Need a mortgage?
TOP TIPS TO SECURING A HOME LOAN…
The prospect of buying a house for many buyers is looking increasingly daunting as house prices continue to soar and interest rates rise, making mortgages more expensive.
Here are 10 ways to make sure you secure the loan you need for the property you want.
SAVE THE BIGGEST DEPOSIT YOU CAN
Soaring property prices mean that bigger deposits must be saved. It’s possible to get a mortgage with just a 5% deposit but you’ll be looking at paying the highest bracket of interest rates and a smaller pool of lenders to choose from. Saving a 10% deposit will mean you’re eligible for lower rates. A deposit of 25% will help access even lower rates.
USE GOVERNMENT SAVINGS INCENTIVES
A Lifetime ISA was introduced to help savers build a deposit for a first home (or a nest egg for retirement). You can pay in up to £4,000 a year (which forms part of the £20,000 yearly allowance) and bank up to £1,000 in government top-ups. The money can be used to buy a first property worth up to £450,00.
Alternatively you can withdraw it from the age of 60 to boost your income in retirement. If you take the money for any other reason there’s a 25% exit penalty. You must be between 18 and 39 to open a Lifetime ISA which can be opened as a cash or stocks and shares account.
CONSULT THE BANK OF MUM AND DAD
Parents and grandparents have been an important lifeline for first-time buyers as well as those upgrading to a second home, perhaps to accommodate a growing family. Estate agency Savills put the Bank of Mum and Dad’s total lending at £9.8bn in 2021, and say it supported around half of all first-time buyer home purchases.
If family are not able to part with savings, however, they can still help. It’s possible to use the income to help offspring get a bigger mortgage or even be part of a family offset mortgage where savings deposited can be linked to the mortgage and reduce the amount of interest charged – and so reducing monthly repayments. A mortgage professional can help with the options.
STREAMLINE YOUR SPENDING
Lenders will go through around six month’s worth of statements and payslips to assess affordability. It would be smart to plan ahead and rein in your spending, though you might be doing this anyway while you save for a deposit if you’re a first-time buyer. Set aside time to go through your spending on direct debits and standing orders to spot anything lurking that you had forgotten about. Hanging onto gym memberships is a common trend among those who only manage to go a couple of times a year. You might spot a magazine subscription you have been meaning to cancel. Equally, avoid regular, large purchases and gambling transactions.
The actual amount you can borrow will also depend on debts and credit agreements you have. A student loan or car finance for example, would reduce the amount you can borrow, as will a credit card balance. If you do have credit card debt, make sure you are paying as little interest as possible – preferably none. School fees and child maintenance payments can also be included as “debt” so you may find you can borrow less than you think.
“Saving a 10% deposit will mean you’re eligible for lower rates. A deposit of 25% will help access even lower rates.”
AVOID APPLYING FOR DEBT
Steer clear of applying for credit in the run up to applying for a mortgage – it could hurt your credit score and lead to a rejection to an application. If you need a new credit card, wait until you have your mortgage sorted.
It’s important to make sure your credit file will be squeaky clean in advance of making a mortgage application. Those who have borrowed money in the past and showed they can make repayments on time have more chance of making a successful application. But if you have a history of missed or skipped repayments, you need to demonstrate that you can be trusted to repay a mortgage. Even if you’re sure you’ve never skipped a payment – check your file. Many contain mistakes or a forgotten few pounds owed on an old credit card.
You could also have a blemish from owing just a few pence on an old mobile phone contract, which could cost you the mortgage you want. You can check your credit report – for free- from one of three main credit reference agencies – Equifax, Experian and TransUnion. It’s good practice to check all three as you can then have peace of mind that whichever one a lender uses, you’ve made sure it’s ship-shape. Alternatively use CheckMyFile’s free trial to check all three.
GET YOUR PAPERWORK IN ORDER
It makes sense to get your paperwork prepared in advance so you can be efficient when the time comes to place your application. Make sure you have statements downloaded that can be emailed – or printed. Get your payslips ready and your P60 tax form showing income and tax paid from each tax year. You will also need photo ID so get a copy of your passport, and for proof of address dig out recent utility bills.
LINE UP A MORTGAGE ADVISER
Using a broker means they take on much of the all-important legwork for you. They can help you work out how much you can borrow so that you know what price bracket you can search for properties in. They will also help you decipher the right type of mortgage for you. If you are self-employed or have any special circumstances, they can help find more flexible lenders for your situation.
GOT THE OFFER?
Once you’ve secured a mortgage offer, there’s no rush. They usually last for around six months which gives you time should there be any delays with moving. However, offers can be extended in special circumstances. For example, where you’re buying a new build property and construction is running late.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE