There are some great mortgage deals out there at the moment, but how do you ensure that you get them when you apply? With mortgage lending criteria so radically changed from a few years ago, it seems like you have to know the secret handshake just to be in with a chance to get a mortgage. Northfields shares some insider information to make sure you get to be part of the club.
Although the BBC recently reported that “Mortgage Recovery is Not in Sight” Headlines like this are made that much more perplexing when you consider that the the number of overall mortgage products available has increased and with lenders saying that they are providing almost all their applicants with the mortgages they apply for directly.
With low interest rates there are now some mortgages that offer excellent deals with trackers under 2%, five-year fixes below 3.7% and deals that allow you to enjoy a low tracker now and to switch to a fix without penalty at any time. To make these deals even more appealing, free valuation and paid legal fees are often all part of the package for remortgages.
Great rates and free services all sound great but the catch is that many of these deals are only available in the low loan-to-value (LTV) strata when borrowers can provide 30% or more of the total sum up front. In other words, they only need to borrow 70% or less than the overall value of the property.
Why then are so many borrowers being either turned down or told that they can’t borrow the sum of money that they actually need?
With large deposits required by all lenders, first time buyers are particularly struggling to secure financing to buy property. To really kick-start the mortgage market we need to see more available for borrowers who only have a 10-20% deposit.
Then there are all the changes to the criteria and the paperwork required to secure the mortgage, making it feel like applying for a mortgage is akin to trying to gain admittance to a secret society.
Get your paperwork in order
One thing that can help ease the process and improve your chances of success when applying for a mortgage is to get your documentation right before you start applying for a mortgage.
Unfortunately, the lender can tighten or loosen their criteria whenever they choose depending on whether they want to up their lending levels or drop them.
The new lending rules
1. Address - A good three-year address history is a must and it helps dramatically to be registered on the voters roll at your current address.
2. Credit rating - Monthly outgoings are taken into account, so a small credit card you could pay off, but choose just to pay the minimum, will affect your borrowing. The amount you can borrow is no longer simply linked to a multiple of your income, but on an affordability basis linked to the credit score.
3. Dependents - The number of dependents you have also has a bearing, as will any outgoings many take for granted such as childcare. This means that although they may be on the same incomes, a couple with no children or credit card debts may be able to borrow substantially more than a couple with two children and outstanding credit card balances.
4. Payslips and bank account statements - The paperwork that lenders will want may include your last three months payslips and last P60 as well as potentially your last three months bank statements. Make sure that all your paperwork is sequential with no single statement missing. Ironically, although many banks are now encouraging customers to switch to online statements, many lenders do not like internet bank statements, so it may be worthwhile to request paper statements.
5. Proof of deposit – When you buy you must show that you have the money for the deposit. If a large lump sum has suddenly appeared in your account (for example if your parents are providing the deposit) you must be able to show its origin.
Unfortunately, if you are self-employed or have more erratic income, lenders will seek even more paperwork. In addition to the regular documentation you will need:
1. Last two years accounts
2. Last 12 months bank statements
3. Form SA302, which shows the tax calculation made by HM Revenue and Customs. This form is not always received by the self employed and so you may need to request it. Waiting for this form may slow down the application so it is best to have this in advance.
Be aware that there are no standards for the paperwork required and different lenders may ask for different things and the same lender may change their requirements.
A good independent mortgage broker will know which lenders are moving quicker than others and what they are likely to ask for at any given time.
The information in this article is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.
Northfields Estates is happy to recommend a professional independent mortgage advisor who can help steer you through the murky waters of applying for a mortgage. Call us now for a referral on 0208 840 6666 or e-mail us at firstname.lastname@example.org