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Improve your chances of getting a mortgage

Improve your chances of getting a mortgage

Category: Mortgages

Updated: 03/10/2017
First Published: 03/10/2017

Finding that dream home may seem like the biggest obstacle, but it's just as important to make sure you can get a mortgage that is right for you.

With the Mortgage Market Review rules in full force and affordability at the top of the agenda, you're likely to encounter strict criteria when applying for a mortgage. This is a good thing, though, as it ensures that you can afford to keep up the repayments. If you've done your sums correctly, you should still be able to get accepted for a mortgage. If you're concerned about this, whether you're a first-time buyer or simply looking to remortgage, there are a few things you can do to increase your chances of acceptance.

To help you along, we've compiled a list of the ways in which you can turn yourself into a more appealing borrower:

Make sure you're on the electoral roll

For any type of loan application, you should make sure you're registered at your current address, something that is particularly important to check if you've moved around a lot. Quite simply, if you're not on the electoral roll, you won't be offered any credit, and if you get declined for something so simple, it could still leave a serious stain on your credit report.

Repay other debts

To make sure your credit score is good enough to get your (re)mortgage application accepted, it's best to get into the habit of repaying credit cards, store cards, catalogue accounts and overdrafts. This has the added bonus of helping you save money, which could be better spent on overpaying your mortgage, for instance.

Lenders take into account the amount of outstanding debt you have, and the monthly payments you make, when assessing whether you can afford the mortgage. Worryingly, some lenders may even assess affordability using the potential amount of debt you could have, assuming that you have maximum balances on all your cards and overdrafts, instead of the balances you do have.

So, if you don't use a certain credit card or overdraft, why not close it? Also, try to put all expensive debts onto the cheapest card you have (applying for a new 0% balance transfer credit card will impact your credit score, so leave doing this until the new mortgage has completed) and close the rest, instead of repaying several and having lots of temptations to spend.

Check your credit report

It's important to check your credit report before applying for a mortgage, as there may be items that have been repaid but appear outstanding, or even fraudulent applications made in your name. Getting this all dealt with prior to applying for a mortgage, before any money is lost, is a simple thing you can do to improve your chances of getting a mortgage.

Save, save, save

For first-time buyers especially, the biggest hurdle may be saving enough to get a decent deposit together. The bigger your deposit, the smaller the total cost of your mortgage will be, and although there are a lot of high loan-to-value (LTV) mortgages available for those with a small deposit, you could potentially get a much better interest rate if you scrape together a bit more cash.

The latest Government scheme designed to help save up for a deposit for a first home (or retirement) is the Lifetime ISA, which comes with a Government bonus of 25% if certain conditions are met and up to a certain amount. Only people under 40 will be able to open this type of ISA.

Consider Help to Buy

Then there's Help to Buy. The Help to Buy ISA scheme works in a similar way to the Lifetime ISA, in that it's specifically designed to help you save for your first home with the help of a 25% Government bonus.

The Government also offers the Help to Buy equity loan scheme. This allows first-time buyers to put down a 5% deposit and get a 20% Government equity loan to help fund the rest, meaning they will be able to apply for a 75% LTV mortgage (for a new build up to a certain value). Compared with a 95% LTV mortgage, 75% LTV deals will often offer better rates, if you manage to make a successful mortgage application, so this scheme could help dramatically reduce your repayments.

Can your parents help?

The explosion of property prices in recent years has had a severe impact on how big mortgages are in relation to wages, and securing a mortgage could be even harder as a result.

Aside from saving all you can on your own, or using a Help to Buy scheme or Lifetime ISA to add to your deposit, enlisting the help of financially-supportive parents can really make the difference. Increasingly, it's not just first-time buyers who are turning to family members for help, but also those seeking to take the next step on the ladder.

There are several ways in which your family can help you become a first-time buyer or second-stepper:

  • They could help by giving or lending you part of the deposit. Borrowing money from family can sometimes cause trouble though, so be sure to agree repayments that all parties are happy with. Borrowing from family will usually work out cheaper than borrowing elsewhere, and of course, it doesn't appear on your credit report.

