Improve your chances of first-timer buyer mortgage success.
If you are planning to buy your first property, one of the initial steps is to apply for a mortgage. This process requires an assessment of your creditworthiness by lenders. When they carry out their assessment, it will include an evaluation of your credit report which details all the information on how you have managed credit in the past, including late or missed repayments.
If you read Part 1 of this blog series, you will know that my wife and I recently remortgaged to fund an extensive home improvement project on our 1960s bungalow.
Now being a mortgage broker one would hope the finances would be under control when it came to financing the building work. I would say that it is under control but I have done some things that I would not normally do, and not recommend either!
As I mentioned in my earlier blog, I had made a bit of a boo boo with the further advance I needed, short term we were fine but I wanted to make sure we had the funds to cover the builders quote in reserve, therefore anything else we wanted had to be funded by other methods. Other things being a log burner (we are in Surrey after all!), shiny new kitchen with shiny new appliances, all the bathroom fixtures and fittings, new bedroom furniture, new sofas, the list goes on, you get the picture.
I decided that 0% credit cards could fund the extra stuff in the short term, just on the off chance the further advance didn’t come through later on. I was confident I wouldn’t go silly and run up a lot of debt. Everything purchased was tracked on our “big build” spreadsheet.
I wouldn’t recommend to a client to go out and get more credit cards as it can affect your credit rating so I’ll explain why I think it was OK for me to do it in this particular situation.
First of all I was confident I would get my further advance in the new year once the kitchen was installed so that would clear off any residual debt as I was tracking all the spending, and what was due, on my spreadsheet.
Secondly I had a decent amount of money in my business I could draw out to cover it all, however this would be subject to 32.5% tax on dividends. With my company year end being 31st March and in touching distance I didn’t want to increase my tax burden; I might have to take the money out later but that essentially defers the tax into the next tax year, not ideal as the rates will probably have risen but it will help my cashflow now.
Thirdly I know I don’t need to remortgage until my fixed rate is up in mid 2019, by which time I’ll be back to using just one credit card and clearing it each month as before. So any short term effect on my credit rating would have recovered by then.
So I and my wife have put approximately £12,000 on credit cards that we will clear in the spring.
The time came to re-apply for the further advance and as I hoped the application was fine. Funnily enough this time they decided they didn’t want to do a valuation and would use the valuation they had on file so no worries about having a kitchen or not this time around.
Advice in this area would be to make sure you have covered all the bases, research how much the fixtures and fittings and nice bells and whistles are going to be. Record everything, you can formulate a complicated spreadsheet as we did or just write it down, either way make sure you are sticking to your budget. We haven’t got too carried away but, for example, we did say we weren’t going to buy any furniture until we had finished and we have. In fact we’ve spent a good £5,000 on furniture, which we can’t sit or lie on for another few months!
If you’ve read my previous blog post you will already know some of the ‘challenges’ we have come up against during the build. In summary, I hope the following tips will help you with any remortgaging / home improvement project you may embark on:
You can only borrow against the current value of your home. Property price increases and minor improvements can increase the value sufficiently. Be realistic and have a clear idea of what your home is actually worth – not what you want it to be.
Make your case to the mortgage lender surveyor. Some surveyors will have a good idea of what your home is worth based on the type of the property and area you live. Others may not. Do your research so you can pitch a value at the surveyor, backed up with hard evidence of comparable properties and the current market.
Get your finances in place before work begins – if you need a bit more cash further down the line you may struggle to remortgage if the house is a building site.
Make sure you know how much you need. Generally most people underestimate the cost of a building project, so get quotes in early so you crunch the numbers and work out if you can raise the funds before you commit in anyway.
Invest the funds raised from remortgaging in an instant access account such as a savings account or premium bonds – it might as well be working for you while you’ve got it.
Agree a payment schedule with your building contractor based on progress, not dates. That way you won’t be paying out for work that hasn’t actually been done.
Consider whether there may be other costs associated with your build. For example, will you need to rent somewhere why work is carried out? If you have no cooking facilities for a few weeks, takeaways and eating out will increase your monthly household spend.
Budget for all the fixtures and fittings. Do you really want to recycle your old appliances in your shiny new kitchen? Or sit around an empty fireplace because a log burner wasn’t budgeted for? If you’re extending your home to create more space, you may find you need more furniture to fill the space; make sure you’ve thought through and budgeted for these additional nice to haves.
