Improve Your Mortgage Chances

If you are property owner or a first time buyer, here are some things that give you a better chance of obtaining the mortgage you want.

Start with your credit history

Whatever type of mortgage you want, you should start by checking your credit report.

A credit report is the history of what you've borrowed, such as loans, mortgages and credit cards, plus your repayment record and other information that lenders take into consideration when they decide whether you are a good risk.

Items in your credit report, along with details from your application, are used to calculate a credit score, which will determine whether you receive an offer and how much interest you will pay. Thus it makes sense to ensure that everything is up-to-date and accurately reflects your circumstances.

Check your credit report now to see what lenders see. It's your first step towards taking greater control of your finances.

Check your credit report for free online.

First-time buyers

It seems that 125% and 100% mortgages are a thing of the past and even 90% -95% deals are now quite rare. So for many of you, the traditional 5% deposit is unlikely to be enough.

Before you speak to an impartial mortgage adviser or submit a mortgage application you should consider the following:

Saving in a high-interest account to build up a deposit and take advantage of any fall in house prices.
Making sure your credit history is accurate and up to date. And if you've had problems repaying credit in the past, then you should work to improve your credit history; pay bills and credit card balances on time, don't take out more credit to fund a glamorous lifestyle and try to pay off any outstanding amounts. You should also register to vote, as this can count in your favour with lenders.
Buying with another person or shared ownership. It's not just housing associations that can help you get your first property, some house builders are offering this service and some may even help you find a suitable mortgage. Check out the Open Market HomeBuy scheme; from 2009 the Government is offering a £1,500 grant to first-time buyers under this scheme but the offer is likely to apply only to key workers.

Remortgages

For 1.4 million of you, this is the year when your fixed rate mortgage expires.

If you fall into this group, improve your chances of getting an affordable replacement deal:

Start looking early. Mortgage lenders (especially those offering attractive rates) are currently snowed under and so applications can take longer than expected to process. Thus you need to start hunting for a replacement mortgage around three months before your current deal expires.
Look for a mortgage adviser who covers the entire market. A good adviser will hear about special offers and know what's been withdrawn long before you can find out for yourself. You also need to factor in any transfer or application fees; these have risen in recent months and so you might be better off staying with your existing lender, even if the interest rate is a little higher than you can get elsewhere.
Pay off as much of the mortgage as you can before you apply. The more equity you have, the better your chances of getting a good deal. The best offers are currently available only to people who own at least 25% of their property outright.
If there is a reason why you've skipped any repayments in the past, contact the credit reference agency that has your credit report (Experian is the UK's largest) and ask to add an explanation. For example, you might have been ill or had an accident; lenders will see this and may take it into account.

Buy-to-let

Others of you that have built up a portfolio of buy-to-let properties in recent years are finding the current conditions very hard. It's not surprising as you have had to cope with rising interest rates, and a surfeit of tenants because of a glut of available properties. And there are some more experienced landlords who see the falling house prices as an opportunity to snap up bargain properties.

If you've assessed the risks and still want to invest in property:

You will almost certainly need a 25% deposit plus arrangement fees, which are typically higher than for owner-occupiers.
Be realistic about potential rental income! Mortgage lenders are now looking for rents that will cover 120-130% of the mortgage to act as a buffer and fund maintenance.
The positive buy-to-let news is that industry experts expect rents to rise in the next few years, because fewer people will be able to buy.
Check the small print carefully; you should look for unexpected fees when assessing a mortgage or contract with a letting agent and for loopholes in tenancy agreements.
Make certain your credit report demonstrates that you are a responsible borrower who has made repayments in full and on time. If you have been through a bad patch in the last few years, missed repayments or been turned down several times, it may be better to wait to until your credit history looks better to understandably cautious mortgage lenders before you dip into the property market.