How to improve your credit score - Guide for the UK

How to improve your credit score?

Your credit score is something you probably don’t have to think about very often. But when the time comes to apply for a mortgage, your credit score will be all you can think about. Credit scores can often derail mortgage applications, so it’s worth getting clued up on yours.

Plenty of companies will offer to improve your credit score for a fee. But unless your credit score is low because of a mistake, there is little that an outside company can do that you can’t do yourself. By taking control of your own credit score, you can improve your chances of getting a good deal on your mortgage.

Read on to learn more about credit scores, why they matter, and how to improve yours. If you suspect your credit score might be holding you back in your mortgage application, get in touch to see how we can help.

What is your credit score?

Your credit score is a numerical value attached to your credit report. Financial agencies report your financial behaviour to authorised credit referencing agencies. These companies then organise this information and assign a score based on your behaviour.

Your credit score is also helpful for confirming your identity. It includes information about your address history and your financial links. If you have ever been bankrupt or have a CCJ against you, this information will appear on your credit score, making it harder for you to evade these checks on credit applications.

How to check your credit score

If you are curious about your current credit score, you can sign up to the major credit referencing agencies. There are free subscriptions available that will allow you to get a rough idea of your credit score. Paid subscriptions will allow you to gain a detailed insight and even make changes if the information is incorrect.

Your credit score will differ for each credit reference agency, so it’s worth signing up for each one to get a more complete picture. Lenders will have their own preferences, so you need a complete picture.

The main credit reference agencies in the UK are:

Experian – you can sign up directly to Experian with a free account. Experian assigns a score out of 999.
Equifax – you can sign up to ClearScore for free to see your Equifax credit score. Equifax assigns a score out of 710, while ClearScore uses a 700 point system.
TransUnion – to see your TransUnion credit score, you can sign up to Credit Karma, formerly known as Noddle. TransUnion assigns a score out of 710.

Each of these companies will offer a free and a paid version, the free version should be sufficient for your needs at this time. If there are issues on your report, a paid subscription might be worth investigating.

Who can see your credit score?

When you apply for credit, you are giving permission for the lender to look at your credit score. Any organisation with an existing financial relationship to you can also check your credit score. Many banks will check your credit score periodically to help them assess if they need to make changes to your account.

When you move house, landlords may ask to check your credit score before deciding if they should allow you to rent from them. Some employers may also ask to see your credit report before hiring you, particularly if you will be handling large sums of money. If you are in a lot of debt, you could be a high-risk hire.

Utility companies, insurance companies, government agencies and debt collectors will also be able to see your credit score. In general, you have to give permission before an organisation can look at your credit report, and only authorised organisations are allowed to see it. Every time an organisation requests to see your credit report, this will appear on your search history.

Your credit report does not include information about your salary or your savings. And it isn’t visible to anyone who cares to search for it. Only authorised companies with permission to check it are allowed to search your credit history.

Factors that impact your credit score

Your credit score is made up of many different factors. Each credit checking agency will have their own scoring system, but in general, they all look at the same factors. These include:

Your residential history. Most lenders will want to see a residential history of at least 3 years.
If you are on the electoral roll.
Your current accounts, credit card and personal loans status.
Utility records.
Financial links to other people.
CCJs and bankruptcy.

These are just some of the factors that will be used to create your credit score. Some factors will have more impact than others. For example, a CCJ on your record will be more damaging than a missed credit card payment from 3 years ago.

And remember, each credit referencing agency will have its own system for scoring your financial performance. So one agency might place more weight on responsible credit card usage than another. This is why it is so important to get the full picture before applying for credit.

Reasons you might want to improve your credit score

The most common reason that individuals seek to improve their credit score is to prepare for a loan application. When lenders look at your credit report, they use the information to determine if you are a high-risk borrower.

A high-risk borrower might struggle to repay, miss payments and even default on the loan. So if the lender decides to go ahead with an application, they will attach a higher interest rate to the loan.

When you have a low credit score, it costs more money to borrow money. This means that those with a high credit score will typically have access to the best lending products. So when you are looking for a high-value loan like a mortgage, it can save you tens of thousands in interest payments by simply improving your credit score.

How long will it take to improve your credit score?

Most credit referencing agencies update your credit score every month. So while you could see small short-term improvements, it’s more likely to be a long-term task. This all depends on the factors that are holding you back. For example, a CCJ on your record is perhaps one of the worst things that can happen to your credit report. This will stay on your credit report for 6 years.

Your entire credit report lasts 6 years, so if you had a period of financial difficulty and struggled to make your credit card payments 5 years ago, you would have to wait 1 year until this period drops from your credit report. However, it’s worth noting that historical blunders will carry less weight than more recent mishaps.

The length of time it takes to clean up your credit report and improve your credit score will depend on the type of issues you are facing. Some of the steps outlined below are short-term fixes and some are long-term goals.

How to improve your credit score

If you suspect your credit score might be holding you back from either securing credit, or securing a good interest rate, there are steps you can take. Remember that changes to your credit report can cause your score to go down as well as up. If you need to start building credit from scratch, you should do this well in advance, as the credit application will still be fresh on your file. If your credit score is holding you back, you should be prepared for the possibility that this could hold up your plans for homeownership by months, or even years. You can use this time to boost your savings, allowing you to lower the LTV amount and secure an even better year.

Get on the electoral roll

Although a small factor to consider, it is nonetheless worth getting this step completed before any credit application. Lenders use the electoral roll to confirm your identity, so this is one of the first steps you should take. It only takes a moment to get on the electoral roll, but it can take much longer for this to appear on your credit report.

Check your address history

When applying for any credit, lenders will want to see that you have 3 years of residential history in the UK. If there are mistakes on your address history, you won’t be able to add them in, but it can help you to spot fraud.

Look for any addresses you don’t recognise and then determine the financial link. Each address will be linked to some kind of lending, insurance product or utility service. If an account has been left open, or if an account has been opened fraudulently, this will be evident from your address history.

