Should I use a mortgage broker?It’s not unusual for first time buyers to apply for a mortgage directly through the lender. Some people choose a mortgage with the same provider they bank with, in an attempt to keep things straightforward and keep all their finances under the same roof. However, this approach can often see home buyers missing out on more cost-effective deals. By shopping around to find the right mortgage, you could save tens of thousands of pounds over the course of your mortgage term. Thankfully, with the help of a mortgage broker, finding the right deal doesn’t have to be time consuming or draining. Your mortgage broker will use their expert knowledge to find you the right mortgage before guiding your through the application process.
Can I get a mortgage with a poor credit rating?Getting a mortgage with a poor or non-existent credit rating can sometimes be a challenge. Some lenders have very strict lending criteria and will only offer mortgages to those who have an excellent credit rating. If you’ve missed debt repayments in the past, mortgage providers may be reluctant to lend you the money you need to buy your own property. Lenders may also be reluctant to give you a mortgage if you’ve never borrowed money before. This is because they won’t be able to assess how reliable you are when it comes to repaying money you owe. Thankfully, having a poor or non-existent credit rating doesn’t automatically mean you won’t get a mortgage. There are lenders out there who will assess each application on a case-by-case basis, taking into account the applicant’s individual circumstances.
How can I improve my credit rating?Boosting your credit rating can be a lengthy process but if you make a start now, you can improve your chances of getting a mortgage. Here are just a few ways to clean up your credit:
1. Get on the electoral rollIf you’re not on the electoral roll, you’re unlikely to get a mortgage. Thankfully, registering to vote takes a matter of minutes by visiting www.gov.uk/register-to-vote.
2. Remove financial connections with former partnersWhether you shared a bank account with a former partner or you took out a loan together, your ex’s credit history and current financial behaviour can affect your own, even after you’ve gone your separate ways. If you’ve ever been financially linked to a former partner, contact credit agencies and ask them to remove your connection to your ex.
3. Pay the minimum on timeWhether you’re repaying a bank loan or financing your car, be sure to make minimum repayments on time and in full. If you can pay off your debt earlier than necessary, this can be a great way of improving your credit rating at a faster speed.
4. Avoid applying for more creditIn the lead up to your mortgage application, avoid applying for more credit than you currently have. Applications for loans, credit cards and even mobile phones tend to go on your credit file and may encourage lenders to question your current financial situation.
5. Avoid applying for a mortgage if you think you might be turned downIf you’re concerned about your credit rating, it’s wise to seek help from a mortgage broker before making an application. Applying directly to a lender yourself could see you being rejected if your credit rating is less than favourable. If you use a mortgage broker, they’ll be able to point you in the direction of providers who are most likely to lend to you. Your broker will know the market like the back of their hand and they’ll know which lenders have flexible criteria.
6. Check your credit scoreYou can get a free copy of your credit file from a credit reference agency such as Equifax, Experian and Callcredit. There’s no need to pay for your report. Simply apply for a free one and cancel your account afterwards. Once you’ve received access to your file, look out for any errors or late payments that could affect your application. If you notice anything incorrect, ask a mortgage broker to help you correct it.
7. Check addresses are up to date on your credit fileWhen checking your credit score, make sure the address details are up to date. Most lenders will want to see address history from the last three years. If your details are outdated, your application may take a hit.
8. Cancel unused credit cardsIf you have any credit cards or store cards that you no longer need, lenders may consider this to be a bad thing because you could choose to borrow a large amount of money on a whim. By cancelling unused cards and closing accounts, you can improve your mortgage chances.
How much can I borrow?The amount you can borrow will all depend on your individual financial circumstances. When determining how much to lend you, mortgage providers will look at your income, debts, credit rating and expenses to assess how much you can afford to repay. Lenders will also determine whether or not you’ll be able to keep up with monthly mortgage repayments if interest rates were to rise. As a general rule, most providers won’t lend more than 4 times a borrower’s income, but some lenders will be more flexible, particularly if you have a solid credit rating and a healthy deposit.
Have I got a big enough deposit?To obtain a mortgage and buy a property, a deposit of 10% or more is usually required. So if you want to buy a property for £150,000, you’ll need to save at least £15,000 and get a mortgage to cover the rest of the home’s value. It’s wise to save as much money as you can towards this down payment, as the larger your deposit is, the better interest rates you’ll have access to. As a result, your mortgage repayments will be cheaper than they would if you put down a small deposit. In some cases, you may be able to purchase a home with just a 5% deposit. However, you will probably have to pass stricter lending criteria and will be subject to much higher interest rates which could become unaffordable in the event of a drastic interest rate increase.
What does LTV mean?LTV stands for the loan-to-value ratio and is the percentage of the property’s value that you borrow as a mortgage. To calculate the LTV, all you need to do is subtract your deposit from the property’s value and represent the remainder as a percentage. For example, if you were to put down a £20,000 deposit on a £100,000 home your LTV would be 80%. If you were to put down a £50,000 deposit on a £200,000 home, your LTV would be 75%.
Should I get a Help to Buy ISA?If you’re a first time buyer, the Help to Buy ISA can be a great way to save money towards your first home and benefit from a 25% bonus from the government. The money you save within the ISA can be used towards a property of up to £250,000 (or £450,000 if you live in London). For every £200 you save in the ISA, the government will boost your savings with an extra £50. You’ll also benefit from interest on your savings, though the rate will be decided by your chosen bank. You can save up to £12,000 of your own money in the ISA and the government will then top up your savings upon completion of your property purchase. So if you save the full £12,000 in the ISA, you’ll benefit from a £3,000 boost from the government. If you’re buying your home with another first time buyer, you can have a Help to Buy ISA each. This could see you boosting your savings with up to £6,000 from the government. Once you’ve saved the money you need and you’re ready to apply for a mortgage, you don’t have to get your loan with the same bank that provides your ISA. This means you can still take your pick from hundreds of mortgage deals.
What is a shared ownership scheme?As the name suggests, buying a property through a shared ownership scheme means you won’t own the whole property outright. You’ll own a percentage of your new home, while a housing association will usually own the rest. Typically, you’ll buy between 25% - 75% of the property and pay rent on the rest. If you need to take out a mortgage to cover the share that you buy, you’ll need a specialist mortgage product designed for shared ownership schemes. There are numerous shared ownership schemes available across the country and each one comes with its own set of criteria. Some schemes are only available for first time buyers while others are limited to people on low incomes.
How can I improve my chances of getting a mortgage?Having a healthy deposit is just the start of applying for a mortgage. You’ll also need to pass affordability and credit checks before a lender will agree to provide you with the mortgage that you need. Each lender has its own set of criteria, so it may be worth seeking the support of a mortgage broker before making an application. Your broker will have extensive knowledge of the market and will have an insight into different lenders’ criteria. By pointing you in the right direction of the best lenders for you, they’ll help you improve your chances of getting a mortgage while saving you time and money in the process.
What type of mortgage should I get?There are several different types of mortgage for home buyers to choose from. These can include:
- Fixed rate mortgages
- Variable rate mortgages
- Cashback mortgages
- Tracker mortgages
- Offset mortgages
- Interest only mortgages
- Capped rate mortgages
- Discount rate mortgages