Getting a mortgage can seem like an impossible task to a lot of young families starting out, and the pandemic hasn’t made it any easier. Despite the challenges, there are ways that you can improve your chances. You need to make yourself as attractive as possible to lenders if you want to get the best deal on your mortgage.
Don’t Expect Every Lender To Like The Look Of You
Every lender has their own method of deciding who they are going to lend to. If you fit the criteria of a lender, you should be accepted fairly quickly. If you’re not their ideal candidate, it’s more likely that you will be rejected.
For people are fall somewhere in the middle of the dream and nightmare applicant, it can be more of a grey area and the lender will make their decision based on several different factors, such as:
- The size of the loan you want. Do you want £100,000 or £200,000, for example? A capital payment calculator can help you work this out.
- How much you saved as a deposit. The larger the deposit you have saved, the lower a risk you will be perceived as.
- Your employment status and income. Are you permanent or contract staff? Are your freelance or self-employed?
- Your credit rating and history
- Your outgoings
- Your existing debt, including student loans, credit card debt, and so on.
If you pass their checks, they are more likely to lend to you, but there are no guarantees.
Check Your Credit Report Before The Mortgage Lender Does
You need to be able to convince a mortgage lender that you have the financial discipline that is required to pay back your mortgage. One way that they investigate this is by searching through your credit report to see if you have a good history of making repayments.
Your credit report will list details from any accounts that you have had open over the last six years, including:
- Credit cards
- Loans
- Overdrafts
- Mortgages
- Utilities
In the UK, the three main credit reference agencies are Equifax, TransUnion, and Experian. Checking your credit report used to come at a cost, but now you can do it for free. Before you apply for a mortgage, check all three reports, as you don’t know which one your lender will check.
Can I Get A Mortgage With Bad Credit?
Having a bad credit history might not rule you out of getting a mortgage, but it will certainly make it much more difficult. To give yourself the best chance of getting a mortgage, take some time before you apply to get your credit report into better shape.
Correct Credit Score Errors
If the information on your credit file is wrong, you have a right to do something about it and should do it as soon as you can.
You can either have the error corrected, or you can have your say about the error. First, check if the error that you have found on your credit file also shows with other agencies. Next, talk to the lender. If this doesn’t work, you can approach the free Financial Ombudsman for help. They can step in and order corrections to be made.
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Check your file with other agencies. See if your file has the same error with other agencies too. If you can get it corrected with one agency, the information should be sent to the others too, but it’s always better to make contact with them yourself to make sure your file is correct with all three of the major agencies.
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Contact the lender. Most lenders will have a system in place to deal with customer disputes. If you have proof, the problem should be resolved quickly. Write to the lender to tell them the error is unfair and ask for them to wipe it from your file. If the problem is a default, and you’re prepared to settle with your lender, either in part or in full, you could also try negotiating with them. Ask them to make it a condition of your settlement that the default will be wiped off your credit file. Companies can do this for disputed defaults.
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Write to all three of the major credit reference agencies. If the lender isn’t willing to help you, write to the agencies anyway, and ask them to add a notice of correction on your file. This is where you can explain the default. Write about 200 words that will be added to your report that explains the issues, such as explaining that the problem is with a joint account that had debt run-up after a split with your spouse. This will slow down your application, as most companies will need to check this manually, but it can help you to get an application approved instead of rejected.
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If the lender isn’t willing to help you, your next step is to complain to the Ombudsman. You can ask the independent Financial Ombudsman Service for help for free if you think the error on your file is unfair and contacting the lender hasn’t helped you. It is the official body for settling disputes like this, and they act as an impartial adjudicator. It can rule that the debt is unfair and that the default should be wiped.
Register Your Vote
This seems like a small thing, but it can be a potential dealbreaker for mortgage lenders. You can have a fantastic credit score without bring on the electoral roll, but it is harder to get a mortgage without doing it. Lenders use the electoral roll to check your identity, and that you live where you say you do, and that you aren’t laundering money.
Your credit file will say if you are on the electoral roll or not, but you can also check if you’re registered to vote with your local council. Do this as soon as you can. You can be added usually within a month, but at buser times, it can take longer.
If you’re not already on the electoral roll, you can register for free. If you aren’t a UK, Irish, or EU national and can’t get on the electoral roll to vote, you can add a notice of correction onto your credit file that says that you have other proofs of address and ID and that you can offer lenders. Make sure you actually do have these forms of ID ready!
Disconnect Yourself From Ex-Partners
If you are financially linked to someone else, like an ex-partner, this can ruin your chances of getting approved for a mortgage. You will be linked to someone if you applied for joint credit at any point, such as a loan, mortgage, or joint bank account. If you have had these with an ex-partner, but you have now separated, you need to de-link yourself from them.
If you’re still linked to them, any late payments or other financial misdemeanours that they commit will reflect on you too. If you’re linked to an ex, write to the credit agencies now and ask them for a notice of disassociation.
You could still be linked to old flatmates, as well as ex-partners, if you had a joint bank account at any point for bills, so it’s also worth checking if their credit history could be affecting yours. If it is, get de-linked immediately.
Even if the person that you are linked to now has good credit, you still risk a problem in the future if they do miss any payments. Keep your file up to date and disconnect from anyone you no longer share finances with, just in case.
Manage Your Available Credit
This trick is about how much credit you have to spend on any overdrafts and credit cards that you might have. It is basically the difference between your combined debit balances on your cards and bank accounts, and your combined credits and overdraft limits.
You need to get the balance right between not having too much available, as your lenders might see this as a potential to rack up a lot of debt by deciding to spend it all, and not getting too close to your limits, which makes it seem as though you’re living right at the edge of your finances.
If you do have some debts, lenders prefer that they make up less than half of your available credit. To give yourself the best chance of getting approved, aim to keep your debts at around 25% of your available credit. So, if you have a combined limit of £10,000, a lender would prefer that you’re using less than £5000 of that limit. To be safe, stick around £2,500.
If you are using up a large amount of your available credit, don’t lower your limits so you’re suddenly much closer to the edge. You also should avoid having lots of credit available that you don’t need. New lenders can sometimes be nervous about this, as they worry you could suddenly run up a lot more debt.
Unfortunately, this is not an exact science, and all lenders view credit a little differently. For safety, aim to average about 25% of your available credit, but if you need to use more, keep it under 50%. If you can pay off a debt completely, do it.
Disclosure: This is a featured post.