A common problem that recent graduates face is when utility accounts from their student house are left open in their name. When this happens, any debt accrued on the account will negatively impact your credit score. Identify any outdated accounts and make sure you close them.

Pay down your debts

If possible, use some of your savings to pay down your debts and keep them under the 30% threshold. If you have 2 credit cards and have the choice to pay off one entirely to close the account or pay both partially to bring it under 30% of the credit limit, the latter choice would be better.

Keep your balances low

It’s a common misconception that those with zero debt have the best credit scores. Lenders actually want to see a history of responsible borrowing, as it gives them confidence that you will be able to repay your debt to them. If you have no debt payment history, this can be just as bad as having a history of missed payments.

Lenders typically want to see that you keep your debt under 30% of your threshold. So, if you have a credit card with £1,000 of credit, keep your monthly balance under £300. The same goes for overdrafts and store credit cards.

As you are nearing your mortgage application, avoid applying for further credit. This can make lenders more nervous if you have a large portion of unused credit.

Build a credit history

If you are starting from scratch with no credit history, you need to find a way to start building it. This can be difficult to achieve, as lenders will want to see your credit history before granting any credit. But without a credit facility, you can’t build your credit history.

Many students overcome this by applying for a student credit card. This will change into a normal credit card after graduation. When used responsibly, this can be a great way to build your credit as you start your career. However, if you lack the financial discipline to use the credit in the right way, you might simply end up with debt you struggle to repay.

A prepaid credit card can help you to start building your credit score and can also be helpful for making large purchases online. A credit card will offer additional protections, so you can shop online with confidence.

After you have built a credit history, you can then apply for a real credit card. The bank you have a current account with is often the best place to start. Banks will typically offer a low credit limit, which may only be around £500. Spend a little on the card every month and then pay it back in full to start building a history of good credit behaviour.

Check for fraudulent behaviour

Your credit report is often the best way to identify fraud. Before making any credit applications, you should always check that fraudulent activity isn’t costing you more in interest payments. If accounts have been opened in your name without your knowledge, this could be negatively impacting your credit score.

If you suspect fraud has taken place, you will need to file a report with Action Fraud. You should also apply a notice of correction password to your credit report. This is a signal to lenders that you have been a victim of fraud in the past. It will trigger them to request your password before granting any line of credit to you.

Sever financial relationships

If you have even held a joint account, you may be financially linked to that person, and their financial behaviour could be dragging your score down. The most common source of financial relationships is one you might have with your partner.

If you are broken up, make sure any accounts you held in both of your names are closed. Many couples will break up and one will continue using the shared account. This will preserve the financial relationship and could damage your credit score in the future. If your ex-partner were to get into a lot of debt and be unable to repay, this could reflect negatively on your account.

Another common source or financial relationships is student house accounts. If you have set up a shared account to make bill payments during your time at university, you could still be financially linked to those you once lived with. Make sure all accounts are settled and closed to sever this tie.

Make payments on time

One of the simplest ways you can keep your credit score on track is to make sure you make all payments on time. When you look at your credit report, you will see the financial history of each lending facility you have in your name. For each month, you will see a dot that will either be marked as on-track, late or missed.

Avoid having any missed or late payments on your record, as these can drag your score down. The easiest way to achieve this is to set up direct debits to make payments for you. This will eliminate the risk of missing any payments. If you are struggling to make payments for any reason, always contact the lender as they may be able to arrange a payment holiday which will not be reported as missed payments on your credit report.

Stop applying for credit

Repeat applications for credit can negatively impact your credit score. If you have been rejected for credit from one lender, don’t immediately turn to another lender. When applying for a mortgage, lenders will not see if your credit applications have been successful, just that they happened. These will show up in your credit search history, and it will state if the search was a soft search (speculative) or a hard search.

A lender might be concerned that after granting you a mortgage, you could go on a spending spree on multiple credit cards and be unable to repay your debts. In the run-up to applying for a mortgage, you should stop applying for credit and give it time for recent applications to fall down in your credit history. An application made 6 months ago is less damaging than an application from 2 weeks ago.

While your credit report might take months to update, searches can show up immediately, so it’s not worth running the risk that this could derail your application. Remember that some things that might not seem like credit facilities will be seen as such on your application. This includes mobile phone contracts and insurance products. Many insurance providers will offer an interest-free loan which covers a full year of premiums, allowing you to pay monthly instead of up-front. As such, this will be considered a type of borrowing and will therefore show up on your credit report.

Use rental payments to improve your credit

If you don’t own your house, chances are you rent a home. A common complaint that many renters have is that they are able to make rental payments every month, and yet lenders still doubt their ability to make regular payments.

Changes in 2018 mean that you can now have your rental payments added to your credit report. This can help to boost your credit score and show a history of making payments on time. You can use CreditLadder to report your rental payments to the credit checking agencies, allowing you to build credit while you pay for one of your biggest monthly expenses.

Use savings to improve your credit

If you are hoping to get on the property ladder, you will probably want to build up your savings. The good news is that you can also use your monthly savings to improve your credit score. We stated above that your savings accounts are not declared on your credit report, but specialist lenders are now offering a unique workaround.

LOQBOX is a unique savings account provider that allows you to determine how much you are able to save each month. This annual amount is taken as a 0.0% interest loan and placed in a locked savings account. You will be unable to access the savings until the end of the term. Instead, you make regular monthly payments to “pay back” the loan.

At the end of the year, the money is yours, and you have a history of regular loan repayments to help bolster your credit report. For those who struggle to save money and need a little added incentive, this can be a great way to stay motivated.

Closing thoughts

Your credit report might never be perfect, but the steps above should help to keep you on track. Remember that even those with low credit scores will be able to secure credit, it will just cost more money. So by improving your credit score, you could decrease your interest rate and save money in the long-term. Being aware of how your credit score impacts your borrowing position is one of the best ways to stay one step ahead and secure a good deal. If you need help finding a lender who will work with you, get in touch to find out how we can help.

