You May Have The Deposit For Your First Home But That Doesn’t Mean You’ll Get A Mortgage.

Property Journalist Sharon Dale reveals how to get the seal of approval from lenders.

If you have saved for a deposit and are trying to jump on to the property ladder, then I’d like to wish you the best of luck, along with some helpful advice.

When I bought my first home in the late 1980s at the age of 24, all you needed was a steady job, a five per cent deposit and three bank statements showing that you earned enough to service a mortgage.

Now, after lax lending, a banking crisis and a long recession, mortgage providers are far more cautious. They have to be thanks to the Mortgage Market Review, which came into force just over two years ago.

The MMR rules mean that banks and building societies are very fussy about who they lend to. The checks and balances they employ have also slowed the mortgage process down, which has led to disappointments. Sellers want speed and certainty and many are not prepared to wait for buyers to get the green light from a lender.

So the message is plan ahead well before you apply for a home loan.

Here are some tips on how to play the mortgage game:

It helps to get a realistic idea of how much you may be able to borrow by consulting a mortgage adviser.  

There is no point looking at possible dream homes that end up being out of your price bracket. A lot of estate agents and developers have their own in-house mortgage advisers, so it’s worth organising a meeting to get an idea on the options available.

Lenders will look at your credit history to see if you have loans and credit card debts outstanding.

They will look for missed payments on credit cards, catalogues and existing debts. You can check your own credit score via agencies, such as Equifax, Experian and CallCredit. They all hold information on you that lenders use. They do make mistakes, which can cause problems, so it's important you check through for any errors and issues you may be unaware of. Make sure you are registered on the electoral roll as this will increase your credit score. Lenders will use it to help verify who you are.
It may seem counter intuitive but if you have never had a loan or credit card debt, it can count against you.

Lenders like to see proof that you can repay responsibly. So in the months prior to a mortgage application, it can help to spend on a credit card but pay it back in full each month. This looks much better than making the minimum payment.

In the months leading up to your mortgage application, spend wisely.

Since the Mortgage Market Review, lenders scrutinise bank statements and outgoings. Cut back on anything that looks like a luxury and be frugal. Above all, do not go into your overdraft. When you have done all this, then you can apply for a decision in principle – again I would suggest using an independent mortgage adviser to help with this. When the bank/building society says yes, then you can start house hunting.

When it comes to formally applying for a mortgage, it’s important to be as organised as possible prior to applying.

Lenders usually ask for a passport, your last three months’ payslips and bank statements, your latest P60 tax form (available from your employer’s accounts department), which shows income and tax paid from each tax year, proof of your address and proof that you have a deposit .

There are some great mortgage deals on offer at the moment thanks to low interest rates so head back to the mortgage adviser, who should present you with some of the best to choose from.

Buying new is a good option for first-time buyers.

It is quick, easy, there is no chain and the developer and mortgage adviser will be keen to push the deal through. It also allows you to take advantage of the Help-to-Buy equity loan scheme, which means the Government lends you up to 20 per cent of the cost of your newly-built home, so you’ll only need a five per cent cash deposit and a 75 per cent mortgage to make up the rest.

You won’t be charged interest on the 20 per cent loan for the first five years of owning your home. Most major housebuilders offer this deal.

Publish date: 13/10/2017