A key factor behind the credit crunch was the easy availability of mortgages, it was one of the first things to give once the global banking system started to implode. Lenders tightened up criteria, cracking down on loan-to-values, making it difficult for all but the most angelic homebuyers and remortgagors to get a loan.
Lenders have warned that they should be expected to offer fewer mortgages this year than before the financial crisis, inspite of the fact that things are improving. So we’ve compiled a list of tips you can turn yourself into a more appealing borrower…
- Improve your credit rating
“The first key thing to do will be making sure your credit file is as good as possible,” according to Ray Boulger of mortgage broker John Charcol. It is too late if you’ve already found somewhere to buy, but vital if you are only just starting to think about your property hunt, as all lenders will check if you are a good credit risk before they agree to lend you any amount of cash. “It has become much more important since the credit crunch – lenders have tightened up their credit scoring,” Boulger says.
Making sure you are on the electoral roll and staying loyal to your current account provider can improve your record. Boulger says the longer you have been at your current address, job and bank the better. If you have never previously had any credit you may also want to take some on to prove you can be trusted.
Director of Asset-Cap London, Mark Horne says: “It is a myth to believe that ‘I’ve never owed anyone anything’ is a good thing, as it shows a lack of experience in managing debt and fulfilling the terms of a credit commitment.” He suggests applying for some 0% credit cards, spending £50 on each of them before paying them off by direct debit.
- Pay off unsecured debts and close any unused accounts.
Mortgage lenders will look at the total amount of credit available to you – as well as the amount you owe when deciding whether or not to take you on as a customer.
So clear as much of your debt as possible and close down any accounts you no longer use. Otherwise, lenders may be concerned about your ability to keep up with your mortgage repayments.
- Save lots
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,”.
- Get your parents to help with your application.
Asking your parents to guarantee your mortgage can be another option. However, in most cases lenders will only let them act as guarantor if they can prove they have enough money to repay your whole loan, which could be struggle, Bougler says. Only Skipton and Scottish Widows bank will let them guarantee the shortfall between what you want to borrow and how much your income covers. Boulger says a better bet is to ask a parent to apply for the mortgage with you. “You can buy as tenants in common with the child owning 99% and the parent 1%, so capital gains tax is not a problem,” he says. “The lender will take into account both the child’s income and the parent’s.”
- Talk to your bank
You may find out that your bank could be much more amenable to giving you a mortgage than a lender that has never met you before. James Thorpe, a spokesman for HSBC says “If we are your current account provider it is much easier for us to see how much money you have coming in and going out of your account each month,”. With a good picture of your spending habits, the lender may be more willing to take a risk on you than it would if you had just turned up with three bank statements to prove your credentials. Nationwide, for example, is currently offering a 90% mortgage to customers who have one of its FlexAccounys.
- Avoid unusual properties
Mortgage lenders like knowing that they can get their money back should you default on your repayments, for example. Consequently, they are often less willing to lend against properties that are deemed to be unusual and may therefore prove harder to sell on.
Properties in this category – and therefore best avoided – include flats above commercial premises such as cafes and bars, old or unusual buildings and homes built using non-standard construction materials such as concrete or steel.
7.Be prepared with all documents
Make sure you have an up-to-date passport and that the address on your driving licence is correct because, unless you can prove who you are, no mortgage lender will take you on as a customer.
Other documents you will need to provide include a recent letter – from say a bank or utility company – that proves your address.
Employed workers will also have to obtain their bank statements and payslips for the last three months and their P60s for the last two years, while those who receive a bonus must provide evidence of this too.
- Keep your house in order
Your property’s value will be assessed when going through the application process. If you need to borrow at a high LTV, a valuer will likely come round to inspect the property physically.
It’s the same as if you were trying to sell your house – it needs to look its best to command the highest price. So make sure the outside of your property is well maintained and that the interior is also. For the purposes of a basic mortgage valuation, they are looking at saleability of the property. The higher the value of the property, the more likely you are to secure a lower mortgage rate.
- Shop around or use a broker.
The next step is to make sure that you get the best possible deal for your circumstances, once you have decided the type of mortgage you want. After all, you could save thousands, if not tens of thousands, of pounds over a 25-year term if you find the cheaapest deal.
Our mortgage channel at MoneySuperMarket gives you immediate access to details of all the top deals for everyone from cash-strapped first-time buyers to movers with deposits of £100,000 or more.
However, it also makes sense to check with a broker as they can offer some deals that are not available direct.