Can You Get A Mortgage With A CCJ

Most people hoping to buy a home will need a mortgage. Unless you have a large sum of money available, the prospect of buying a home with cash is unlikely. Without rich relatives or a lottery win, most people will have to rely on a mortgage to help them buy their home.

A mortgage is a long-term loan used to buy a property. Once you buy a home with a mortgage, you are allowed to live in the house and make payments towards the mortgage every month. Most mortgages last around 25-30 years.

To make sure the mortgage is affordable, lenders will carry out stringent checks on borrowers. They will look into their past, present and future financial situation to determine if they are responsible with money and have a steady source of income.

During these checks, lenders are looking for signs that you might struggle to repay your debts, and one of the key signals they look for is the presence of CCJs. Getting a mortgage with a CCJ can be more difficult, but not impossible. In this guide, we will look at some of the factors you will need to know about before applying for a mortgage with a CCJ.

What is a CCJ?

A CCJ is also known as a County Court Judgement. Your creditors can apply to the courts to force you to repay your debts if you are in arrears. This is typically the last step, as it can incur additional charges for both parties. If you have a CCJ, it will impact your credit score. The credit report will show the amount you owe, who you owe the money to, the date it was decided in court, and if the debt has been repaid. A CCJ will stay on your credit report for 6 years.

Do I have to disclose it on my application?

You don’t have to, because it will appear on your credit report. All lenders will look at your credit report before making a lending decision, so there is no way to conceal this or try to hide it from the lender. Your application might include a question about CCJs and bankruptcy, so it’s important to be honest.

Some people aren’t aware they have a CCJ and this can cause problems when they submit their mortgage application. The most common reason for having a CCJ without your knowledge is from an old debt that is registered to a previous property. If you have missed the letters, you could end up with a CCJ without your knowledge.

This highlights the importance of checking your credit score before you move forward with an application. A CCJ can cause a significant drop in your credit score, so it’s worth checking if one is present before you begin an application. The presence of a CCJ can also influence the type of lender you approach, as some will be more forgiving of these red flags than others.

Will a CCJ stop me getting a mortgage?

No, not always, but it can if you approach the wrong lender. Some lenders will fail to see past this red flag, so there is little point in submitting an application. Others will look at other factors that are on your application and make a more considered assessment. This can include:

Whether the CCJ is satisfied. This means that the debt has been paid and your credit report has been updated accordingly.
The time since the CCJ. A CCJ will stay on your record for 6 years, so if it has been 5 years and the debt has been paid, this will be less likely to impact your credit score than an unpaid CCJ from the past 6 months.
The amount owed. A debt of £10,000 will look more severe than a £400 debt. The amount will be taken into consideration as a sign of your financial responsibility.

How can I minimise the risk of rejection?

No one likes to think about rejection, but it can be even more stressful when your dream home is on the line. If you have a CCJ and you are worried about it having an impact on your application, the best thing you can do is to be prepared.

By approaching the right lender, you can minimise the risk of rejection. Navigating the mortgage market alone can be stressful, which is why we recommend embarking on this journey with the help of a mortgage broker. They will be able to help you identify the lenders most likely to say yes.

You can also neaten up other areas of your application to minimise the CCJ. Pay down your existing debts and keep your spending within 20-30% of your credit limit. You can also close old accounts, make sure you’re on the electoral roll at your current address, and boost your deposit amount by as much as possible. You should also avoid any credit applications before you submit your mortgage paperwork, as this will appear on your report.

A lender might be able to overlook a CCJ if the other areas of your application look strong. This includes your deposit, current financial conduct and your income.

Should I wait for the CCJ to end?

If your CCJ is coming to an end, you could be better off waiting until it has dropped from your credit report to make it easier to secure a mortgage. While a CCJ might not prevent you from securing a mortgage, it can make your interest rates higher, which means your mortgage will cost most in the long term. This is a common tactic employed by lenders to manage their risk.

If your CCJ is more recent, focus on getting it paid off and marked as satisfied on your credit report. This will often restore your credit score and help you to get your lending back on track. You can then approach a specialist mortgage broker to discuss your next steps, and if this should include a mortgage application or a little more waiting.

Guide on getting a mortgage as a company director

Securing a mortgage can be a complex process if you don’t fall into one of the neat categories. Those with a full-time salaried income will typically find it easier to secure a mortgage than those who are self-employed or a company director. Company directors will usually have a more difficult time securing a mortgage, while those they employ will find it much easier.

While getting a mortgage as a company director might be more complex, it certainly isn’t impossible. Many company directors secure mortgages every year, so if you’re hoping to get on the property ladder, read on to discover how to make this process easier.

Can company directors get a mortgage?

The short answer is, yes! Company directors can get a mortgage, but the process for applying for a mortgage will be very different. Proving your income might be a more complex process than for a typical full-time worker. The way company directors get paid is very different from a full-time, salaried employee. And this makes it difficult for lenders to make a quick assessment of how much a person can afford to pay back.

Before the 2008 financial crash, self-employed and company director borrowers could simply state their earnings on a mortgage application. This was known as a self-certified mortgage and it is one of the factors that led to the financial crash.

Many borrowers would overstate their earnings to purchase a bigger property but were then unable to pay back their mortgage. Lenders are now unable to offer this type of mortgage and instead apply stringent affordability checks for the self-employed and company directors.

Affordability for company directors

All lenders will want to check that a mortgage is affordable before they release any funds. This is done through a look into your financial past, and a look into your financial present and future. Your past can be seen through your credit score, as this will outline your past responsibility with money and if you have been able to repay on time.

To determine your current financial situation, and where you might be in 5, 10 or 15 years, lenders will also look at your company finances. As we outlined above, a salaried worker can prove their income through simple things like an employment contract, payslips or bank statements. For company directors, this is a little more complicated.

