line will mean the offer being reassessed which, although may not necessarily be a problem, could add unnecessary delay.”