If you’re planning a home improvement project and need to raise finance, give me a call. I’m happy to talk to you about my experience, and also explore your remortgaging options.
Whether you’re a first time buyer or an old hand at the mortgage game, if you need a mortgage you’ll also need a mortgage agreement in principle to proceed with your house purchase.
Just to clarify, a mortgage Agreement In Principle (AIP) is where the lender will carry out a credit score on you and give you an indication that they would be willing to lend subject to valuation. Some lenders refer to it as ‘decision in principle’.
As they are going to carry out a credit score this is likely to leave a ‘footprint’ on your credit file and technically this can affect your credit rating. If this is the case then you want to be prepared, as you want the best chance possible to pass the credit score.
First of all check out your credit report and see how you will look to any potential lender. I always point people towards Noddle.co.uk as it is a free for life rather than one of those free for 28 days then we’ll charge you as you will inevitably forget to cancel. That said lenders tend to use Call Credit (Noddle), Experian and Equifax. So if you don’t think you are getting the full picture from Noddle then you might want to try the other two.
Once you have got your credit report you might need to act upon the information. For example if there has been activity on your file you don’t recognise you’ll need to find out what it is and if it is negative, get it sorted.
If you don’t have a lot of credit this can also be negative. In these circumstances I often recommend you get a credit card wherever you can (try your bank in the first instance) and use the card sensibly. Maybe fill the car up once a month with it and then pay the bill in full. After a few months you should see an improvement in your score.
Of course if you want to get an agreement sorted now regardless of your credit score then make sure you have all the correct information available regarding:
Income – last three months payslips and p60, do you get bonuses or commission, if so then have the exact figures for the last year.
Expenditure – how much do you pay for loans, Hire Purchase, Childcare etc.?
Credit Cards – is there an outstanding balance, even if you pay off each month you’ll need to know how much is outstanding today.
Deposit – You’ll need to know how much you are putting down as a deposit so the lender carrying out the AIP can put you in the right loan bracket.
Some lenders leave a credit footprint on your file so the more times you applying the worse it can be for you. However, some lenders don’t leave a footprint on your file so if you can find them you are having a shot at nothing that won’t affect your score. Most brokers will be able to point you in the right direction.
I hope these tips help and if you need any further guidance then feel free to get in touch.
Getting a mortgage when you’re a first time buyer is tough. Changes to the lending criteria following the economic crash in 2008 has made it hard for first time buyers to secure a mortgage, and has called upon them for very large deposits too.
Figures from Halifax suggest that the average deposit has now risen to around £33,000, 13 per cent higher than the average last year. The number of first time buyers has decreased slightly too, despite schemes like the governments ‘Help to Buy’ which specifically targets this group of buyers.
If you’re looking to get your foot on the first rung of the property ladder, you should make sure you’re well prepared for what’s to come. Here are some of the most common mistakes made by first time buyers, and what you can do to avoid them.
You didn’t check your credit report
Having a good credit score will open the door to many more mortgage offers and deals. Find yours out by getting a copy of your report, and ensuring everything on these is factually correct. More on credit scores here.
You’ve made an offer without an agreement in principle
You may well have found your dream home, but without an agreement in principle from your mortgage provider, there’s no point in making an offer. Get your mortgage sorted first, and ask your lender for an ‘agreement in principle’ which will give you the confidence and the backing to really leverage your offer.
You bought a flat with a short lease
If you’re buying a leasehold flat, you could be in trouble if the lease is shorter than 80 years. You may struggle to get a mortgage and, if you do get one, you may struggle to sell the property later on. Try and get the lease extended before purchase, and if you can’t or the seller won’t do this, negotiate your offer in lieu of the short lease.
You didn’t realise how expensive this would be
There are all sorts of costs, fees and charges associated with buying a house, so don’t assume that all you need to worry about is the deposit. From stamp duty to legal fees, it all adds up. Take some time to figure out all the associated costs of moving to get a clearer idea on what you need to pay.