You will need to share your company accounts, usually for the past three years. Some lenders will accept two or even one years of accounts, but this isn’t very common. Almost all lenders will want to see that you have been trading for at least one year before they will consider a mortgage application.

Demonstrating your income

Limited company directors get paid in a different way to most workers. Your accountant will likely advise you to draw your income in a particular way to help manage your tax liability. These are all completely legal processes, but unfortunately, they can impact your ability to secure a mortgage.

Many company directors will receive a basic salary and then dividends. However, it can be useful for tax purposes to leave some income in the company as company-retained profits. In an ideal world, all lenders would understand that a company director’s basic salary is not an accurate reflection of their full income. Sadly, the mortgage sector is still catching up.

How to secure a mortgage as a company director

The best step is to work with a lender who understands your situation. And the best way to find one is through a specialist mortgage broker. A mortgage broker with access to the whole market will be able to navigate the choices and help you to choose a lender more likely to accept your application.

A specialist lender will be able to look at your different income sources to make a more accurate assessment of your income. This will include your salary, dividends, and any company-retained profits. If you are hoping to get on the property ladder, it’s worth speaking to your accountant about the best way to prepare for this big life event.

Do company directors need a larger deposit?

No, once you have been approved for a mortgage, you will have access to all of the same lending products as full-time, salaried workers. This means that you don’t have to apply for a special type of mortgage. As with all lenders, the bigger the deposit, the better the terms. So if you can afford to increase your deposit amount, it’s worth doing so to secure the best possible deal.

The only instance where you might need a larger deposit would be if you are purchasing a buy-to-let property, or if you are planning to buy a high-value property. Properties worth over £700,000 may be subject to higher deposits, as this will help to mitigate the risk to the bank.

Guide to getting a mortgage

In this guide, we are going to look at how to secure a mortgage, common mistakes to avoid along the way, and what to do if you aren’t accepted the first time. Read on to discover the Niche Mortgage Info guide to getting a mortgage.

The boring stuff

A mortgage is a large loan from a lender to purchase a property. Since the average house price in the UK is now £237,963 and most people don’t have this kind of money lying around, the majority of people turn to mortgage providers to secure the funding.

There are a few different factors you need to know when applying for a mortgage. The amount of deposit you can provide will help to secure a better deal. The length of the mortgage term will also change the mortgage application. And finally, the interest rate structure will determine how your interest rate is determined.

Before the 2008 financial crash, it was common for lenders to offer 100% mortgages. This meant that anyone could approach a bank with proof of income and apply for a mortgage to buy a property, often without the adequate checks.

If a bank has to repossess a home because of missed mortgage payments, they will have to sell the property. If the value of the property has fallen, as many did, they are unable to recoup the full value of the home. This is one of the contributing factors that led to the financial crash. And this is why lenders now ask for a deposit and carry out stringent checks. Our Guide to getting a mortgage will now break all the stages down in more detail.

Deposits explained

The biggest obstacle for homeownership is often the deposit. Lenders will typically want borrowers to provide at least 5% of the property value as a deposit. Though Covid has led to most lenders only accepting deposits of at least 10%. With a smaller deposit, you can expect higher interest rates. Ideally, you should aim to save a deposit that is 20-25% of the property value.

If you are unable to save this amount of money, you could get help from a Government Help to Buy scheme. These schemes are intended for first-time buyers. The government tops up your 5% deposit with a low-interest loan. This allows you to secure a better deal on your mortgage. However, you will then need to pay your loan and mortgage payments, so this could drive up your monthly expenses until the loan is repaid.

Unfortunately, with 100% mortgages now a thing of the past, it has become more difficult for individuals to get on the property ladder. Setting your sights on a smaller property is one way to boost the value of your deposit. Once you have built some equity in your home, you could upgrade to a bigger home.

Your credit score and how it impacts a mortgage decision

Your credit score is a key factor that helps lenders to make a decision. A good credit score and a healthy deposit will give you access to the best rates and mortgage products available. But a poor credit score combined with a smaller deposit might hold you back.

Your credit score will be different according to different credit checking agencies. The three main agencies are TransUnion, Experian and Equifax. Different lenders may use different agencies, and some will look at all three, so it’s important to get a complete picture.

Your credit score takes into consideration the amount of credit available to you, how well you make repayments and other key financial information. Some lenders will automatically reject your application if they see signs of financial instability such as going beyond your agreed overdraft or transactions from betting websites.

Keep a close eye on your finances on the run-up to your mortgage application. You need to make sure you are spending within your means, making all payments on time and avoiding asking friends or family for money.

Lenders will also ask to see the last three months of bank statements. This will not only help to prove that the income you have stated is correct, but it also helps them to spot signs of instability. Avoid extravagant or outlandish purchases during this time. You can get a free check here.

Your income and your mortgage application

Above all else, lenders want to know that your mortgage is affordable. The best way they can confirm this is by looking at your income. Those in full-time salaried employment will have an easier time proving their income.

You may be asked to provide a P60 or your last few payslips. If you have recently started a new job, it may be helpful to wait until you have passed the probationary period before you submit your mortgage application. This will give the lender more reassurance that your income is steady.

If you are self-employed, the process of proving your income is altogether more complicated. Many lenders will ask to see the last three years of your trading accounts. If you cannot provide this – because you have recently switched to self-employment, for example – then you may have to shop around for a lender that understands your situation.

The self-employed may have to jump through more hoops to be able to secure a mortgage, but once approved, they will have access to all of the same lending products. In this sense, there is no such thing as a “self-employed mortgage” only a self-employed applicant.

Understanding brokers

When navigating the mortgage market for the first time, you might be overwhelmed by the options available to you. Many first time buyers make the mistake of going straight to their bank for a mortgage. They assume that the existing relationship they have with the bank will give them some kind of preferential treatment. This isn’t always the case.

We recommend working with a mortgage broker to help navigate the best deals available to you. Having a mortgage application rejected can be distressing to first-time buyers. This is why we recommend working with a broker who will help you to find the kind of deal you are most likely to be accepted for.

