Looking for a mortgage? These steps could improve your chances
16/07/2008
In the current financial climate, it’s easy to assume that the affordable mortgage is about to join the tiger and orang utan on the endangered species list. But there’s no need to call in David Attenborough just yet – there are still opportunities out there.
This guide looks at how key groups of property-owners and first-timers could give themselves a better chance of getting the mortgages they need.
All borrowers
You need to know what’s out there before you can decide if a deal is right for you. Check out personal finance websites, magazines and newspaper sections to get the bigger picture, then get a mortgage quote to find out which offers might be available to you. That way, you won’t waste time applying for deals you’re unlikely to get and will have a clear idea of the features you want and the level of interest you might have to pay.
You should also check your credit report before you apply. This is the history of what you’ve borrowed, such as loans, mortgages and credit cards, plus your repayment record and other information that lenders take into consideration when they decide whether you are a good risk.
Items in your credit report, along with details from your application, are used to calculate a credit score, which will determine whether you receive an offer and how much interest you will pay, so it makes sense to ensure that everything is up-to-date and accurately reflects your circumstances. Check your Experian credit report now.
First-time buyers
Most lenders ask for a deposit of at least ten per cent of the price of a property these days, so even if you’ve got some savings, you may need to rethink your tactics.
Before you speak to an independent financial advisor or make a mortgage application you should consider:
• Saving in a high interest account to build up a deposit and take advantage of any fall in house prices.
• Making sure your credit history is accurate and up to date. If you’ve had problems repaying credit in the past, work to improve your credit history. For example, ensure you pay bills and credit card balances on time, don’t take out more credit to fund a glamorous lifestyle and try to pay off any outstanding amounts.
• Buying with another person or shared ownership. A well as housing associations, some house builders are offering this service and some may even help you find a suitable mortgage or waive a percentage of repayments for up to ten years.
• Investigating the Open Market HomeBuy scheme. From next year, the government is offering a £1,500 grant to first-timers under this programme but the offer is likely to apply only to key workers
Remortgagees
For 1.4 million people, 2008 is the year when their fixed-rate mortgage expires.
If you fall into this group, improve your chances of getting an affordable replacement deal:
• Start looking early. Lenders – especially those offering attractive rates – are swamped and applications can take longer than expected to process, so you should begin the hunt for a replacement around three months before your current deal expires
• Look for a mortgage broker who covers the entire market, hears about special offers early and know what’s been withdrawn long before you can find out for yourself
• Factor in transfer and application fees. These have risen in recent months – you might be better off staying with your existing lender, even if the interest rate is a little higher than you can get elsewhere
• Pay off as much of the mortgage as you can before you apply – the more equity you have, the better your chances of getting a good deal. The best offers are currently available only to people who own at least 25 per cent of their property outright.
• If there is a reason why you’ve skipped any repayments in the past, contact the credit reference agency that has your credit report – Experian is the UK’s largest – and ask to add an explanation. For example, you might have had an accident. Lenders will see this and may take it into account
Buy-to-lets
Buy-to-lets can be a mixed blessing in current conditions, with rising interest rates and a glut of inner city flats. Even so, some landlords see falling house prices as an opportunity to snap up bargains.
If you’ve assessed the risks and want to invest in property:
• You will almost certainly need a 25 per cent deposit plus arrangement fees, which are typically higher than for owner-occupiers.
• Be realistic about potential rental income – lenders are now looking for rents that will cover 120-130 per cent of the mortgage, to act as a buffer and fund maintenance. The good news is that industry experts expect rents to rise in the next few years, because fewer people will be able to buy.
• Check the small print carefully – look for unexpected fees when assessing a mortgage or contract with a letting agent and for loopholes in tenancy agreements.
• Make certain your credit report demonstrates that you are a responsible borrower who makes repayments in full and on time. If you have been through a bad patch in the last few years or been turned down several times, it may be better to wait until your credit history looks better to understandably cautious lenders.
Find out what mortgage deals you could get now.
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