Seven tips to help you get a mortgage

Rising house prices have increased the size of the mortgage people need and made it harder to secure a home loan.

But there are some things you can do to increase your chances of getting a mortgage.

We go into these in more detail in this article, but here are seven tips:

• Build a bigger deposit as a first-time buyer
• Improve your credit score
• Make your loan look more affordable
• Pin down your paperwork, particularly if you are self-employed
• Watch out when remortgaging
• Use a mortgage broker
• Grab government help with homebuying

1. Build a bigger deposit as a first-time buyer

Boris Johnson may be puffing promises of 95% mortgages, but right now there are few available with a deposit that small, leaving many first-time buyers struggling to find loans.

Brace yourself for flash sales, when lenders offer 90% loans for less than a day – but potentially with restrictions such as limits on parental contributions, long fixed rates or not lending on flats or new-builds.

If you can scrape together at least 15% of the property value, you’ll find lower rates and a wider choice.

2. Improve your credit score

Check your credit records – the history of your financial behaviour and ability to keep up with loan repayments – with the three main credit-reference agencies well ahead of making your mortgage application. A good idea would be to fix any issues before they scupper your chances of getting a decent interest rate from a lender or qualifying for a mortgage at all.

Examine your credit report for free via ClearScore (for Equifax), MoneySavingExpert’s Credit Club (for Experian) and Credit Karma (for TransUnion).

Quick hits to increase your credit rating include – if you haven’t done so already – registering to vote, making sure your name and address is correct with all credit providers, and paying household bills such as utilities on time.

Speak to a financial adviser if you need more help on your mortgage application.

3. Make your loan look more affordable

When applying for a mortgage, lenders will want to check your income and outgoings to make sure that you could afford a mortgage payment comfortably, so aim to keep your outgoings as low as possible compared to what you’re bringing in; at least in the months leading up to your mortgage application, stop splashing the cash on anything beyond essentials.

Mortgage lenders will also scrutinise your bank statements for signs you might struggle with existing debt. Avoid using overdrafts and pay down balances on credit cards, store cards and unsecured loans.

James Jones at Experian says: “Lay off applying for anything that involves a ‘hard’ credit check [a thorough search of your credit report] in the three to six months before a mortgage application. That includes not just credit cards, loans and current accounts, but switching broadband, mobile or energy providers.”

A hard credit check happens after you apply for credit, when a lender or other company looks at your report and the search is noted on your credit history. A mortgage lender may consider multiple recent credit checks as a sign that you are in financial difficulties.

Above all, avoid payday loans, county court judgments and gambling transactions.

4. Pin down your paperwork, particularly if you are self-employed

Track down all the paperwork needed for a mortgage application now, so you don’t lose out on a loan because of, say, a missing payslip. Think bank statements and credit card bills for at least the past three months, savings statements to prove your deposit, and ID such as a passport, driving licence and recent utility bills.

Employees will need payslips for at least the most recent three months and a P60 showing income and tax paid for the last tax year.

With the furlough scheme ending, David Hollingworth from mortgage broker L&C says: “Lenders may not be willing to make a mortgage offer without seeing a payslip showing you are back at work.

“Lenders may also pull back on including variable income that could be affected by the coronavirus, such as bonuses or commission – or refuse to take it into account at all.”

If you are self-employed, you will need your tax returns and accounts for at least the past two years. Hollingworth says: “You may also be asked to provide current business bank statements, to demonstrate recent income is stable despite the pandemic.”

5. Watch out when remortgaging

Existing borrowers who have lost bonuses or been forced to take pay cuts may struggle to pass affordability checks when remortgaging with a new lender, even if they can afford their current mortgage.

However, you may still be able to switch to a new deal with your current lender, provided you don’t try to bump up your borrowing.

6. Use a mortgage broker

With fewer mortgages available and changing lending rules, a mortgage broker can scour the market for the best deal and recommend which lenders are more likely to approve your application. Brokers also get access to loans that aren’t widely available elsewhere, as well as notifications of flash sales of mortgage deals available for people with low deposits.

Some brokers, such as L&C and Habito, don’t charge borrowers a fee.

7. Grab government help with homebuying

First-time buyers under 40 can stash up to £4,000 a year in a lifetime ISA, get a 25% top-up from the government, then use the money towards a home costing up to £450,000. Think ahead, though, as your lifetime ISA needs to be open for at least a year before buying.

Meanwhile, with a Help to Buy equity loan, the government will lend between 15% and 40% of the purchase price of a new-build property, with the amount you can borrow depending where you live. The loan is interest-free for the first five years but you will need to raise at least a 5% deposit and use a mortgage for the rest.

How parents (or grandparents) can help get their child onto the property ladder

Parents and grandparents have been handing over hefty sums to help offspring with property purchases.

Nearly a quarter of homebuyers will rely on the Bank of Mum and Dad during 2020, according to research by insurer Legal & General – with family and friends gifting an average of £20,000 towards deposits.

If you want to avoid an outright gift, look out for “springboard” mortgages, where a parent or grandparent puts money in a savings account linked to the child or grandchild’s mortgage. You can’t touch the savings for a set period of, for example, three or five years. Afterwards, provided the mortgage repayments are kept up, you can get your money back, often with interest added.

Similarly, depositing savings in an account linked to a “family offset” mortgage will shrink the interest paid by your child, and therefore increase their chances of passing affordability checks, although you won’t earn any interest.

Alternatively, with a “joint borrower, sole proprietor” mortgage, your income is included when calculating the amount borrowed, but your name stays off the property title. This means you can avoid triggering extra stamp duty now and potential capital gains tax in future.

Just remember that with a joint mortgage, if your child stops paying, you’ll be on the hook for the payments instead.