Getting a mortgage can be tough. There’s no shortage of people wanting to get on the property ladder – but the lending criteria are so tight that many first-time buyers are struggling to do so.
The Bank of England base rate is stuck at 0.5% and is likely to remain there for some time yet, but mortgage rates continue to rise. Some of the main lenders have announced rate increases for May, with average rates set to go above 4.7%.
We’re not happy about this, so we’ve put together this simple guide to upping your mortgage chances and getting on the property ladder. Have no illusions – getting a mortgage is still extremely tough, but here are the steps you can take to help increase your chances.
- What has happened since the recession began?
- Being turned down for a mortgage makes it worse
- Tips for mortgage success
There are certainly some gloomy lending stats around at the moment.
Banks and building societies have really tightened up their lending criteria. In order to cut down their lending risks, they’re turning down many requests from borrowers that would have been accepted just 12 months ago.
According to recent research from chartered surveyor Esurv.com, mortgage approvals have fallen 7% since March 2011. Loans to those with small deposits dropped by 25% between February and March. Eek!
Worryingly, being turned down for a mortgage could actually make it even harder to get your application accepted elsewhere.
Every time you apply for a mortgage and are turned down, this failed application is logged on your credit record and could count against you.
The lender you go to next will be able to see the other application, and it could damage your reputation as a ‘safe’ person to lend to.
If you have many failed applications to your name, mortgage providers will be very wary of lending you anything at all.
However, don’t despair. If you’re looking for your first mortgage – or you want to re-mortgage onto a better deal – there are things you can do to up your chances of being accepted first time around.
Here are our top tips on how to maximise your chances of getting a mortgage:
- Use an online mortgage comparison service
This will help you to get an idea of the deals that are out there – before you commit to an application. The Moneymagpie mortgage advice service is provided by independent mortgage specialists London & Country. They cover the whole of the mortgage market and give you advice for free, so try them out – you have nothing to lose!
- Do your homework
Calculate exactly how much you need to borrow to get a home that suits you – but be realistic! You have to be prepared to compromise in order to get a home you can afford.
Prepare an accurate breakdown of your current income and expenditure and make sure your income is enough to comfortably be able to take on the new debt.
- Make sure your deposit is as large as possible
In the current climate, deposit is key. The smaller the amount you have to put down the more you will pay for your mortgage. If you don’t have at least 5% you won’t be able to get a mortgage as there simply aren’t any 100% products on the market now.
To get the best deals you should have a deposit of at least 25%, although if you can scrape together 30-35% the interest rates you can expect to pay drop significantly. But, realistically, the bigger deposit you can afford to put down, the lower the mortgage rate you can expect to pay.
Nationwide currently offer a 5% deposit mortgage to first-time buyers with their Save to Buy scheme. All you have to do is save a minimum of £50 a month for six months to be eligible.
Read our best savings accounts article for more advice on deposit building.
- Check your credit record to find out exactly where you stand
You can do this for free using a credit checking agency like Equifax or Experian. If your credit report lists any transactions or loans you don’t recognise, contact the agency immediately and get it cleared up – at worst, it could mean you’ve been a victim of identity fraud.
- Then make your credit record look as good as possible
You can do this in a number of ways, including closing down unused credit cards and registering to vote. Read our article on cleaning up your credit record for more on this. If you’ve been really frugal and haven’t had to borrow any money before you’ll be penalised for not having a credit record at all!
- Make sure you declare all your outstanding credit commitments
That includes credit cards, store cards, interest-free credit, personal loans, bank overdrafts and so on. Mortgage lenders don’t just take into account your salary – they also look at your outstanding debts and financial commitments.
So try and clear any substantial credit card debt, for example, before applying for a mortgage. If you do have debt to clear, check out our article seven quick ways to pay off debt.
- Always keep copies of any applications you do make
Double check that it’s accurate and covers everything. If you’ve forgotten to include something, contact the lender and explain the situation straight away.
- Consider family...
If you think you’ll be unable to secure a mortage on your own income, you could consider letting your family help.
Your parents may be able to help you put down a deposit – or even act as guarantors for your mortgage. The bank would then take into account your parents’ income when deciding how much they are willing to lend.
However, be aware that this is a big commitment for your parents to take on, especially as they would be liable for paying the mortgage if you defaulted on payments.
- …or friends
You could consider buying with friends. Your combined income streams would make you a much more attractive proposition for banks.
Beware, though – this is a long-term commitment potentially fraught with difficulties (how close are you as friends? What if one of them decides they want to move in with a partner? Or one of them loses their job?).
If you’re considering this option, think very carefully and make sure you get a legal contract drawn up so everyone is clear about both their rights and responsibilities.
- Use a broker
Finally – once you’ve done your own research – consider using a broker to help with the actual application process.
These experts know the market inside out, and should be able to advise on which applications are likely to be successful. This should help avoid the string of failed applications that could damage your credit record further.
If you have any tips on getting a mortgage, fill us in on our Facebook page – we love to hear from you!