A broker can look at the whole market and match you with lenders and mortgage products that suit your lifestyle and financial goals. If you’re determined to pay off your loan as quickly as possible, a broker can help you find a lender that accepts overpayment without a fee. And if you want lower payments at the start of the term, a broker will be able to match you with a great introductory deal.

While a broker will cost money in the beginning, working with one could save you a significant amount in the lifetime of your mortgage. And the expertise they bring to the table could help you to avoid making a significant mistake. Not to mention, it can be helpful to be able to outsource this time-consuming part of the mortgage application process. (please see the list of top questions to ask a broker)

Mortgage timescales

The average time to secure a mortgage from start to finish is only around 30 days, but the actual home-buying process might take much longer. It can be risky to wait until you have found a property you love before applying for a mortgage. Instead, you should apply for something known as a ‘mortgage in principle’.

This is a stripped-back mortgage application that doesn’t go into too much depth. This allows you to start your search in the confidence that the bank is likely to lend you the funds, provided the property valuation is in order and you pass the final checks. A mortgage may be rejected once the mortgage in principle has been granted, but this doesn’t happen often.

As with all administrative tasks, the quicker you can respond with the required documents, the quicker the process will be. This is why it is helpful to be responsive during the mortgage application to keep things moving along. Working with a broker can help to speed up the process, but sometimes the checks and processes take longer.

Common reasons for a declined application

When a mortgage is declined, it’s stressful, but not the end of the road. Being declined by one lender does not mean that you can never secure a mortgage, it may simply mean that you need to wait a while, clean up your credit score and try with a different lender.

The most common reason that a lender will decline a mortgage is that they have uncovered something in your financial history that makes them nervous. This might be a discrepancy in your income, a transaction that hints at irresponsible spending, or late payments. Even something as simple as too many credit applications in a short space of time can be enough for a lender to turn you down.

If your mortgage is declined, try to find out the reason so you can fix it. If the reason is something like a CCJ that hasn’t been removed from your record yet, you can quickly amend this before making a new application.

If possible, try to avoid having any hard credit checks on your record before you resubmit your application. This could mean waiting around three months to submit another application. It might be stressful and you might have to say goodbye to a home you love, but this will increase your chances of being accepted the next time.

Choosing your mortgage rates

There are a few ways you can control the amount you repay every month. Your repayments will be determined by your deposit, your mortgage term and the interest rate. Increasing the mortgage term will lower your monthly repayments but increase the amount you pay back overall. The best way to secure a better deal is to shop around for the best interest rates.

Fixed vs variable rate interest

When you start your mortgage journey, you will notice that mortgages fall into one of two categories: fixed and variable rate. With a fixed-rate mortgage, your interest rate will stay the same for the duration of your mortgage. The only thing that will change it will be if you remortgage, but this would be an entirely new mortgage product.

A fixed-rate mortgage will typically be higher than the Bank Of England base rate (currently at 0.1% in October 2020). This is because lenders need to account for increases to the interest rates. A fixed-rate mortgage will make it easier to budget and could allow you to make regular overpayments to reduce the term and cost of your mortgage.

With a variable rate mortgage, your monthly repayments will depend on the interest rate set by your lender. Often, they will be linked to the Bank Of England base rate, but not always. A tracker mortgage will often be set at a percentage above the base rate. So, if interest rates go up, your monthly payments will increase. But if they go down, they will decrease. Many variable rate mortgage interest rates are set by the lender, so they can increase or decrease without notice. Only choose this type of mortgage if you are confident you will be able to make up the difference if the interest rate goes up.

A note on introductory offers

When shopping for a mortgage, you might feel like you are pleading for scraps, but you hold more power than you think. Lenders are keen to get your business, as there is no shortage of lenders out there. Provided you have a secure income and a healthy-sized deposit, there is no reason you shouldn’t be able to secure a mortgage.

With this in mind, think about how you can make your status work to your advantage. Some lenders will offer a fixed term as long as 10 years, which should give you plenty of time to budget, make plenty of overpayments and then remortgage when you hold a greater portion of the equity. You may also find lenders willing to cover things like conveyancing fees to help convince you to sign with them.

With all mortgage products, always think about the lifetime value of the offer and how this will shape your finances in the next 5, 10 or 20 years. Understanding the lifetime value of your interest rates and repayment term will help you to make a rational and sound choice.

We hope you found this guide to getting a mortgage helpful. If you need any help with getting a mortgage then please try our mortgage qualifier via the button below.

What happens with a joint mortgage when you split up?

The breakdown of a relationship is stressful enough at the best of times, but when you hold a joint mortgage together, it can become more difficult to navigate. Whether you are married or unmarried, the law is very clear on how a joint mortgage should be managed when you split up. Put simply, you are both jointly responsible for the mortgage payments, so you need to find a way to come to an agreement quickly.

If the home is not affordable for one person living alone, then you will need to make plans for a quick sale. If one person moves out and refuses to pay their portion of the mortgage, the home could be at risk of being repossessed. In this guide, we will look at some of the options you have for navigating these choppy waters.

What are the options after a split?

If you are heading for divorce, you have a few options with regards to your property.

Sell the home. The first option is to put your home on the market, pay back the remaining mortgage and split the proceeds. If one person contributed more money, for the deposit, for example, this will need to be settled in your divorce financial settlement.
Buy out your ex. If you want to stay in the home and take over the mortgage, you will need to buy out your partner. This might involve taking out a loan to buy out their stake of the equity.
Keep a stake in the property. If one partner is going to continue living in the home and finish paying the mortgage, the other should be awarded a stake in the home equal to their share of the equity. So if you own 80% of the home, they will be entitled to 40% of the value when it is sold.
Finish paying the mortgage. If you have almost paid off your mortgage and your separation is amicable, it would make sense to complete your payments. Once you own the home outright, you can split the proceeds of the sale down the middle.
Secure a guarantor. If one partner wants to remain in the property but cannot buy out the other, you could remortgage with a guarantor and give the other partner their share of the equity.

