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Tag: new home

Maximising your chances of being approved for a mortgage

Maximising your chances of being approved for a mortgage

If you are buying your first home or moving to a bigger one, then there’s a very good chance that you’re going to need a mortgage to help you to do so.  The bad news is that being approved for a mortgage is very far from a formality.  The good news is that it is possible, as evidenced by the many people who successfully do so each year.  With that in mind, here are some tips on maximising your chances of mortgage approval.

Build a deposit

There are two good reasons why mortgage lenders prefer borrowers with larger deposits.  The first reason is the straightforward fact that larger deposit lowers the lender’s exposure to fluctuations in the property market.  In principle, the borrower is responsible for the mortgage, but, in practice, if the worst comes to the worst and the borrower goes bankrupt, it will be the lender who is left on the hook.  The second reason is that the ability to raise a large deposit shows that the borrower can save (or has access to financial support from other sources).

Make sure your credit record looks as good as it possibly can

In addition to checking for any clear errors (and getting them corrected), see if you can go a step further (or several steps further) and actively improve it.  Sometimes even simple changes can make a difference (possibly only a small difference, but every improvement is a gain).  For example, if you’re not on the electoral roll, then get your name added (and if you are on, make sure you’re listed at the address you’ll be giving to your mortgage lender) and if possible, add a landline phone number.  On a larger scale (and with potentially more impact), make the time to pay off any small-scale debts you are carrying, such as credit cards you hardly use, and then actually close them (rather than leaving them in limbo).  In fact, if you still have any credit cards with zero balances, then ask yourself if you really have a compelling reason for keeping them open and if the honest answer is “no” then close them.  If you need any more encouragement to take this step, then remember that every financial product you own is a potential point of compromise and so minimising the number of companies which have access to your financial details should also reduce the likelihood of you becoming a victim of fraud and/or identity theft.

NB: remember that the UK has three main credit-reporting services Experian, Equifax and CallCredit and you will need to check your record with each of them to get a full picture of how your financial history will look to a lender.

Keep your finances on a steady track

Remember that your credit record is only the first check a lender will make.  If you pass this hurdle, they will want to take a more detailed look at your spending by means of your bank statements.  With this in mind, you want your statements to give the impression of a person who lives their life in a way which is unlikely to give a potential lender a moment’s cause for concern.  So, for example, unless you are really desperate to leave a job you hate, wait until your mortgage is 100% secured before doing so and if your plan is to start your own business, then hold off making any purchases which make this obvious to the lender.  In other words, while you have to answer any questions truthfully, you only have to answer what they actually ask.  Always remember, however, that the onus will be on you to keep up with your mortgage payments and that the consequence for not doing so can be losing your home, so resist any temptation to over-stretch yourself from the start.

Your property may be repossessed if you do not keep up repayments on your mortgage.

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A beginners guide to mortgages

A beginners guide to mortgages

For many people buying a house means getting a mortgage of some description.  At a basic level, a mortgage is just a loan secured against a property, however, once you dive a little deeper there is a level of detail which it can be helpful to understand.  With this in mind, here is a beginner’s guide to mortgages.

Residential mortgages and buy-to-let mortgages are very different

Although the basic principle behind them is the same, they work to very different sets of regulations.  This means that if you buy a house with the intention of living it and then decide you wish to let it out in its entirety, you may well have to change your mortgage unless you are letting it out to a close family member, in which case your mortgage lender may permit it.  Taking in lodgers is more of a grey area and will come down to a lender’s individual policy.

Residential mortgages typically require the property to be occupied

The basic idea behind residential mortgages is that you are buying a property in which to live, rather than one to let out or one to leave empty, both of which carry additional risks.  Obviously, lenders are aware that homeowners are going to leave their property empty some of the time, e.g. to go on holiday, but there will typically be limits to this, again, check your lender’s policy.

Residential mortgage lenders have to abide by the rules of the Mortgage Market Review

In very simple terms, mortgage lenders used to be able to work on rules of thumb based on multiples of income.  These days, however, (post the Mortgage Market Review), multiples of income may still be a handy guideline as to what level of mortgage you could be offered, but always keep in mind that post the MMR, lenders are obliged to look past headline income figures and look into the details of where your money is going now and where it is likely to end up going in the future.  There are two points to take away from this.  One is that you may find yourself being offered less of a mortgage than you expected and the other is that you may have to accept your (financial) life being scrutinized in detail.  Remember, this is nothing about you personally, it’s just the way the rules work these days.

Interest-only mortgages have basically disappeared from the residential market

While making predictions is always dangerous, it’s hard to see how interest-only mortgages could make a comeback to the residential market any time soon.

Offset mortgages are still fairly niche but available

The basic idea behind offset mortgages is that you hold your cash savings with your mortgage lender and these are used to offset the balance on your mortgage.  This means that although you lose out on interest income, you also pay less in interest expense, which should work out as a net financial win for you, especially for higher earners, who will need to pay tax on their interest income.

Fixed-rate mortgages offer security, but usually at a price

The key point to understand about fixed-rate mortgages is that they are priced so that the lender still has a decent chance of making a profit.  They are also time-limited, so the lender has a floor to their potential loss (or even just their loss of profit).  This means that they can actually work out more expensive than variable-rate mortgages (depending on circumstances and whether the fix is absolute or allows you to benefit from reductions in interest rates while capping the extent to which your repayments can be increased in response to them).  The benefit of fixed-rate mortgages is that they offer stability and security.  It is up to each individual to decide if this benefit is worth the price.

 

Your property may be repossessed if you do not keep up repayments on your mortgage.

The FCA does not regulate some forms of buy to let mortgages.

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