It is well-documented that since the downturn it has been harder to get a mortgage with lenders tightening their criteria and reducing maximum loan-to-values. The recently published Mortgage Market Review (MMR) introduces a raft of rules that will make getting a mortgage even trickier.
However, it’s not necessarily impossible. Below are Anderson Harris’ top tips for getting a mortgage:
1) Check your credit rating: Since the credit crunch, lenders have preferred borrowers with clean credit histories over those who have missed payments in the past. Check what your credit file says about you before applying for a mortgage as mistakes can be corrected. Contact Equifax (www.equifax.co.uk) and Experian (www.experian.co.uk).
2) Get on the electoral roll: While this might not sound particularly relevant when it comes to buying your first home or the next one, lenders will confirm your identity by checking the electoral roll. Fraud has been a big issue in the world of mortgages – so a lender will want to check that you are who you say you are.
3) Keep payslips and P60s: One of the key components of the MMR is that lenders must see proof of income, whether you are employed or self-employed. Those who are employed should have payslips and P60s; if you are self-employed, you will need three years of accounts, although one or two lenders will lend on the basis of one year’s audited accounts. A private bank is likely to be more understanding of complicated income streams: contact us to find out if you qualify.
4) Hold onto bank statements: As well as seeing proof of income, your lender will want to see evidence of your spending. It will want to see that you are not over-spending and running up huge debts, and that you can keep your account in order.
5) Reduce debts: Instead of simply lending three or four times income, lenders are increasingly looking at affordability. This means taking your outgoings into account as well as your income when deciding how much you can borrow. If you have a lot of debt, this will count against you so pay off credit and store cards.
6) Speak to Anderson Harris: We are independent mortgage brokers so can help find the right deal for your circumstances. This is particularly important if you are self-employed, have complicated income streams (such as bonuses and retained profits in a business), are buying an unusual property, don’t have any experience of buying property or need access to a private bank. If you are in a contract race and need to move quickly, or require bridging funding, we can help speed things along.
7) Pull together the biggest possible deposit: The cheapest mortgage rates are available to those with the biggest deposits, with market-leading deals targeted at those with at least a 40 per cent down payment. While your savings may not stretch to these levels, the more you can put down, the better the rate will be. Those with only a 5 per cent deposit will pay around 3 percentage points more for a five-year fix, for example, than someone with a 40 per cent down payment. That makes a big difference to your monthly costs. The other downside of having a small deposit is that the lender’s credit scoring will be tougher.
8) Consult the Bank of Mum and Dad. It may be your kids or grandkids who are trying to get on the housing ladder and there are options available if you wish to help them do this. Ideally, you would be gifting cash that you won’t need back again (otherwise, this would be viewed as a loan so would affect their affordability when getting a mortgage). Another option might be to act as a guarantor but if you do this, you should seek legal advice to ensure you know exactly what you are getting into and what your commitments are.
9) Get a mortgage agreed in principle. It’s worth finding out how much you can borrow before you start house hunting. This ensures you don’t waste your time, or anyone else’s, looking at properties you can’t afford. It will also ensure that vendors regard you as being serious because you’ve made the effort to get your finances in order before you start looking for a property. This may mean your offer is more likely to be accepted, even if it’s not necessarily the highest one on the table.
10) Think ahead: If you are planning on changing jobs in the near future, or setting up your own business, it makes sense to take out a mortgage or remortgage beforehand. Otherwise, you won’t be in a position to do so for some time afterwards. Likewise, if you or your partner are going on maternity leave or planning a career break to have a baby, think ahead. Any drop in income is likely to mean a smaller mortgage in the future.