Applying for your first mortgage can be a stressful process. The good news is there are certain things you can do today to increase your chances of getting approved.
Your credit report is your personal history record of how you manage your payments and debts. lenders can view the report to decide if they are happy to do business with you. The report contains your financial historical record and shows how much debt you currently have, how you manage that debt, how you pay your bills and payments and how long you have been managing your credit.
Lenders are looking for customers with a good combination of credit accounts that they manage well including credit cards, mortgages and loans. Credit reports are used to verify your identity and calculate your credit score. Your score will need to be high enough to pass the lenders internal score requirement. Having a bigger deposit can lower the lenders score requirement.
Regularly checking your credit report and credit history means you are always on top of your money and gives you a good understanding of your credit position. By checking your report it gives you an idea of what lenders will see when assessing you. It also gives you a chance to correct any errors or missing information.
There are four main credit reference agencies in the UK, Experian, Equifax, Transunion and Crediva and each reference agency holds slightly different information. Lenders use some or all of these main four reference agencies so it’s a good idea to check what is on all of them, You can check your credit report on Check My File
Check my file gathers data from all four major credit reference agencies which means you don’t have to go to each reference agency individually, You can sign up for a 14 day free trial after which it will cost you £14.99 per month and you can cancel anytime.
Once you’re aware of what your credit report looks like you can then work on improving your credit score. As previously covered your credit report is a summary of your debt history and repayments whereas your credit score is a single number that lenders look at to evaluate whether you are high risk or not.
Your credit score can be affected by:
Lenders are more likely to accept you for a mortgage if you have a good credit rating.
Based on Experian’s scoring system, A good credit score in the UK is anywhere between 881-860. An excellent credit score is between 961-999. A score between 566-603 is fair but improving that score would be advisable. People with higher credit scores tend to get better rates on their mortgage.
You can improve your credit score by:
The larger your deposit amount the more likely you are to be approved for a mortgage. When it comes to deposits there is only one rule, save as much as you can. Lenders prefer people with large deposits as it is less risky for them.
By having a larger deposit you also lower your loan-to-value ratio. This means you will be able to take advantage of better mortgage deals than a person with a low deposit. If you default on your mortgage the lender can repossess the property but by having a lower loan-to-value ratio it means the lender has less risk in recovering the debt owed by selling the house.
The minimum deposit required is 5% but the credit score requirement for these mortgages are high and so are the interest rates, if you are able to obtain 15% deposit you will be more likely to pass the agreement in principle and obtain a lower rate.
An unsecured debt is any debt you have that is not secured against an asset (like a car or house). This means if you defaulted on the debt the lender might not be able to recover their losses. Examples of unsecured debts or loans are:
If you can pay off these types of debts before you apply for a mortgage. This helps to reduce your monthly outgoings which means more disposable income is available for your new mortgage, improving your credit score and mortgage affordability.
In order to apply for a mortgage you have to prove residency at your current address. This enables the lender to be confident that all of the checks they complete on you are for the right person. Most lenders consider your electoral roll register a vital piece of information when it comes to applying for mortgages.
There are two main ways to check if you are registered. The first is by checking your credit report and the second is by contacting your local council.