Buying a house is one of the most stressful things you can do. Apart from getting the cash for a deposit together and doing the sums, one way you can soothe the worry is by landing your first mortgage application, without multiple goes.
‘Securing a mortgage is another step in the home-buying experience,’ says Dilpreet Bhagrath, mortgage advisor at digital mortgage advisors Trussle. ‘But, getting it done can initially seem like a daunting task.’ Just trying to go with the bank you already use for your current and savings accounts may feel like the most straightforward thing to do, but can mean you’re not going to apply for the best mortgage for your circumstances. ‘Doing it this way could severely limit your options,’ says Bhagrath.
By wising up to your exact financial situation – and its long-term forecast – you can make sure that the mortgage you try and sign up for works with your life, and fingers crossed, will get approved.
Follow the guidance below and you should be in a good place to sort this one out, quickly.
1. Show lenders you’re responsible
Practice and perfect, and all that. It’s crucial to show that you have borrowed funds in the past and that you’ve diligently kept up with your repayments. ‘Opening up a credit card, that you pay off in full every month (create a direct debit from your current account so that forgetting isn’t an issue) shows to lenders that you’re a safe bet,’ says Marc Davies, mortgage advisor at John Davies Investment and Mortgage Services. ‘But remember that multiple failed credit card applications are a red flag. Use an online credit card comparison tool to find credit cards you’re eligible for to avoid rejections.’
2. Check your credit rating – carefully
‘Establishing any reasons why your application could be refused, and thinking about quick fixes to boost your score, could be the difference between securing a mortgage and being turned down,’ says Bhagrath. ‘Simple oversights such as not being registered on the electoral roll, or failing to close credit card accounts that you no longer use, can have a negative impact on your credit rating.’ Create a spreadsheet of these variables – every card you’ve ever taken out, if you have registered to vote at your current address – and set aside some time to go through them, one by one.
3. Show stability
‘Lenders like stability,’ says Mark Moloney from credit eligibility specialists TotallyMoney. ‘In the period before you apply for a mortgage, try to avoid moving too often – commit to a rented property for at least a year – avoid switching banks and get a landline, as it shows you’re rooted at one address. And don’t forget to get yourself on the electoral register, because mortgage companies use it to check your home address.’
4. Pay your bills on time
Unless you have all your financial commitments set up to leave your bank account by standing order or direct debit every month, you risk accidentally missing a bill or credit card payment, all of which gets reported back to credit rating agencies. Make sure all your payments are set up to leave your bank account automatically a couple of days after pay-day, to avoid any oversights that could cost you.
5. Close down any accounts with people who have issues with their credit rating
Sad but true: if you hold joint credit cards, loans or bank accounts with someone who has a dodgy credit rating, it could affect yours, too. ‘Cancel any joint financial commitments and contact the lender to request you are ‘financially disassociated’ with the person in question,’ says Moloney. You don’t have to actually dump them, of course. ‘This will make sure your future efforts to get credit aren’t rejected, and you can maintain a good credit rating while your partner works on improving theirs.’
6. Boost your borrowing power
There are products designed especially for first-time buyers that allow family members to help you out. A Post Office Family Link™ mortgage, provided by Bank of Ireland UK, means that a close family member, such as a parent or step-parent, can help you out if you’re struggling to get a deposit together. They can do this by letting you borrow the money you need against their home, as long as that property is mortgage-free.
It works like this: if you are searching for a house or flat with a value of £200,000 and need a 10% deposit, which you don’t currently have, a mortgage of £20,000 is taken out against your close family member’s place. (This makes them your assistor and they are advised to seek legal advice). This money becomes your deposit. You are then able to borrow the remaining £180,000 to cover the rest of the cost of your new home. The deposit is interest-free, and paid back over five years, while the mortgage repayments, subject to interest, are made over a term that suits you (up to 35 years).
Alternatively, if you’ve got the cash for a deposit saved, but are limited on how much you can borrow due to your salary, then a Post Office First Start mortgage, provided by Bank of Ireland UK, could work for you. It allows a close family member to act as your sponsor – making them jointly liable for repayments – by bringing their salary into the equation when you apply. It works like this. Say the property you want costs £300,000, and you have £15,000 saved, meaning that you need to borrow £285,000. If your salary is £25,000, then this may be tough. But, if you have a sponsor with a salary of £50,000, you could then borrow the amount that you need, as they are effectively guaranteeing that the repayments will be met. They are strongly advised to seek legal and financial help, before going ahead.
