Experienced and respected mortgage advisers that I have talked to recently say that many buyers are being too pessimistic about the chances of getting a mortgage. They assume the answer will be no and so don’t even apply.
In fact, the Bank of England says that mortgage availability improved markedly in the three months June to August and is expected to improve further in the next three months (to the end of November), partly thanks to the Funding for Lending Scheme. You can see the full Bank of England report here.
So, it may be worth giving it a try. You may get a better response than you might expect.
If you are worried about your chances of success, however, I’d suggest contacting an independent professional mortgage adviser. A failed mortgage application goes down on your credit score and if a lender sees that other lenders have turned you down, they are more inclined to do the same.
A mortgage adviser will be able to give you a pretty good idea of your chances, and test the water with some lenders, without going through a formal application process. Moreover, a mortgage specialist will know which lenders might consider applications from prospective buyers with relatively low deposits.
It will also pay dividends to improve your credit rating as much as possible. Money Saving Expert has an in-depth guide to credit ratings which you can see here.
Here are a few of the key point to bear in mind.
1. Check your current credit score.
There are a number of places you can find out what your current credit score is. Try https://www.noddle.co.uk or http://www.experian.co.uk At least it will tell you what the Banks are going to know about you before you apply.
I’m always astonished at what they do know. Not just what lender I use and where I bank, but who has run a credit check on me in the recent past, my previous address, when my name was added to the electoral role at my current address and so on.
2. Avoid pay day loans
Money Saving Expert doesn’t seem to refer to this specifically, but mortgage advisers I speak to say that taking out a pay day loan will rule you out for many lenders. It suggests to banks that you are not living within your income and can’t get credit (like a credit card) elsewhere.
3. Credit cards
A good payment history on a credit card can help. An absennce of a credit card history leaves lenders with less to go on. If banks can see that you have regularly repaid loans in the past, they will have more confidence that you will keep up your payments on the mortgage. You don’t have to pay off your credit card bill in full every month, but you must keep up payments.
4. Pay down debt
A more complex one this. If you have savings, paying down any outstanding loans will improve your credit score. But, if you plan to use those savings for a deposit, reducing the size of the deposit will reduce your changes of getting a mortgage and/or increase the interest rate you pay. Time for professional advice if you ask me, but if you can show you are managing your outstanding debts without trouble, your savings could be more valuable as a deposit than as a way of improving your credit score.