It has never been harder to get a mortgage – or at least that’s the impression you might have if you regularly read the newspapers. But while lenders have tightened their criteria and there are fewer products available than at the height of the housing boom, interest rates are also at historic lows – and likely to remain that way for some time.
This means that while you might need to put down a bigger deposit than in the past, if you can do so you might also qualify for a much better mortgage rate.
Those buying in the £700,000 to £1m bracket also have the advantage of being able to fish in both pools – with mortgages available from both the high-street lenders and the private banks. This means you have much more choice of deal than those restricted only to the high street, with more flexible lending options available, including interest only.
Below are a few points you might wish to consider when choosing a mortgage:
Seek advice. While there are fewer mortgage deals available, sifting through them and selecting the right deal is not necessarily easier than in the past. This is particularly the case if you have complicated income streams, perhaps including bonuses, dividends, investment income, share options or retained profits in a business. Many high-street lenders are not keen to take these into account when calculating how much you can borrow and yet these can be a crucial aspect of your income.
Speak to an independent mortgage broker who can guide you through the maze, advise as to the right deal for your circumstances and deal with the lender on your behalf.
Establish your budget – before you start looking at properties. It makes sense to work out how much of a deposit you have and how much you can borrow at the start of the process. This has two advantages: firstly, you won’t waste your time – or anyone else’s – looking at properties you can’t afford. Secondly, it enables you to demonstrate to vendors how serious you are about buying, which means they are more likely to favour you over a rival buyer. This is important if you are trying to buy a particularly desirable property with lots of buyers competing against you.
Generate as big a deposit as possible. The more you put down, the lower the mortgage rate you will be able to achieve.
Many first-time buyers in London are having to turn to their parents or grandparents for help with their deposit; this is great if you can call upon such funds but bear in mind that if it is not a gift and needs to be repaid, the lender will take the servicing costs into account when calculating how much you can afford to repay on the mortgage. This could mean a smaller mortgage.
Consider maximum loan size. Many lenders have a maximum loan size of £500,000 so if you need to borrow more than this, getting a mortgage on the high street may be tricky. However, a broker will be able to point you in the direction of lenders who will consider larger loans, including the private banks – if you meet their criteria.
Check out the private banks. While high-street lenders have reined back the volumes of lending they are prepared to do since the credit crunch, the private banks have continued to lend. Although some require assets under management when you take out a loan (such as the transfer of savings or investments to the bank), others have no such requirements. You do need to be wealthy (some banks have a minimum wealth requirement) or at least on track to becoming so.
Unless you have an existing relationship with a private bank (and even if you do, that bank may not be the best option for your funding requirements), a broker with good contacts with the private banks is the best way to go. They will present your case and know which bank is most suitable to your particular circumstances.