What if there are children involved?

When there are children involved in the separation, it may be in their best interests to stay in the family home. The parent staying in the home can apply for a Mesher order to prevent the home from being sold for a set amount of time. This is usually until the youngest child turns 18. The property will stay in both parties names, even if one isn’t resident in the property.

How can your lender help?

If you are concerned about being able to pay the mortgage alone while you navigate your separation, speak to your lender. Rather than allowing your repayments to fall behind and risk repossession, find out if your lender can offer any support. They might be able to restructure the mortgage or give you a payment holiday. Remember that you will still be charged interest during this time, so this will lengthen the term of your mortgage and increase the total amount you have to repay.

What if the separation isn’t amicable?

Be sure to protect your rights to the property and make sure you are listed as a co-owner on the HM Lands Registry. This will prevent the property from being sold without your knowledge. Rest assured that nothing can happen to your property without your knowledge. Speak to your mortgage provider if you are concerned.

Can I transfer my mortgage to my spouse?

When you get married, you may want to transfer ownership of half of your home to your partner. How you achieve this will depend on your ownership status. If you own the home outright, then you can simply give one half of your home to your spouse. This will give them legal rights to the property. But if you still have a mortgage, you will have to get your lender’s permission to add someone new to the mortgage.

Transferring your mortgage to your spouse

The first step in transferring your mortgage to your spouse is to speak to your lender. They might have rules against this, and even if it is allowed, they will almost certainly charge you. You could remortgage the property as a joint mortgage, starting from fresh with a new company. Or you could add your partner to your existing mortgage agreement.

What charges will I face?

You will almost certainly face fees from your lender, usually an arrangement fee. But you could also be liable for Stamp Duty Land Tax. Often shortened to Stamp Duty, this is a tax on property purchases over a certain threshold.

At the moment, this threshold is £500,000. If you have over this amount left of your mortgage, HMRC will still consider this to be a transaction, which means you will need to comply with the tax requirements. Even though no money is changing hands – only the allocation of debt – the tax will still need to be paid.

Who will own the property?

You will have to decide on the legal structure for the property. You can choose between tenants in common or joint tenants. If one of you were to pass away, the property would be passed to the surviving spouse and they would own it entirely. If you have children from a previous marriage and want to protect a portion of their inheritance, you could also decide where your share of the equity in the home should go in the event of your death.

When you transfer the mortgage, you will have to decide what share of the equity your spouse will get. Will they have half of all equity to that point? Or will they start accruing equity from the moment they are added to the mortgage? If you owned 60% of your home at the time you added your spouse to the mortgage, they could only ever own half of the remaining 40%, or 20%.

Don’t forget the association of credit

When you enter into financial agreements with your spouse, you are creating a financial link between you. If you fall behind on the mortgage payments, this will impact both of your credit scores and your ability to secure lending in the future. The same goes for opening joint bank accounts. Think carefully before you create these financial links, as they are difficult to reverse.

Which is the best option?

If you both have a steady income and good credit scores, you could remortgage the property and apply for a joint mortgage. This could allow you to negotiate better terms and give you the freedom to pay off your mortgage sooner, particularly if you will not have two household incomes.

Remember that your lender is under no obligation to add a second name to the mortgage, particularly if your spouse does not meet their lending criteria. In this situation, remortgaging with a new lender could be a better option. This option may also incur fees.

If you are approaching the end of your repayment, it might be advisable to repay the mortgage and then give half of the home to your partner.

More lenders move to 5.5 income rule as standard criteria

Excellent news for mortgage applicants as yet another bank offers 5.5 income through mortgage brokers.

From the 11th of October, Barclays for Intermediaries will now offer mortgages of 5.5 times annual income for a select number of clients. This includes:

Mortgages taken out on a repayment basis
Single applicants earning over £75,000 per year
Joint applicants earning over £100,000 per year
Applicants with a 15% deposit or more

In the past, this enhanced income multiple was only available to customers of Barclays Premier. This move will make larger mortgages available for more applicants.

Barclays issued a word of warning to applicants, noting that additional affordability checks will be required. The lower of the two figures will be taken, so this is not a guarantee of a 5.5 times income multiple. These affordability checks factor in things like dependents and existing outgoings.

Barclays joins a growing list of mortgage providers willing to extend beyond five times annual income for their lending. Niche Mortgage Info helps to connect interested borrowers with lenders most likely to accept their application. We can help you to maximise your mortgage borrowing and secure an excellent rate on your application.

Can you transfer ownership of a house with a mortgage

Adding another person to a mortgage while you are still making payments is possible, but not always simple. The most common reason you would add another person to an existing mortgage would be to add a spouse to your mortgage agreement. You might also want to give your home as a gift to your adult children by adding them to the mortgage.

You could either achieve this by remortgaging your property or by asking your mortgage provider to add the other person to the mortgage. In this guide, we will look at how this is achieved and what you will need to know before moving forward.

If you’re nearing the end of the repayment

If you are almost finished with your mortgage payments, it would be easier to wait until you own the house in full to pass ownership of it to another person. Once you own the house, you can simply “gift” the entire property or a percentage of the equity to your partner or another person. You would have to choose the legal structure of this joint ownership, which means choosing between joint tenants or tenants in common.

As joint tenants, if one of you passes away, their shares of the property are passed to the surviving owner. As tenants in common, you can decide who will inherit your shares in the property.

Transferring ownership by remortgaging

By remortgaging your property, you could apply for a joint mortgage and this would allow you to transfer ownership of the property to your spouse. Remortgaging a property can make sense if you have reached the end of a fixed-term arrangement. Remember that you will need to pay an arrangement fee and your partner will need to meet the lending requirements. You could also use this opportunity to release some equity from your home.

