STEPS THAT COULD IMPROVE YOUR CHANCES
By Credit Expert
Thursday, September 4, 2008.
This guide looks at how key groups of property-owners and first-timers could give themselves a better chance of getting the mortgages they need.
Start with your credit history
Whatever type of mortgage you want, you should start by checking your credit report. This is your personal credit history of what you’ve borrowed, such as loans, mortgages and credit cards, plus your repayment record and other information that lenders take into consideration when they decide whether you are a good risk.
Items in your credit report, along with details from your application, are used to calculate a credit score, which will determine whether you receive an offer and how much interest you will pay, so it makes sense to ensure that everything is up-to-date and accurately reflects your circumstances.
125 per cent and 100 per cent mortgages seem to be a thing of the past and even 90 and 95 per cent deals are thin on the ground. So for many, the traditional five per cent deposit isn’t likely to be enough.
Before you speak to an independent financial advisor or make a mortgage application you should consider:
Saving in a high interest account to build up a deposit and take advantage of any fall in house prices.
Making sure your credit history is accurate and up to date. And if you’ve had problems repaying credit in the past, work to improve your credit history. For example, ensure you pay bills and credit card balances on time, don’t take out more credit to fund a glamorous lifestyle and try to pay off any outstanding amounts. You should also register to vote, as this can count in your favour with lenders.
Buying with another person or shared ownership. It’s not just housing associations that can help you get your first property, some house builders are offering this service and some may even help you find a suitable mortgage.
Investigating the Open Market HomeBuy scheme. From next year, the government is offering a £1,500 grant to first-timers under this scheme but the offer is likely to apply only to key workers.
For 1.4 million people in the UK, 2008 is the year when their fixed-rate mortgage expires. If you fall into this group, improve your chances of getting an affordable replacement deal:
Start looking early. Lenders – especially those offering attractive rates – are swamped and applications can take longer than expected to process, so you should begin the hunt for a replacement around three months before your current deal expires.
Look for a mortgage broker who covers the entire market. A good broker will hear about special offers and know what’s been withdrawn long before you can find out for yourself.
Factor in any transfer or application fees. These have risen in recent months – you might be better off staying with your existing lender, even if the interest rate is a little higher than you can get elsewhere.
Pay off as much of the mortgage as you can before you apply. The more equity you have, the better your chances of getting a good deal. The best offers are currently available only to people who own at least 25 per cent of their property outright.
If there is a reason why you’ve skipped any repayments in the past, contact the credit reference agency that has your credit report – Experian is the UK’s largest – and ask to add an explanation. For example, you might have been ill or had an accident. Lenders will see this and may take it into account.
Some people who have built up a portfolio of buy-to-let properties in recent years are finding current conditions difficult. As well as having to cope with rising interest rates, a number of landlords who invested in new-build, city centre flats are having problems finding tenants because of a glut of similar properties.
And there are some more experienced landlords who see falling house prices as an opportunity to snap up bargains.
If you’ve assessed the risks and want to invest in property, you will almost certainly need a 25 per cent deposit plus arrangement fees, which are typically higher than for owner-occupiers.
Be realistic about potential rental income – lenders are now looking for rents that will cover 120-130 per cent of the mortgage, to act as a buffer and fund maintenance. The positive by-to-let news is that industry experts expect rents to rise in the next few years, because fewer people will be able to buy.
Check the small print carefully – look for unexpected fees when assessing a mortgage or contract with a letting agent and for loopholes in tenancy agreements.
Make certain your credit report demonstrates that you are a responsible borrower who makes repayments in full and on time. If you have been through a bad patch in the last few years, missed repayments or been turned down several times, it may be better to wait until your credit history looks better to understandably cautious lenders.
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