“Give us Credit! We can handle a mortgage!”
Lucy Haughey explains how first-time buyers can get hold of that elusive mortgage with tips on how to improve your credit rating
March 1, 2013
Back in 2007 the property market was so compressed and competitive, it was fit to burst: the standard deposit for a mortgage could be just a tiny percentage of the asking price, 100% mortgages were commonplace and sellers’ asking prices for properties were on average 25% above the valuation sum! Today the picture is so different and securing a mortgage continues to be a struggle for first time buyers.
So how does it work? Mortgage advisors should go through due diligence with clients and initially ascertain their income levels (and in parallel the stability of this income) as well as the level of deposit available and ability to manage this large, high risk, loan over the likely period of time, that could be around 25 years. A good financial advisor will look at the big picture and as well as the details to give true, honest advice to a client, rather than make them hopeful or unnecessarily anxious. Likewise, applicants need to think about the whole picture of their financial situation.
First time buyers should endeavour to have at least 3 years worth of evidence of regular income with as few gaps in income as possible, ideally none! If you are self-employed, around 5 years accounts are recommended.
Banks are more likely to take your mortgage application seriously if you have a good credit rating. You can check your rating yourself using standard credit checking sites such as Experion (also known as My Credit Expert) and Equifax. One tip is that banks these days have a penchant of doing a multiple credit check and averaging the total to give them a view of what they see your rating as. If you do the same you are a step ahead and can do some credit repair before you head down the bank in your best outfit!
Here are some steps you can take to ensure your credit rating is in a healthy condition & stays that way:
First, check there are no mistakes on your credit file. Sometimes an administrative error within one of your credit companies is recorded as a missed payment. Keep tight reigns on your finances and note any missed payments in your diary so you can check back on your credit file: you may have to prove the mistake wasn’t your fault so keep financial paperwork for 6 years if you can.
Don’t apply for credit you’re unlikely to get as the failure to achieve the credit is recorded on your file and future potential creditors will spot this and be both suspicious and put off. Every time someone checks your credit (e.g a mortgage lender) it is recorded on your file so multiple checks like this with failure to achieve the credit looks pretty bad. Be sensible anyway: only apply for credit you really do need and that you know you will be awarded.
You can demonstrate you are good at debt management by managing your credit well. Paying back your mobile phone bill or debit card on time, religiously every month will show on your file and improve your rating. This is a “safe” form of credit as the interest is low and it is unsecured credit. There is no interest added on credit if you pay the bill on time for example so it is in essence “interest free”.
Paying regular bills and not missing payments for landline accounts ( landline’s only go on your credit file if you default) catalogue’s, store cards etc will show a “trail of good credit behaviour” & create a long term record of such. Try & stay with your bank & employer/s as long as possible & ensure you’re on the electoral role – All this activity shows fiscal stability and helps build a positive credit history.
Approaching several different banks for a mortgage may negate your credit rating. Multiple applications look like you are both desperate and a bad risk to other lenders and they all show up as “credit checks on your file”. Try for a quotation search before you pay a mortgage lender a visit or use an independent Mortgage Advisor who can do safe checks (sometimes called a “soft footprint” on your file) for you and advise you properly: fresh eyes on your case will help you avoid you approaching banks/lenders who will not lend to you.
Having a high amount of personal debt (£4/5,000.00) will affect your chances of being offered a mortgage or loan. If you are going for a mortgage in the next 6 months it is advisable to avoid applying for new credit e.g a new car or credit card. Applications for new or updated personal or professional insurance etc won’t affect your application as they are not credit and actually show you are a risk aware person.
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