  • They could act as a guarantor on your mortgage. This means that they guarantee that the mortgage payments will be made, so they become fully liable as well (although in some instances this liability may be limited to a certain percentage of the mortgage amount). Guarantors normally have to be able to cover their own bills as well as your mortgage payments.

  • A number of providers offer schemes for families to help get first-time buyers on the property ladder - do your research or ask your lender what the options are - while the Government's Help to Buy loan scheme, mentioned above, is a national initiative that could prove beneficial, too.

  • Your parents could borrow to help fund your deposit. The least preferable option, but an option nonetheless, is for them to take out an unsecured loan. However, this should be thought through very carefully as your parents will be out of pocket, and you may not be able to pay them back in the near term, or at all. You could set up an arrangement whereby you pay this loan as well, but remember that you'll have your mortgage and bills to cover, so you need to consider if this is really affordable for all parties.

With any sort of arrangement where somebody takes a financial interest in your mortgage, we would strongly recommend seeking financial and legal advice.

If you already have a mortgage, overpay

If you've got some money collecting little more than dust in a savings account, consider making an overpayment on your current mortgage instead.

If you have a particularly high LTV - the amount of mortgage in relation to the value of your home - the mortgage rate is likely to be higher, and it could also make remortgaging more difficult. So, by overpaying, you're reducing the amount of mortgage you have and lowering the level of risk that a lender has to take on, and both of these could work in your favour when a lender is assessing the application.

As an added bonus, by overpaying and reducing the LTV you'll be able to repay the mortgage quicker and will have access to cheaper deals, thereby helping you repay your mortgage more efficiently and cost-effectively. Just make sure to check the terms of your mortgage - some deals, particularly fixed rates, only allow you to overpay by a certain amount each year (typically 10%). However, even this could go a long way to reducing your mortgage debt.

Keep your house in order

As part of the remortgage application process, your property's value will be assessed. If you need to borrow at a high LTV this will almost definitely mean a valuer physically coming around to inspect the property.

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 that both the outside and the inside of your property are well maintained. 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.

Get a mortgage before changing jobs

When making a (re)mortgage application, the length of time you have been with your current employer can help determine if you're eligible. As a rule of thumb, at least 12 months with the same employer is sufficient, but this will vary depending on an individual lender's conditions.

A good idea, then, is to stall any thoughts of that job move until after your new mortgage has been sorted. Incidentally, if you're thinking of becoming self-employed in the near future, consider a mortgage that won't need changing in the near term, as it will be difficult to remortgage during the first few years you are in business.

Are you overlooking something?

As well as searching the market for the best remortgage deals, don't forget to check what your current lender could offer. There will often be exclusive deals for you to remortgage to, sometimes with lower fees. The chances of acceptance also tend to be higher - after all, you already have a mortgage with them!

Similarly, if you're looking for your first mortgage, don't forget to check if there may be preferential terms available through any of the financial products you already have, such as a current account with one of the big banks. You might be pleasantly surprised.

Have realistic expectations

You need to be confident that you can effectively repay your mortgage each month, so make sure to have realistic expectations about how much you can afford to pay. This is key - if it isn't affordable in the long term you could find yourself in trouble, so make sure you only apply for a mortgage you can afford. Luckily, strict affordability checks are a key part of any application and your lender won't offer you an amount they don't think you'd be able to repay.

Get advice

It can be a good idea to talk to a lender or professional financial adviser before you start your search for properties, as you will want to know how much you'd be able to borrow. After all, there's no point finding your dream home only to realise you won't be able to buy it, so make sure you know exactly what you'll be eligible for and how much any repayments would be (ideally putting a budget in place thereafter).

Enlist the services of a good mortgage broker

As opposed to going directly to a lender, making use of a good whole of market mortgage broker can improve your chances of getting a mortgage.

A broker will search the market and will have knowledge of lending conditions particular to each lender, which, as well as your personal financial situation, they will take into account before making any recommendations to you.

Beware though: check how much you have to pay for this advice, as fees can vary widely. Make sure you're comfortable with how much the broker's fee is before proceeding.

What Next?

Compare the best mortgages deals

Find the best savings rates for your deposit

Check your credit report

Speak to a mortgage adviser for the best deal today

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

 
 
 

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