10 pitfall mortgages

When securing a mortgage might prove a little trickier

Getting a mortgage these days is totally different than it was just a few years ago. In 2014, the ‘Mortgage Market Review’ regulations tightened; it is now more important than ever to have your financial affairs in order. Here are the main factors that could make you a higher risk to lenders – all of which you can mitigate, if you plan ahead.

Self-employed

Very few lenders will help if you have only one year’s worth of formal accounts – none if you’ve not completed a year. Importantly, the income they use is your net income, for example, what you have declared to HMRC. Some lenders work off the most recent year but most take an average of the last two or three years.

Credit issues

If you have missed repayments on loans, credit cards or even a previous or current mortgage, then you may struggle; it depends on how often and how recent the issues are. The fewer and longer ago the better.

If the creditor had to take further action, like register a default or a county court judgement, this must be cleared; and your chances of a high street competitive lender are minimal. Even if you haven’t missed any payments, if you have little or no credit, the lender may not have enough information to make a lending decision and they will air on the side of caution. And if you have a lot of credit close to limits and/or have taken payday loans, this demonstrates cashflow may be tight which means it may not be the right time to be making a mortgage commitment.

Voters roll

If you are not registered on the electoral roll, a lender may not be able to trace your credit history or address history; if you have no track record, it’s hard for them to assess you.

Spending and debt

Mortgage lending is based on affordability these days and significant spending from loan repayments, even for things such as childcare, can dramatically affect the amount a mortgage lender will offer you. The days of a blanket four or five times income are over. Lenders will want to see bank statements showing your income and outgoings, so be aware that they will analyse it. They don’t have an issue with people enjoying their lives however, regular outgoings to betting companies, for example, could turn a lender off completely. Keep an eye on overdrafts too and make sure you stay within limits.

Too many enquiries

Make sure if you want to shop around that you don’t get too many credit scores done. An agent, lender or adviser could refer to them as a ‘mortgage certificate’ or ‘agreement in principle’. Each time a credit score is carried out, it can affect your credit score. Some lenders offer a ‘soft footprint’ to avoid this issue. Remember that if you apply for any form of credit, mobile phone contract, store card, loan, credit card etc. a credit score will be carried out. If you have too many credit scores – more than two, as a guide – over just a few weeks, not only does it reduce your credit score, it can demonstrate to a lender that you have cashflow issues so it’s important to remain vigilant.

November 2018