Getting a mortgage can seem like climbing Mount Everest at the best of times, even without the uncertainty of the pandemic. It’s been a tricky time for a lot of people, to say the least – but according to research from Money Saving Expert and Experian, there are ways you can improve your chances of applying for a mortgage despite challenges like bad credit and house hopping.
Here are their top seven tips on how to boost your chances of getting the deal you want.
1. Don’t assume every lender will be keen, despite great credit
Every lender has a method to decide whether they want to lend to you. If you fit a lender's criteria, you might be accepted quickly. If you're far from ideal, your chances of rejection will increase.
However, for people in the middle, it's more of a grey area and the lender's scorecard will be based on several factors, such as:
- The size of the loan you want to take out
- How much you've saved as a deposit
- Your employment status and income
- Your credit rating and history
- Your outgoings
- Your existing debt
If you pass, it means it's more likely to lend to you, but nothing is guaranteed so cover all bases and don’t give up at the first hurdle as they are not all the same.
2. Check your credit report before the mortgage lender does first
You need to convince mortgage lenders that you've got the financial discipline required to pay back your mortgage. One way they investigate this is by searching your credit report to find out if you have a good repayment history.
Your credit report lists details from any accounts you've had open over the past six years, including:
- Credit cards
- Some utility bills
The three credit reference agencies in the UK are Experian, Equifax and TransUnion. It used to be that checking your credit report would cost you, but these days you can do it for FREE.
3. Don't apply for credit shortly before a mortgage
Try to avoid applying for credit in the three months before getting a mortgage – it could hinder your score and lead to rejection. Some recommend at least a six-month gap, to be safe.
4. Cut back on spending before you make your mortgage move
Lenders are likely to want to see your bank statements to get a good idea about your outgoings. One of the reasons is that, since 2014, mortgage lenders have been required to 'stress test' borrowers.
This isn't hooking you up to wires checking if you're telling the truth – it's checking you'd still be able to afford your mortgage if interest rates go up.
5. Make paying your rent a way to boost your credit score
Do you always pay your rent on time? If so, there are free schemes that private renters and social housing tenants can use to boost their credit ratings.
Typically, you'll need to be signed up to these schemes for at least six weeks for your rent payments to start appearing on your credit file, but the longer you stay signed up for, the bigger the impact paying your rent on time should have on your file. Find out more here Rental Exchange Initiative
6. Register to vote or your chances might be damaged
This is a potential dealbreaker. While you can have a perfect credit score without being on the electoral roll, it's very difficult to get a mortgage without it. Lenders use electoral roll data in identity checks (to ensure you are who you say you are and live where you say you live and that you're not laundering money). Go to your local council website and register to vote asap.
7. How to tackle a mortgage with bad credit?
You can still get a mortgage with bad credit with certain lenders, they work in the same way as standard home loans, but the main differences are that it will be harder to get the best mortgage rates and you may be asked to put down a large deposit, rather than the 5% or 10% that a first-time buyer can usually pay.
The level of deposit and rate, as well as your chances of getting accepted, will depend on the type of bad debt and how long it has been on your credit report. For instance, CCJs and bankruptcies stay on your credit file for six years.
It might be worth applying for a mortgage nearer the end of that period, once the credit is older and you have made efforts to rebuild your score.
Unfair default or other error on your credit report? Fight it!
If you discover an unfair default on your credit report, you need to dispute it as it will block most applications. Check if the same default is the same on all three credit agencies, TransUnion, Equifax and Experian and apply to the relevant Ombudsman to see about getting it removed, if they don’t help remove the error.
For more information go to moneysavingexpert.com / experian.co.uk
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