There are a number of ways however of improving the chances of getting a mortgage.
Know your credit score
Lenders will access a credit report to ensure that you have a good credit rating. Before you make your mortgage application get a copy of your credit rating from credit agencies such as Experian or Equifax (www.experian.com, www.equifax.com). You can get a free copy from www.clearscore.com.
If your credit rating is low there are ways of improving your credit rating:
- register on the electoral roll. If you are not on the electoral roll getting credit will be much harder. You can register to vote online or by post.
- correct any errors on your credit report. Seemingly trivial errors can have an impact on your score. If there are any errors, contact the credit reference agency immediately.
- show that you can manage your finances. Show potential lenders that you pay all your bills on time. Open an internet or mobile phone contract with regular and timely payments to show this.
- close unused credit card accounts. Lenders do not like to see unused credit cards. Close any which you don’t need.
- check joint accounts. If you have a joint account, check their credit score. This could affect your score if they have a poor credit rating. If this is the case, it may be best to separate your finances.
- check for fraudulent activity. Take care that all the activity on your report is your. If someone has fraudulently applied for credit in your name without your knowledge contact the credit reference agency immediately.
- County Court Judgements (CCJs). Avoid these as they will seriously damage your credit score. They make credit hard to find. If you are having problems get debt advice as soon as possible. Use the Money Advice Service, set up by government.
- high levels of existing debt. If you have high existing levels of debt, get these down before you apply for a mortgage. Lenders will be wary of your ability to service new debt.
- multiple addresses. If you have been renting, be careful about moving too often. Lenders may see this as a sign of instability.
- open a credit building card. Interest rates on these cards can be high with low credit. Make sure you pay them off monthly. Your credit rating could decline further if you don’t.
If you’re struggling to improve your score, it might be worth considering signing up to a one month free trial membership offered by the main credit agencies.
Work out what you can afford to pay
Before you apply for a mortgage work out what you can afford to repay every month. The mortgage lender will do this as part of the approval process. Set down all your outgoings including necessities such as existing debt payments as well as discretionary items such as holidays.
Once you have done this check your sums against your actual outgoings for the last 12 months. Make sure you have included everything. Make sure the purchase price you set down has all the fees and costs of moving, particularly stamp duty. Use our Cost Calculator so you don’t leave anything out. Moving costs will add a significant amount to the purchase price of the property. Use our Mortgage Calculator to find out how much your proposed mortgage will cost you. Use our Affordability Checker to see what you can afford.
A stable job helps
Many lenders may set a minimum time in your job, sometimes 6 months, before they lend. They prefer that you are not in a probationary period of you have just moved job. If you have the option, it may be best delaying a job move until you have successfully applied for your mortgage.
Reduce existing debts
Lenders will be put off if you have high levels of existing debt for example on credit cards. They may take the view that this is evidence of being unable to manage your finances in a responsible way. Try to reduce these as much as possible before you apply for your mortgage.
You will need to prove your income and show your outgoings
You will need to prove your income through your latest payslips and possibly your last P60. This is the annual tax certificate of income given to you by your employer. Lenders may also ask for copies of bank statements. They will use these to check the affordability of the mortgage.
If you are self-employed, you will need to show full accounts, for up to three years.. These must give clear evidence of your income and ability to repay a mortgage. If you are thinking of setting up on your own, please be aware that some lenders will not consider you for a mortgage.
Make as large a deposit as you can
The amount of mortgage you want after the deposit is taken into account is called the Loan-to Value (LTV). For example, buying a house worth £300,000 with a deposit of £60,000 is a LTV of 80% (£240,000/£300,000).
The lower this is the better. More mortgage lenders will be prepared to offer you a mortgage. With potentially better rates, this lowers your monthly payments.
Consider buying with a friend
Pooling your deposit monies and entering into shared ownership of a flat may be a way to get on the property ladder. It’s a big step and a massive commitment. Discuss it carefully particularly what happens if one of you wants to move. There are potential tax consequences for example if you want to maintain ownership and buy another property. There could be additional stamp duty to pay of 3% on top of the normal stamp duty level.
Consider using a broker
If you’re struggling to find a mortgage or you have special circumstances, it may help to use a mortgage broker. They will likely have met your situation before.
Maintain a healthy habit of saving and tracking your spending to ensure your chances of securing a mortgage.