Can I get a mortgage?
It's a mighty financial commitment but applying for a mortgage doesn't have to be a headache. Here's how it works:
How much can I afford to borrow?
Do the sums. Use a budget planner to work out what you can afford to pay each month on top of all your other bills. Make an allowance for interest rate rises and unexpected events.
How do lenders decide how much they'll lend?
Lenders take into account such things as your income and expenditure, credit history, age, address and marital status. They use this information to establish whether an application will be approved or declined.
Generally, income multiple calculations help to give an indication of how much you can borrow. Barclays can offer up to four times your salary if you apply on your own. If you're applying jointly you could get up to three times joint salary or four times the first salary and one times the second (each of the above are subject to certain conditions being met).
Affordability calculations are also used during the application process as part of the lending decisions. This involves looking at your monthly income against your monthly outgoings, including debt repayments, utility bills and 'lifestyle costs' such as eating out.
What if I'm self-employed?
Policy will vary between lenders so ask around but most lenders ask for verification of your income. If you're self-employed, lenders will usually ask for evidence of your earnings, such as two years of trading accounts. Your application will often need to include evidence of a track record in a particular field.
I have a bad credit history
Lenders will assess each case individually. If you have a County Court Judgment (CCJ) against you for a debt you failed to pay promptly, for example, you may not be turned away by high street lenders if you repaid it more than a year ago.
If it's been less than a year, or if it's still 'unsatisfied' (outstanding), you may have serious difficulties getting a mortgage. CCJs remain on your credit record for six years.
You may only be able to obtain a mortgage from what are known as 'sub-prime' lenders. Those borrowers with adverse credit and CCJs may be charged higher rates by these lenders (historically about 1.5-2% above base rate) to reflect the potentially greater risk of repayments being missed.
These higher rate mortgages are becoming increasingly mainstream and thus competitive, which in turn is slowly bringing rates down. Be aware that sub-prime mortgages often carry large arrangement fees - five or six times higher than high street lenders.
Why else might I be turned down?
Bad credit history is the biggest but other classic reasons for an application being declined include:
- Length of employment, ie short amount of time in your current employment.
- Being absent from the electoral roll at your previous address.
- Property value - a surveyor's valuation report shows the property is not worth the sum you're seeking.
- Construction - many don't like lending on older concrete buildings, for example.
- Location - flats above shops or ex-local authority properties sometimes have difficulties.
- Properties with a short lease.
How much deposit do I need?
Ideally between 10% and 15% of the value of the property as this will give you access to the most competitive rates in the market. Lenders typically ask for borrowers to provide a deposit of at least 10%. The greater the deposit you are able to provide, the better access you’ll have to the most competitive rates in the market
The 'magic' 75%
If you're having trouble getting a mortgage, your chances will improve if you can afford to borrow less than 75% of the property value. This is because lenders have to indemnify themselves against mortgages over this amount.
Clubbing deposits and buying in a group
Up to four names are allowed on a property's deeds but many lenders limit you to two. However, buying in a group demands serious thought.
You should have a legal agreement drawn up by a professional before you buy that specifies each person's deposit contribution, monthly repayment and what should happen if any member wants to sell, leaves or dies.
Your home may be repossessed if you do not keep up repayments on your mortgage.