How to Boost Your Chances of Getting a Mortgage as a First Time Buyer…

As we have said in another article in this series – How much can I borrow? – getting approval for your mortgage isn’t just about how much you earn; lenders now also focus on affordability, how good your credit score is, and how clear credit history is too.

So, to improve your chances of being accepted for a mortgage, here are a few more things to think about…

Things to think about to improve your credit score…

Electoral roll – make sure you’re registered! The electoral roll is one of the first places a lender will check to validate your residency and identity.

Check your credit history – you can get copies of your credit file from the credit reference agencies. The agencies you need to contact are: Equifax, Experian and/or Callcredit. Check My File provide all of these three reports in one. Once you get sight of your file, check there aren’t any mistakes in the data – it does happen!

Check your current address is showing for all your accounts listed – this is something that is easily missed but it can cause confusion and delay if the address on your file doesn’t tally with the address you’ve given on your application form.

Break from past relationships – if your credit history is shared via an address with an ex-partner, write to the credit reference agencies to get this delinked. If that partner has a bad credit history, it will tar you too…

Rebuild your credit score – admittedly this takes time, but there’s no time like the present to get started again. Just from now on – make sure you pay everything on time!

Get the timing right – applications for other accounts like credit cards etc. stay on your file for a year. You may have to wait out that time for some of these to drop off before you can apply for a mortgage. Too many applications are frowned upon by lenders.

Don’t miss a payment or make a late payment – if you’re worried about slipping up with a credit card payment, perhaps set up a direct debit to ensure the minimum amount is paid every month. That way, you’ll keep your credit history clean.

Keep other applications to a minimum – we’ve already mentioned credit card applications above, but other types of account register too, like mobile phones and car insurance! Keep these down to a minimum.

Try not to withdraw cash on a credit card – this can be viewed as a desperate measure because it’s a very expensive way of getting hold of cash.

Never apply straight after rejection – basically, a rejected application leaves a footprint on your file, even if the rejection was due to an error on your file. So, check your credit history first before making any applications, and save yourself the worry.

Stay out of your overdraft – a lender will be able to see if you’re using your overdraft all the time. If you are, it looks as though you’re living on the edge of your affordability the whole time, and that’s not good.

Avoid payday loans – for the same reason as above. Payday loans do not look good from a money management perspective to a lender.

Close unused cards – if you have lots of credit cards still open but never used… close them down. A lender may worry that you can borrow fairly significant sums in the future without needing approval, and that will cause concern.

Other articles in this series written for first time buyers…

So… what is ‘Help to Buy?’ And… what is ‘Shared Ownership’?

In another article in this series for first time buyers, we have set out the basic types of mortgage available. This includes information on repayment vs interest only mortgages, as well as details on variable and fixed mortgages.

However, there are schemes specifically in place for those who are either struggling to save up for a deposit, though they can afford the monthly payments of a mortgage. Or, can only afford to buy a share of a property.

So, what are these schemes?

What is ‘Help to Buy’?

Help to Buy was introduced by the government to help those who could afford the monthly payments of a mortgage, but just couldn’t save enough for a deposit. It’s effectively a mortgage guarantee scheme that provides insurance to lenders to cover the next 15% of the value of a home if you put down a 5% deposit. In effect, the lender is getting comfort that 20% of the value of the property you are buying is protected, rather than just the 5% of your deposit. It’s not about giving you more comfort, it’s about giving your lender more comfort.

With Help to Buy, you still need to be looking at mortgages for a 95% LTV (loan to value). And it’s worth noting that only certain types of property are available on the scheme too.

Help to Buy, therefore, isn’t about making a mortgage cheaper for a first time buyer, it’s about making a mortgage more available.

If you think that Help to Buy is something you’d like to understand better, it’s best to discuss it with your adviser.

What is ‘Shared Ownership?

As the name suggests, when you buy a home on ‘shared ownership’ you’re not buying it all, only a share of it. The remaining portion is usually owned by a housing association.

A typical shared ownership arrangement would see you owning – and thus taking out a mortgage for – between 25% to 75% of the property, with rent being paid on the rest.

Because shared ownership schemes are usually set up and run by housing associations, each association will have its own way of doing things. There is no one size fits all. However, generally, the rule of thumb is that if you earn too much, you won’t be eligible for a shared ownership scheme. And equally so, if you earn too little the outcome is the same.

It’s important to note that when you come to sell a property in shared ownership, the housing association is likely to want to have a say in who is buying it.

If you think Shared Ownership is something you’d like to investigate further, then mention it to your adviser.

Other articles in this series written for first time buyers…