With inflation on the rise and the cost of borrowing set to continue to increase, lending criteria may tighten up, especially if you are looking to apply for your first mortgage.
With rental prices increasing due to the rise in property prices, the market is expected to see a flood of first-time buyers trying to get their first step on the property ladder. Getting a mortgage could be the difference between getting onto the property ladder or renting for the rest of your life.
There are some steps you should take to help you try and get a mortgage. We've seen examples where people renting for an extended period couldn't get a mortgage, where their mortgage payments would have been lower than their rent!
Lenders look at many aspects when considering lending, including stress test levels, credit history, how you manage your bank account, and so on, to decide whether to lend.
So what steps could you take to help with a lender's assessment?
Debt is crucial, and lenders will look at your credit report to see what outstanding debts you have. This includes overdrafts, loans, credit cards and even car payments. Lenders will look at your income and outgoings to determine your affordability.
When deciding what amount you can borrow, lenders use income multiples to determine what you may be able to afford. On average, a lender will lend up to 4.5 times your income. However, this will depend on your income, outgoings, and any debt you may have.
To improve the way a lender may see your circumstances, we recommend that you sort out any debt. Try not to drop into your overdraft. Make sure any loans and outstanding credit card balances are paid off. Keep in mind that lenders will also look at car lease agreements as an outgoing, which may impact the amount you might be able to borrow.
A lender will know everything about you when carrying out a credit check. Your credit score gives a lender the history of how you managed any borrowing over the last 12 months. It will show if you've missed any payments, had any late payments, defaulted on any credit, and have any CCJs.
The higher your score, the higher the chance you will give yourself to secure that mortgage. You can view your credit report from credit agencies such as Experian or Equifax.
If you have any issues with your credit score, these agencies may guide you in what steps you might want to take to improve your credit score. The sooner you improve your score, the higher the chance you will be giving yourself to being able to secure a mortgage.
If you have a good credit score or have managed to improve your credit score, you should apply for a Mortgage Agreement in Principle. An Agreement in Principle (AIP) gives an amount that you might be able to borrow from the lender based on an initial assessment of your circumstances, and it is valid for up to 90 days.
You must keep in mind that an AIP is only an estimate and not a formal mortgage offer. Even if you have an AIP, a lender can still refuse to give you a mortgage.
Although you may have a good banking relationship with your bank, it may be worth speaking with a mortgage broker who can look at the whole market. Brokers will compare mortgages from across the board to find the best deal depending on your circumstances. Brokers will also have exclusive deals that might not be available on the high street, and as they work with several lenders, they will also know which lenders are likely to accept your application.
If you are self-employed, have a poor credit history, or have any other circumstances against you, a broker might be able to find you a mortgage from a lender that may consider your circumstances.
Overall, having a good credit score and no outstanding debt will help you towards securing a mortgage (no guarantees). However, to fully assess your situation, speak with your bank or a mortgage broker, who will be able to guide you in what you need to do in order to get a mortgage.
Our blog is only a guide on what steps you may want to take to help you in your journey. This blog is not to be taken as advice, and we recommend you to speak with your bank or a mortgage broker for regulated advice.