In early 2014 the Financial Conduct Authority told mortgage lenders to tighten up their lending criteria so that they became more cautious and stricter with applicants.
One of the rules asked that lenders “stress test” applicants to make sure they could carry on paying even if interest rates doubled or even trebled suddenly. This means that if you’re about to apply for a mortgage you’ll face tougher hurdles, so you need to be more prepared than ever.
Here’s how to clear those hurdles.
Do a credit check
Pretty much every adult in the UK has a credit score and lenders will look at it when they decide whether to give you a mortgage or not. See if yours could do with some repair work by going to Equifax or Experian.
The bigger your deposit, the lower your interest rate will be and the lower your monthly repayments. For the very cheapest rates you’ll need at least a 40% deposit, but obviously the more you have to put down, the less you need to borrow.
Get on the electoral roll
If you’re not easily found on the electoral roll at your current address, you’re more likely to fail in your application.
Research and understand the mortgage market
There are so many different mortgage types on offer, but not all of them will be suitable for you. Do your homework and ask an independent advisor.
Stay out of your overdraft and pay your bills and credit cards on time – credit check agencies like to see this.
List your monthly expenses
You need to know how much you spend a month on your credit card payments, as well as other debts and utility bills. Your lender will also ask about rent, travel, clothing, entertainment, hobbies, childcare and so on. Have it all to hand.
Find or order bank statements
You’ll need at least six months’ worth of statements, so if you don’t keep them filed away, either order them or print them out from your online banking facility.
Give your plastic a rest
Typically, if you’re up to 75% of your credit limit, you’re seen as a risk, so pay your cards down and leave any impulse purchases alone!
Pay down (or off) any loans
Mortgage lenders don’t like to see outstanding loan balances, especially if the monthly payments are high enough to impact upon your mortgage payments.
Rein it in
In the months leading up to your application, don’t make any impulse purchases so that you look like a careful spender. This is why your lender wants a few months of bank statements. That shoe fetish? It’s not going to help…
Be as boring as possible, and good luck!