Transferring ownership by adding someone else to the mortgage

Another common way to add another person to your mortgage is to approach your current lender. They are under no obligation to allow you to add another person to the mortgage, but they may allow this. This will also charge an arrangement fee, so this should also be taken into consideration. The lender will also carry out affordability checks on the new applicant.

What if the person has poor credit?

Poor credit doesn’t rule you out for securing a mortgage, but it does make it more difficult. You cannot simply transfer a mortgage to anyone you want, the lender has to agree to it. And this cannot happen without identity, anti-laundering and affordability checks.

If your partner has poor credit from a previous marriage, this might make it more difficult to secure a mortgage. Working with a mortgage broker with experience in this area will help you to navigate the lenders and find the best deal for your needs.

Lenders don’t automatically rule out applications from those with poor credit, but they will need some reassurance that your money problems aren’t going to impact your ability to pay a mortgage. Taking steps to improve your credit score by always paying bills on time, keeping within your credit limit and avoiding credit applications will do help to convince the lender that you are a responsible borrower.

How can a broker help?

A broker will offer expert insight into the whole mortgage market. They will be able to advise you on the best course of action and how to increase your chances of being accepted. In the case of transferring ownership, they will also be able to advise on the cheapest way to do this without incurring too many unnecessary fees.

First Time Buyers Mortgage Guide Post Covid

First Time Buyers Buying a home is a huge investment, perhaps the biggest one you will ever make. This is why it is important that you understand the process and the external factors that will impact your application. Securing a mortgage for the first time can be daunting. And with so many new terms to learn, you might quickly feel out of your depth. Minimum deposits, interest rates, legal structures and repayment terms can leave you feeling like you need to go back to school.

Securing the right mortgage for your needs is no longer about looking for the lowest rate of interest. In many cases, finding a mortgage that you are most likely to be accepted for is the way forward. As banks tighten their lending criteria, the task of getting a mortgage is about much more than just finding a great deal. By educating yourself on the process of securing a mortgage, you will be in a much better position to secure a great deal, even in a post-Covid world.

Saving for a deposit

The days of 100% mortgages are long gone. Lenders are no longer willing or able to take this risk, so if you’re hoping to get on the property ladder, it’s time to start thinking about deposits. Saving a healthy-sized deposit can help to secure a better interest rate. It will also reduce the amount you pay back in the long term, so it’s worth offering as much as you can afford.

In an ideal world, you would save a deposit that is equal to 20% of the value of the property. This will give you access to the best lending rates and increase your chances of being accepted. If you are unable to save this much, don’t worry, there are ways around this. You could make use of the Government’s Help To Buy scheme, which only requires a 5% deposit. Or you could look into shared equity homeownership.

Sprucing up your credit score

Lenders not only want to see that you have been able to save a sizable deposit. They also want to see that you are generally responsible with your money. To do this, they use credit scores and credit history files to assess your history and experience with money. If you have a history of poor financial management, this could lead to your application being rejected, or subject to a higher interest rate.

Not everyone is well versed in credit history and reporting, but you’ll need to get familiar before you submit your mortgage application. There are three main credit checking agencies in the UK; Experian, Equifax and TransUnion. These companies collect information about your credit cards, bank accounts and other credit facilities such as utility accounts. They also collect information about missed payments, CCJs and bankruptcies.

If you always make your payments on time and keep your credit utilisation under 50% of your limit, you should have no trouble passing this stage of the application. However, if you have a few blemishes on your record, you might want to spend a few months cleaning up your report. At the very minimum, registering to vote at your current address will ensure that the bank can confirm your identity without extensive checks. You can check your score here.

Proving your income

Lenders want to know that your mortgage is affordable at the moment and will be affordable in the future. This means you will need to provide proof of income. For some people, this is as simple as digging out your P60. Your employer should give you one of these at the end of every year. It outlines your income and any tax paid.

If you are self-employed, the process becomes slightly more complicated. Many lenders will ask to see three years of accounts, and some will want to see these prepared by an accountant. If you are unable to provide three years of accounts, the application process might be more difficult, but not impossible. You may have to approach specialist lenders that are more accustomed to working with the self-employed. The more information you can provide, the better.

Lenders may also ask to see the last three months of your bank statements. They are looking for signs of irresponsible spending, so try to keep this in check in the months running up to your application. Some things can raise an eyebrow for lenders, and some will rule you out entirely. Using betting websites is one category of spending that lenders typically don’t want to see on your bank statements.

Choosing your mortgage term

Once you have reached this stage in your application, it’s time to start thinking about mortgage terms. The term is how long you want to spend paying back the mortgage. The mortgage term is typically determined by how much you can afford to pay every month, but it can be helpful to push this to the upper limit to reduce the amount you pay back in total.

Lenders consider a short term mortgage to be under 20 years and a long-term mortgage to be over 30 years. The majority of first-time buyers will opt for a 25-year mortgage, but you can extend this or shorten is as required. While a shorter term will cost less in interest, your monthly payments will be much higher. Conversely, a long-term mortgage will cost a lot more in interest over the duration of the mortgage, but your monthly payments will be lower.

Consider the cost of a £200,000 home on a mortgage with a fixed interest rate of 3%. With a 25 year mortgage, your monthly payments would be £948 and the total amount repayable would be £284,526. But on a 15-year mortgage, your monthly payments would be £1,381 and the total amount repayable would be £249,148. This is a significant difference in the cost of the mortgage.

Understanding how your repayment terms will impact the cost of your mortgage in the long term is vital to securing a good deal. Looking for a deal that offers the lowest monthly repayments could save you a few hundred in your monthly repayments, but this could add up to tens of thousands in interest payments over the life of the mortgage.

Understanding mortgage rate structure

Perhaps the most difficult part of mortgages for first-time buyers to understand is the mortgage rate structure. This is the package that will tell you how much interest you will pay for the lifetime of your mortgage. This can be broken down into two types of mortgage; fixed and variable rate. To help you understand how each type will impact your repayments, we’ve broken them down in further detail below.

