Buying a house is no different; taking out a mortgage is probably one of the biggest financial commitments you’ll ever make, so you'll want to make sure you go about the process in the right way in order to find the most favourable deal for you.
To ensure your journey to homeownership is a happy one, we’ve sought advice from our team of expert brokers. These guys spend their days helping people just like you, so take note, heed their advice, and be sure to get in touch if you’d like a chat.
1) “Know your credit rating - it's always a good idea to keep an eye on your credit report to avoid any nasty surprises when you apply for your mortgage!” -Dan Dawkins
Your credit score is one of the most important factors lenders use to determine your borrowing eligibility.
Even if homeownership isn’t on the cards right now, monitoring your file is a great way to safeguard for the future. There are also plenty of quick fixes to implement which can help boost your score over time.
By regularly keeping an eye on your credit score and taking steps to improve it, you’re setting yourself up to be in a far stronger position when it comes to borrowing money, and under what terms.
2) “Use checkmyfile!”
checkmyfile is an online credit score and report provider that gives users access to their credit file.
It uses data from the four major Credit Reference Agencies (CRAs) to generate a current, detailed report on your credit history and the financial events that have affected your score.
checkmyfile lists the information that UK lenders can see about you when assessing an application for finance. This can help you better manage your credit in the future, as you’ll be aware of all the factors that can influence mortgage providers’ decisions.
Since you have access to the information reported to all CRAs in one place and in the same format, it saves you the trouble of checking each one individually and ensures an accurate summary and interpretation of data.
3) “Take out a credit card to increase your credit score but try and stay below 30% or clear every month.”
If used responsibly, credit cards can be great. But like all good things, too much usage can have negative consequences; regularly maxing out a credit card can not only put you in hot water when it comes to repaying, it can damage your credit file.
To keep your credit score healthy, it’s generally recommended that you keep your ‘credit utilisation rate’ to 30% or less. This means that in any given month, you should aim to use no more than 30% of the credit available to you across all your accounts.
To calculate your utilisation ratio, divide your current balance by your credit limit. Say for example you have a credit card with a £2,000 borrowing limit and your balance is £800: the ratio for that card would be 800 divided by 2,000, which equals a utilisation rate of 0.4, or 40%.
4) “Don't assume that because you have banked with the same bank for years, they will be able to offer you the best mortgage rates.”
Just because you’ve been a loyal customer to your bank for years, it doesn’t mean you’re going to be offered the best mortgage deal. While there’s no harm in checking what’s on offer, this shouldn’t be where your search ends.
Your existing bank will only give you the limited range of deals they have available, therefore it’s very unlikely you’ll happen to stumble upon the best one for you.
A broker on the other hand has access to an array of alternative deals from hundreds of different lenders, including highstreet banks and specialist providers.5) “Get on the Electoral Roll.”
As we mentioned earlier, there are a number of ‘quick fix’ steps you can take that are likely to have a positive impact on your credit score, and being on the Electoral Roll, or Electoral Register, is one of them.
The reason for this is because it is one of the most reliable ways for potential mortgage providers to easily confirm your identity and avoid issues like fraud and identity theft. The more security lenders have, the more confident they are in lending.
If you’re not registered, the process is quite straightforward and can be done in a matter of minutes via the GOV.UK website. If you’re not sure of your status regarding the Electoral Register, you should contact your local electoral office.6) “Ensure your employer has your correct name and address so your payslips match the mortgage application details.”
Keeping your employer or identity documents updated to reflect your current address can easily slip your mind if you find yourself regularly moving from place to place in rented accommodation.
However, lenders are legally required to verify the identity and address of every applicant to protect against fraud, so if the name or address on your documents don’t match your mortgage application they’ll want to know why.
At best this could result in a holdup in the process, at worst it could arouse suspicion and raise a red flag. Consistency and clarity is key here, so if you move home, get married or change your name, best practice is to keep your details up to date.7) “Don't be afraid to ask - never think that having some previous credit issues will always prevent you from getting a mortgage. Talk to a specialist as you may realise that what you thought was impossible is more than achievable.”
While getting a mortgage can be more challenging if you have a history of adverse credit issues, it isn’t impossible. Mortgage providers are increasingly aware of the fact that one instance of bad credit rarely defines your credit-worthiness as a borrower.
As such, most take a range of factors alongside your credit rating into consideration when assessing your application, including (but not limited to) your job type, earnings, expenditure, deposit size and age, before reaching a decision as to your eligibility.
Don’t lose hope if you’ve previously been declined a mortgage as a result of bad credit - you might just be looking in the wrong place. There are lenders specialising in bad credit mortgages, so speak to a specialist about your circumstances for a nudge in the right direction.8) “Landlords & investors: when buying a property via a limited company / SPV, make sure you seek tax advice to ensure it’s the most cost effective option.”
If you’re an investor, purchasing a property through a limited company may seem like a no-brainer.
For one, limited companies will only have to pay 19% corporation tax, as opposed to forking out 45% of their rental income as a private individual. Limited liability also means you aren’t personally liable for any losses, and it could minimise the amount of inheritance tax paid by your family members.
That being said, you need to take into consideration the numerous costs associated with setting up and running a limited company - not to mention accountant and lawyer fees. It can also be more difficult to secure favourable rates as a limited company rather than an individual BTL landlord.
In this situation, it’s always advisable to seek professional advice to determine which approach will be the most cost-effective.9) “Be honest and transparent with your broker. This gives us the best chance to find the right mortgage for you the first time we try.”
It’s understandable that it might make you uncomfortable opening up about your financial situation, but without the truth, brokers are unable to suggest the best way forward for you.
Our team of advisors aren’t here to cast judgement, nor do you have to justify anything to them; they simply need an accurate idea of your circumstances so they can give helpful advice and make accurate recommendations.
And last but not least - and in our opinion, the most important of all… >10) “Use a good mortgage broker! With fewer mortgages available and forever changing lender rules, they can search the market for the best deal and recommend lenders who will approve your application.”
The mortgage industry can be a confusing, daunting place, and without the assistance of an experienced industry expert it’s easy to get lost in the process. And while you might seemingly save a few quid on fees, the likelihood is that money will end up in the pocket of an ill-suited lender if you go it alone.
Here are just three reasons to use a good mortgage broker (like us!):
With access to over 100 highstreet banks, building societies and specialist lenders, we can compare thousands of mortgage products to find the most suitable deal for you.
We check your eligibility at the outset, so you don’t waste time (or damage your credit score) approaching lenders whose criteria you don’t meet.
Because we have pre-established relationships with mortgage providers, we can offer you exclusive deals and special rate mortgage deals you won’t find anywhere else.
Give us a call on 02380 980304 or request a callback to speak to a member of our friendly, knowledgeable team. Your journey to hassle-free homeownership starts here!