You chose the wrong mortgage
With so many mortgages to choose from, it can be difficult to know if you’re getting the best deal or not. Often the variable rates seem cheaper on the surface than a fixed rate offer, but remember you’ll end up making much higher payments when interest rates rise again. Make sure you’ve compared all the offers available to you, and that you understand how different types of mortgages work. In short do your research and if you are unsure then take advice.
Getting a mortgage as a first-time buyer shouldn’t be a complete nightmare. With some forward planning and awareness of the pitfalls, you should be able to get a good deal.
However if you need some help speak to a mortgage broker or financial advisor. We can help you get in better financial shape to get the best deals, and also have access to mortgage products that are not easy to find on the high street or online.
Give me a call if you would like to chat about your options.
Remortgaging can fulfil a variety of needs. From releasing equity to pay for the things we love, to reducing the time it takes to pay our debt in full, many of us will consider a remortgage at some point in our home owning lives.
Ultra-low interest rates have driven a surge in remortgage applications, with 120 per cent more applications last winter than there were in 2014. The reports of massive savings and reduced mortgage terms is enough to send us all running to the lenders for quotes, but it’s important to think things through when it comes to a mortgage.
A mortgage is unlike any other form of lending; it’s the one biggest purchase most of us make in our lifetime, and is something we’ve got to live with for many years of our lives. Added to this is the ongoing concern that if we get it wrong, we could end up homeless. With all this in mind, it’s clear that a remortgage should be undertaken with the utmost care and consideration.
Here are the questions you should be asking yourself, and your lender, before entering into any kind or remortgage deal:
Is this the right time to remortgage?
Depending on your situation, it could be a great time to remortgage, or a really bad one. If you’re in a good value mortgage deal already or have big penalties to pay if you leave, chances are it’s not the right time to switch. However, if you’re at the end of your current deal, are on a fixed rate which is no longer good value, or want to release some of the equity from the house, it could be a good time to consider a remortgage.
How much is this going to cost?
Unfortunately, nothing in life comes cheap, and the same goes for your remortgage deal. Aside from any exit fees you might have with your current lender (be sure to check these out thoroughly before going any further), there are several other costs associated with remortgaging. For example, you’ll need to pay an arrangement fee to join a new lender, will need survey and legal fees and there may be other administrative costs to cover depending on how your lender is set up.
Will I be able to get a good / better deal?
New mortgage rules came in during 2014 that could mean you’ll struggle to obtain a good value mortgage in the current economic climate. Lenders must closely analyse your income and expenditure, and will undertake much more rigorous tests to ensure you can afford the new mortgage. If your circumstances have changed since you last got a mortgage, don’t presume you’ll get the same or similar deal as you did last time.
What am I trying to achieve?
There are numerous reasons people consider a remortgage, so be certain of your financial goals so you can effectively ensure they are being met. For example:
You want to pay off other debts: If you want to remortgage to release equity and pay off credit deals elsewhere, make sure your mortgage is the right vehicle for doing this. Once you’ve taken into account the fees and charges, a personal loan might be better.
Your deal is ending or poor value: This is a great reason to remortgage, but you need to be confident you’re getting a better deal from your lender. Do your sums, and don’t sign until you’re confident it’s worth it.
Your home has appreciated: If your home has gone up in value significantly, you could be in a new loan-to-value band, meaning you could be eligible for much lower rates of interest.
Other reasons include changing from an interest-only to a repayment mortgage, or to reduce the overall term on the agreement now you’re able to pay more. Whatever reason you’re remortgaging for, have your overarching financial goal in mind and assess any offer to ensure it’s ticking your box.
Is my credit file healthy?
It almost goes without saying that a good credit record is fairly essential to switching to a new mortgage. The more black marks or outstanding debts on your file, the fewer deals will be open to your application. Get a copy of your report before you start applying, and check everything on there is fair and accurate to avoid nasty surprises later on.
More on credit reports and how to improve your score here.
As a homeowner, it is your right and privilege to seek out a better deal for your mortgage. Many borrowers report saving thousands of pounds over the lifetime of their mortgage as a result of switching away from their original deal, so it could pay dividends to compare the market from time to time.
However, as with any loan, do make sure you can afford the repayments and that the overall deal makes good financial sense before you sign on the dotted line.
For more advice on remortgaging and help finding a great deal, contact me on 01252 759233 or email info@thesurreymortgagebroker.co.uk
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