Six steps to take to improve your chances of securing a mortgage
Applying for a mortgage can seem like a complicated process. However, it’s a necessary task; it’s the only way most people are going to be able to buy a house. Understanding what you can borrow can give you the confidence to start house hunting.
With hard credit checks leaving a mark on your credit report, which other lenders will be able to see and may view negatively, it’s important to take steps to improve your chances of being approved.
If you don’t know where to start, you’re not alone. Data from the Knowledge Bank, suggests that there’s an increased level of uncertainty with more people searching for answers. Aspiring borrowers are confused about the products on offer and their ability to qualify for them.
Coinciding with lenders updating their criteria is the recent increase in the Bank of England (BoE) base interest rate. The BoE interest rate is now 0.75%, following an increase of 0.25%. More rises are expected in the next few years. As a result, securing a competitive mortgage can mean paying significantly less interest in the long run.
With the potentially negative effects of applying for a mortgage and being turned down in mind, taking steps to improve your chances is beneficial.
1. Improve your credit score
Your credit score is one of the most important factors when you apply for a mortgage.
Lenders use your credit score to assess how likely you are to pay back the money on time. If your credit score is considered ‘poor’ it’s vital to take steps to improve it before you apply for a mortgage.
The first thing to do is get a copy of your report to look over. If there are any mistakes, ensure these are corrected. Within your report will be an overall score giving a snapshot view. You’ll also be able to view positive and negative factors. Factors harming your score may include utilising a large portion of your available credit, paying utility bills late or having a County Court Judgement (CCJ) against you.
It’s also important to note that when a hard credit check is performed it leaves a mark on your file, usually for 12 months. Too many of these marks and lenders may assume that you’re rapidly increasing the amount of credit available to you or have been rejected by other providers, resulting in them turning down your application.
Improving your credit score isn’t a quick fix. Ideally, you want to look over your credit report and start taking steps to improve the score, if necessary, six months before you plan to buy a home.
2. Pay off unsecured debt
From credit cards to loans, unsecured debt could have a negative impact on your mortgage application.
Firstly, it will mean you have a higher volume of monthly outgoings. If this means that your budget will be stretched with the addition of a mortgage, it’s more likely you’ll be rejected or receive a loan offer that is lower than expected. Banks are now required to ‘stress test’ mortgage applicants. This means judging your ability to consistently pay, even if interest rates increased.
Secondly, if you have several forms of debt these may affect your credit score, particularly if you have missed payments in the past.
3. Have a higher level of deposit
The more money you have to use as a deposit, the better. The average deposit needed is 5-10% but being able to put more down will go in your favour when applying.
The greater the deposit you put down the lower the loan to value (LTV) will be too. This means you have more equity in the property. Therefore, you’ll generally be able to access better interest rates, bringing down your monthly repayments.
4. Look beyond the traditional lenders
There are lots of different providers. But when you first think of applying for a mortgage, it’s probably a high street bank or building society that comes to mind. Looking beyond these may mean your application is more likely to be successful and you could access a better interest rate too.
There are many lenders that specialise in certain areas or offer mortgage products for a specific type of buyer. For example, some lenders have extensive experience of working with those that are self-employed and are less likely to take a cautious approach with clients that aren’t employees.
There are hundreds of lenders, many not on the high street. We can help you find those that are suitable for you.
5. Use an eligibility tool
Eligibility tools allow you to enter your details and see which lenders you’re likely to be accepted by; though this isn’t guaranteed. It means you avoid applying for those that are more likely to reject you because you don’t meet their criteria.
It can help give you a starting point when you’re researching lenders and narrow down the market to a more manageable level.
Usually, an eligibility tool will perform a soft credit check, which does not leave a mark on your report. However, it’s always worth checking this, as a hard credit check could affect future applications.
6. Work with a mortgage professional
A mortgage professional understands the market and can help you throughout the process; from finding the right provider for your situation through to organising the paperwork that’s needed to minimise to delays. If you’re unsure of the mortgage process and your ability to find the best product, this is where a mortgage adviser can be invaluable.
While taking steps to improve your chances are important, don’t be put off if you’re initially rejected. Lenders don’t all have the same criteria and just because one views you as a risk, it doesn’t mean another will. If you’re rejected take the opportunity to review your application and address areas that may not be looked on favourably where possible; it can be worth asking the lender why you were rejected.
If you’re looking at buying a home, whether it’s your first or you’re moving up the property ladder, we can help. Using our expertise, we’ll help find the right mortgage for you and provide support throughout the application process.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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