The rules surrounding mortgage affordability have become stricter over recent years meaning that those starting out on their property journey need to save as much as possible for their deposit. But what does this mean in reality?
There was a time when you could simply select the right mortgage, tell the lender that you can afford the repayments and wait for the cash to appear in your account. Lenders were offering self-certification mortgages whereby you simply needed an accountant’s letter backing up your self employed income and some buyers could even secure a 95% interest only mortgage with a cash back option! However the days of irresponsible lending are (thankfully) over.
The financial crisis — when the legacy of unaffordable mortgages caused a chain reaction that caused house prices to crash – prompted an overhaul of the mortgage application process known as the mortgage market review. When anyone talks about mortgages the word ‘affordability’ seems to go hand in hand. This protects consumers from being sold loans that they can’t afford to repay – and although this has many advantages that will be felt for generation, it has also locked a large number out of the property market especially those who are self employed or have unique circumstances that don’t conform to the profile of a typical borrower and ’safe bet’.
So how can you improve your affordability?
Cut unnecessary costs
By cutting your monthly outgoings by just £100 you could add up to £10,000 to your maximum loan. This could mean ditching the morning coffee and lunch out, staying in rather than going out or cancelling subscriptions that you can do with out such as a gym membership, an expensive TV package or memberships you don’t use. Check you have the best deal available and try and switch to a different deal or provider if possible. When you come to the end of a contract – such as a mobile phone or cable TV, renegotiate the monthly fee. By making a few small changes you can make a big difference to your outgoings and ultimately the amount you can borrow, or the extra saving can be put towards a deposit.
Some lenders only want three months of statements and payslips whereas another may want six, it’s best to plan for the worst and hope for the best to give yourself the best chance of getting a mortgage. Some lenders interpret unsecured credit card and overdraft debt differently so it’s better to try and pay these off in advance of applying for a mortgage even if that means delaying buying a property.
Your deposit is key
The size of your deposit is half the battle. The larger the loan to value you need, the more difficult and expensive to obtain so it’s important to prioritise saving for your deposit.
Analyse your lifestyle
Lenders may also look for red flags such as payments to gambling companies, significant one-off payments and overspending. Take a good look at your lifestyle and how you manage your accounts as this can affect your affordability rating with the lender and you can dramatically improve your chances of being accepted by making changes to the way you spend your cash.
You could find it’s more beneficial to put off purchasing your own home until you can reduce your debts – this will improve your affordability and the amount you can borrow. If you are one of the millions of people who permanently live in their overdraft, now is the time to get back into the black. If you have a student loan it could be treated differently by various lenders.
Keep an eye on your credit score
It’s essential to keep a close eye on your credit score throughout the preparation, application and buying process particularly in case of any errors that could affect a good score. As soon as there’s a change make sure it’s correct and that nothing is adversely affecting your score.
Lenders won’t take future prospects into account
It’s worth noting that one of the changes in lending attitudes has been that lenders won’t take future prospects into account. Saying you should get a pay rise next year or more freelance work won’t carry much weight. You need to secure the increase before your application is considered.
At The Mortgage Hub we can help give you the best chance of securing a mortgage and purchasing your home. Preparation is key so talk to us today for advice from our friendly, professional team.
The Mortgage Hub is an independent mortgage advisor serving the greater Glasgow area. Whether you are planning to buy your very first home and need the right first time buyer mortgage, or are looking to re-mortgage due to a house move or to growing family – we understand your journey is so much more than a financial process, it’s a journey to achieve your dreams, improve your lifestyle and achieve your true potential.