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06 Thursday Dec 2012

Ten tips to get a mortgage Posted by:

Since the downturn, it has been harder to get a mortgage with lenders tightening their criteria and reducing their maximum loan-to-values. The recently published Mortgage Market Review also introduces a raft of rules that will make getting a mortgage more difficult.

However, it’s not necessarily impossible. Bien Media client Jonathan Harris, director of mortgage broker Anderson Harris (www.andersonharris.co.uk), gives some tips on how to get a mortgage:

Check your credit rating: Since the credit crunch, lenders have preferred borrowers with clean credit histories over those who have missed payments in the past. Check what your credit file says about you before applying for a mortgage as mistakes can be corrected. Contact Equifax (www.equifax.co.uk) and Experian (www.experian.co.uk).

Get on the electoral roll: While this might not sound particularly relevant when it comes to buying your first home or the next one, lenders will confirm your identity by checking the electoral roll. Fraud has been a big issue in the world of mortgages – so a lender will want to check that you are who you say you are.

Keep payslips and P60s: One of the key components of the MMR is that lenders must see proof of income, whether you are employed or self-employed. The former should have payslips and P60s; the latter will need three years of accounts, although one or two lenders will lend on the basis of one year’s audited accounts.

Hold onto bank statements: As well as seeing proof of income, your lender will want to see what you are spending. They will want to see that you are not over-spending and running up huge debts, and that you can keep your account in order.

Reduce debts: Instead of simply lending three or four times your income, lenders are increasingly looking at affordability. This means taking your outgoings into account as well as your income when deciding how much you can borrow. If you have a lot of debt, this will count against you so pay off credit and store cards.

Speak to an independent mortgage broker: It is tricky to get a mortgage so consult a broker to find the right deal for your circumstances. This is particularly important if you are self-employed, have complicated income streams (such as bonuses and retained profits in a business), are buying an unusual property, don’t have any experience of buying property or simply would prefer an expert to help you choose the right deal. Your mortgage is likely to be your biggest outgoing; don’t pay more than you need to.

Pull together the biggest possible deposit: The cheapest mortgage rates are available to those with the biggest deposits, with market-leading deals targeted at those with at least a 40 per cent down payment. While your savings may not stretch to these levels, the more you can put down, the better the rate will be. Those with only a 5 per cent deposit will pay around 3 percentage points more for a five-year fix, for example, than someone with a 40 per cent down payment. That makes a big difference to your monthly costs. The other downside of having a small deposit is that the lender’s credit scoring will be tougher.

Consult the Bank of Mum and Dad. Clearly this won’t always be possible but if your parents are able to help with the deposit or to act as guarantors, this could make a big difference. There are two things worth remembering with this; the first is that if they are helping with the deposit, it is much better for you if this is a gift than a loan as the latter will be viewed by the lender as an outgoing as you have to pay it back, which will affect the size of mortgage you can get. Secondly, if they are going to be guarantors they should seek legal advice to ensure they know exactly what they are getting into.

Get a mortgage agreed in principle. It’s worth finding out how much you can borrow before you start house hunting. This ensures you don’t waste your time, or anyone else’s, looking at properties you can’t afford. It will also ensure that vendors regard you as being serious because you’ve made the effort to get your finances in order before you start looking for a property. This may mean any offer you make is more likely to be accepted.

Think ahead: If you are going to change jobs in the near future, or set up your own business, it makes sense to take out a mortgage or remortgage beforehand. Otherwise, you won’t be in a position to do so for sometime after your job change. Likewise, if you are going on maternity leave or planning a career break to have a baby. Any drop in income is likely to mean a smaller mortgage in the future.