The hopes and dreams of millions of us homeowners and first-time buyers received a boost recently with some snippets of good news.
There was the announcement of a stamp duty amnesty on properties worth £175,000 or less, a new shared equity scheme for families earning less than £60,000 and earlier financial support for people struggling with their mortgage repayments.
But (and there is always a but isn’t there?) the mortgage famine shows no sign of ending and mortgage lenders remain extremely cautious, whether they’re assessing remortgages at the end of fixed rate deals or new applications.
The good news is that it’s possible to improve your chances of getting the mortgage you want. These steps should help:
1. Work out what you can afford
Affordability should be your priority right now. Set out a detailed budget including fees, moving costs, stamp duty, council tax, mortgage repayments and major running costs such as utility bills.
We’re currently suffering from quite high inflation, so you need to factor that in. Don’t be tempted to break your top limit, even if you think the property is a bargain, or you could join the 18,900 people who had their homes repossessed in the first half of 2008, according to the Council of Mortgage Lenders.
2. Do your research
There’s a wealth of information on personal finance websites and newspaper supplements, as well as specialist magazines. Check them out so you know exactly what kind of mortgage deals are available and also try price comparison sites that will match your circumstances to lenders offerings.
You should use an unbiased adviser who can put you in contact with a wide selection of mortgage lenders, to help you find the best mortgage to suit your circumstances.
You’ll find consumer advice from the Council of Mortgage Lenders at www.cml.org.uk
3. Take a credit health-check
Look at your credit report; it’s what a lender is likely to do when you apply for a mortgage. Your credit report lists loans, credit cards, previous mortgages and other credit accounts, your payment history and details that help lenders to decide if you can comfortably afford to repay what you owe.
If you’re buying with someone else, get them to check their credit report too; if either one of you has had past debt problems, from missed repayments to a bankruptcy, it will count against you both.
See your free Experian credit report now
4. Understand how lenders make their decisions
Most mortgage lenders take the information on your application form and in your credit report and allocate each item a value. The total value is called a credit score. It is designed to assess the chances that you will repay what you owe, on time and in full. The higher your score, the easier you may find it to borrow the money you need.
5. Clear up any misunderstandings
Check carefully through your credit report. Look for errors or misunderstandings that could lower your credit score; for example, accounts that you have paid off that aren’t marked as closed. If you find anything, contact the relevant lender with proof and ask them to update it.
6. Improve your credit history
Are you registered to vote at your current address? If not, you could be damaging your chances, because lenders use the electoral roll to help validate that you live at the address you have provided.
Do you have any unused accounts? Close them now; lenders may look at how much you might borrow on your existing accounts. Some prefer to see a limited number of well-run accounts, so you might consider taking out a single, more cost-effective loan to setting up a series of smaller deals.
7. Be realistic
There’s no point targeting a mortgage designed for someone with 50% equity when you can barely scrape together 10%, or applying for a deal that demands a 20% deposit when you simply don’t have the cash. Every lender targets a specific group of people with each mortgage, so make sure you fit the profile before you apply.
8. Don’t send off lots of applications
It is not a good idea to fire off a series of mortgage applications in the hope that you’ll get a positive answer to one of them. Every time you submit an application, the mortgage lender is likely to search your credit report and and record of the search will be left. If other lenders see a significant number of searches they may think you’re desperate for credit or even that a fraud is being planned.
9. Don’t despair!
If you’re remortgaging, get used to the fact that you’ll have to pay more than you did before. If you are a first time buyer or you think the time’s right to return to the market after a break and you still can’t get what you want, then you have a number of options.
For example, you could wait while you save up a larger deposit, work on improving your credit history or gamble that prices will continue to fall (which seems very likely for the next year or so).
10. Keep on monitoring your credit status
Regular checks on your credit report are like part of a financial MOT; they let you see what you owe, how well you’re coping and if there are any areas that need attention.
If you like what you see, the chances are that lenders will too. You can see your Experian credit report for free with a free trial of CreditExpert, the UK’s leading credit monitoring and identity fraud protection service.
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