Unless you are a lottery winner (if you are stop reading right now and let’s talk investments !) you will need a mortgage to buy your first or indeed next home.
In many ways, your mortgage application is like a job application; both rely on convincing whoever reads it that you aren’t going to let them down.
Remember though, whilst your job application will be looked by human eyes, your mortgage application, initially at least, isn’t. It’s a computer you are trying to impress. That means passing the lender’s credit score; a system designed to assess your application.
Here are our top 12 tips for doing just that and getting your mortgage application approved.
1. Keep your credit record clean
Mortgage lenders want to know that you will pay them on time each and every month.
They use several ways to check how you manage your finances, including a credit check.
Make sure you pay all credit commitments on time each month. Don’t take chances, set up direct debits for everything you can, even if it’s just the minimum payment on a credit or store card, that way you won’t fall in to arrears.
A County Court Judgement is surprisingly easy to get. It stays on your file for six years, severely impacting your ability to get a mortgage.
2. Check your credit report
Keep an eye on your credit report.
There are several services which allow you to do this, including:
- Experian: A free service which will give you information about your credit as well as your current Experian credit score
- Equifax: Again, this service allows you to check your credit file and will give you your Equifax credit score. It is free for the first 30 days but then relatively expensive at £14.95 per month
- Check my File: This service collates the information from four agencies, including Equifax and Experian, showing the information each holds on you and your credit score. It is free for the first 30 days and then £9.99 per month. You can also buy a one-off report for £19.99
- Noddle: Another free service which gives you information about your credit and your current Noddle credit score
- Look for opportunities to improve your credit score as well as mistakes and inconsistencies, which you should correct as soon as possible.
Look too for people the agencies associate you with. If possible decouple yourself from those from people with poor credit who you are no longer associated with, for example ex-partners and financially irresponsible former flatmates!
3. Always update your addresses
It’s a pain, but every time you move update your address with everyone you owe money to or pay on a regular basis.
The last thing you need is for the final water bill, which you didn’t get because you failed to update your address, ending up in a CCJ. Making it impossible for you to get a mortgage. Remember, bad debts of less than £1 can be registered against someone, so don’t assume that the 14p you owe will be automatically be waived.
4. If you don’t have credit, get some!
You might be the most financially savvy person in the world, carefully budgeting each month and saving hard to build your deposit. But, if you don’t have any credit, it’s tough for the mortgage lender to know whether you pay on time.
If you are lucky enough to have no debt, consider applying for a credit card. Use it carefully and repay the balance in full each month.
This proves to a lender that you are capable of responsibly managing your debt. It’s also a useful technique if you have previously suffered financial issues and want to improve your credit file.
To some lenders having no debt is as bad as having too much debt.
5. Avoid unnecessary credit checks
Every time a credit check is run it leaves ‘footprint’ on your file.
Too many ‘footprints’, too close to each other, and a mortgage lender may think that you are applying for too much credit. Furthermore, as the ‘footprint’ doesn’t confirm whether you were accepted, the mortgage lender may also assume your applications are regularly declined.
Try to keep the number of searches to a minimum, only allowing organisations to run a credit check when absolutely necessary. Similarly, avoid applying for credit in the months leading up to your mortgage application.
6. Be boring: Part 1
Mortgage lenders like stability, the fewer times you move house in the year or so leading up to making your application the better.
The same applies with jobs. A long history of stable employment will positively impact the lender’s credit score.
Conversely, change your job just before your application, especially to one with a probationary period, and you’ve just seriously cut down your options.
7. Be boring: Part 2
Your potential mortgage lender will use a variety of information to assess whether to offer you a mortgage. This includes your bank statements; again, boring wins.
Your statements reveal a huge amount about the way you manage your cash.
Constantly exceeding your overdraft limit? This tells a mortgage lender you are struggling to manage your finances.
Bounced direct debits? Another sign you can’t manage your money responsibly.
Try to cut down on your discretionary spending, especially in the three months leading up to your application. Your lender will use your bank statements to assess your expenditure and whether you could afford higher payments if interest rates rise.
Be careful what you spend money on too. Imagine a set of bank statements with payments each month to casinos, online betting agents, even payday lenders. How do you think these would be viewed by a mortgage lender? That’s right, not well!
We’ve seen everything, so if you do order something ‘exotic’ online, you might want to delay your application until the offending bank statement is more than three months old!
8. Pay your mortgage and rent on time
This is probably so obvious that we shouldn’t need to mention it, but we will, just in case.
How can you convince a potential mortgage lender that you are responsible, if you can’t pay your existing loan or rent on time?
9. Register on the electoral roll
Adding yourself to the electoral role is a simple and pain free way of proving where you live and improving your credit score.
Lenders use the electoral role to confirm your identity. If you’re not on it, you will instantly reduce the number of lenders prepared to consider your application to a small handful, if any at all.
It’s easy and free to do too; simply click here and follow the steps.
10. Self-employed?
Whilst low profits may equal a small tax bill, they will also restrict the amount you can borrow.
This isn’t a short-term thing either. A lender will want to see at least two, maybe even three year’s accounts.
The longer your history of consistent net profits, sufficient to cover the amount you want to borrow, the better the deal you will get.
11. The larger your deposit, the better
Lenders use a ratio known as Loan to Value (LTV) to compare the amount you are borrowing to the value of your property. For example, a mortgage of £180,000 against a property worth £250,000, would give a LTV of 72%.
The larger the deposit (or amount of equity if you are remortgaging) the lower the risk to the lender and the better deal you will get.
12. Take advice
Of course, we are biased, but our years of experience has taught us that a good mortgage broker is worth their weight in gold.
As independent mortgage advisers, we:
- Have access to banks and building societies which aren’t on your local high street
- Know how to package your application to show it in the best light
- Will advise you on the most appropriate deal; remember, the lowest interest rate isn’t always the best long-term option
We can’t work miracles though. So, if you are planning on buying a house in the next few months, we’d love to hear from you, but please work through this checklist too.
If you are planning to buy a house soon, or your current mortgage deal is coming to an end, please get in touch. Call us on 0207 808 4120.