In our winter edition, I looked back on the affect that the pandemic had on the mortgage market, and changes that have been brought about by mortgage lenders as a result. Thankfully a lot of the temporary restrictions in lending have since been removed, but now more than ever we are finding our clients asking what they can do to look more favourable to mortgage lenders in readiness for their upcoming mortgage application. I have summarised some of the key considerations for anyone that is starting to plan ahead:
Credit behaviour – Lenders will usually assess your credit behaviour when deciding whether to approve an application or not. A good risk for a lender is someone that doesn’t miss payments and that shows consistent information, so check that your address is correct on all of your bank accounts and bills and also that you are registered on the electoral role. You can ensure that you do not fall into the trap of missing payments on credit cards by setting up a direct debit to pay the minimum required payment each month. If you have missed a payment in the past, it is best to speak to the lender as soon as possible who will be able to provide advice. Time is a healer for someone’s credit report, but the sooner any mishaps are taken care of the better.
Credit commitments – A common misconception is that someone cannot gain a mortgage because they haven’t had loans in the past, although there is some basis for this. A good payer with a proven track record is a good option for lending as we discussed, but you can display this without signing up
to costly loans that you do not need. A credit card could be an option that you do not have to spend money on frequently, and will still display that you are a responsible borrower. To keep it active, you could make a small purchase on it every few months, and pay the balance each month to improve your score over time. If you have a phone contract or any utilities and bank accounts, this should give enough information to most lenders in order to review your behaviour.
Income to outgoings – Although affordability multiples are widely talked about, most lenders use calculators to determine your maximum borrowing, so be careful about what you sign up to. Large credit commitments can reduce your borrowing potential, although this is relative to income. There may be a difference between the impact to maximum borrowing of a £300 per month car finance from someone that earns £50,000 p/a compared to someone that earns £15,000 p/a. The total amount of debt outstanding is important, but monthly outgoings are often key when determining borrowing levels.
Deposit and organisation – There are 95% loan to value mortgages available at the time of writing, although a higher deposit amount will put you in a better position. It is worth researching your borrowing potential as you look to save so that you have something to work towards. Contacting a broker or even your own bank is a good step for asking some questions in advance so that you know that you are on the right path as you look to accumulate a deposit. When looking for a new mortgage, I call my clients around 6 months in advance of their fixed term end date so that we can start planning, so it is a good idea for current mortgage holders to start to review their financial situation around this point.
Keeping your credit checks to a minimum – In the build up to applying for a mortgage, be careful to keep your credit checks to a minimum as an accumulation of checks can start to impact your score and resulting ability to borrow. Opening up credit such as bank accounts and credit cards as well as gaining agreement in principles can all leave a footprint, so be careful with how much activity there is during this key period.
Your property may be repossessed if you do not keep up repayments on your mortgage.