Fixed-rate mortgage

With a fixed-rate mortgage, the interest rate will be fixed for the lifetime of your plan. This will allow you to plan and budget, as you’ll always know what your monthly repayments will be. Interest rates in the country can increase or fall, and this will have no impact on your repayment plan.

This type of mortgage will typically be offered based on the Bank Of England base rate at the time of your application. But expect this rate to be higher than other mortgage rates. This is because banks are unable to predict the future and need to mitigate against the risk of a rise in interest rates. Likewise, if the Bank Of England decides to drop interest rates, you won’t be able to take advantage of this.

Variable-rate mortgage

In the case of a variable rate mortgage, your interest rate and your monthly repayments will vary depending on adjustments to the interest rates. In 2009, the Bank Of England base rate fell from 5% to 0.5% in just 12 months. Anyone on a variable rate mortgage during this time would have enjoyed a significant drop in their monthly repayments.

Likewise, if the interest rates increase, you could see your monthly repayments increase, too. So, there is the risk that you could end up paying more every month, but some people are happy with this risk as it means they could also end up paying less.

The interest rate isn’t always linked to the Bank Of England base rate. The lender sets the interest rate, so they can change it as they see fit. Interest rates will typically change depending on the economy. In a slow economy, lenders will typically lower interest rates to encourage people to spend their money instead of saving.

If you would like a mortgage that is linked to the Bank Of England base rate, this is called a tracker mortgage. This will increase or decrease depending on the Bank Of England base rate movements. The base rate is currently at 0.1%, but don’t get too excited. A tracker rate mortgage will be a specific percentage above the Bank Of England base rate. So if your rate was set at 1% above the base rate, your interest rate would now be 1.1%. But in October 2008, the Bank Of England base rate was 4.5%, so your interest rate would have been 5.5%.

The biggest benefit of this type of mortgage can be seen in times of low interest rates. During this time, you should be increasing your monthly payments and overpaying when possible. This will allow you to pay off the mortgage in a shorter term.

Look out for monthly introductory rates

When shopping around, keep your eyes peeled for introductory offers. A mortgage is a huge investment, and lenders want to get as many customers as possible. This is why they create compelling introductory offers to help land your business. This might include a low interest rate for a fixed amount of time, which switches to a variable rate after this period.

The fixed-rate could be a lengthy period, even up to 10 years, so this could be a great way to enjoy some financial security and fix your expenses for this period. If you can use this time to overpay your mortgage every month, you could remortgage your property once the fixed period has come to an end and be in a much better position.

Other expenses to consider

Buying your first home will come with quite a few unexpected expenses that could catch you off guard. According to Money Saving Expert, the additional costs of buying a home have increased by 300% in the past 10 years. Make sure you factor in the following expenses when purchasing your first home.

Arrangement fee

This is charged by your lender for setting up the mortgage. This might be a fixed amount or a percentage of the mortgage value. While some will ask for this payment upfront, others will allow you to add this to the cost of your mortgage. Remember that this means you will be paying interest on the fee, so it might be better to offer a smaller deposit and pay this off upfront.

Valuation fee

Before a lender will approve your mortgage, they need to check that the property is worth what you are planning to pay for it. This will protect them from loss if they have to repossess your home. The valuable part of the application process is paid to a third party valuable company to provide a bank-approved valuation.

Legal fees

Legal fees cover a number of different steps, and all of these can be referred to as ‘conveyancing’. This is a process that includes all of the legal checks, the handling of the deposit, and the legally transferring the property ownership into your name. Some lenders will cover the cost of conveyancing in their introductory offer, so this is a great way to save money for the move.

Post-covid mortgage recap

Applying for a mortgage post-covid is still a complicated process, but this could be an excellent time to get on the property ladder. If your job is secure and you’ve taken the opportunity to boost your savings, this could be the ideal time to secure an excellent rate on your mortgage and see what other perks the lender can offer. You’ll never know if you don’t ask, so always be inquisitive and informed throughout the process to make sure you’re getting the best deal available.

What are mortgage affordability checks?

A mortgage is likely to be the biggest investment you will ever make. Before handing over a large sum of money, lenders will always check to make sure you can afford the repayments. It is in no one’s interest to grant you a mortgage you can’t afford. This is why lenders take steps to probe your finances to make sure you’re not going to struggle.

Affordability checks might feel intrusive, but they are an essential part of the mortgage application process. These checks take into consideration things like your income, spending and your past behaviour with money to give lenders an idea of your level of risk. If the checks reveal you can’t afford the mortgage, you are likely to be rejected, but if they simply reveal that you are higher risk, you might be charged a higher interest rate to cover the increased risk.

In this article, we will look at the various steps in the mortgage affordability checks and what you can do to make yourself a more attractive prospect for lenders.

Your credit score

Lenders will often start with your credit score to reveal how well you have paid back debt in the past. This will include things like credit cards, overdrafts, loans and utility accounts. It will also highlight if you’ve had any CCJs or bankruptcies in the past 6 years. Paying everything on time and avoiding multiple credit applications in the run-up to your mortgage application will help your case.

Your income

For the full-time employees, proving your income is as simple as handing over your P60 or your last few payslips. This will have to be checked against your bank statements to make sure that you earn what you say you earn. Lenders will usually use your income to determine how much you can afford to borrow. You might be offered anything from 4-5 times your annual salary.

If you’re self-employed, the process of proving your income gets a little more complicated. Lenders will need to see your last three years of accounts. If you can’t provide this, look for a lender that is more accustomed to working with freelancers. They might be happy with just the last year of accounts. Lenders will typically offer a multiple of the average of your last three years of earnings, or they might offer a multiple of the most recent year. This all depends on the lender.

Your expenses

The lender will ask you to outline your monthly expenses, and you must be honest and accurate. They will check these estimates against your last three months of bank statements. So if you state that you only spend £20 a month on takeaway, but your bank statements tell a different story, this could raise some questions.

Other financial activities can make it harder for you to secure a mortgage. If you never get out of your overdraft, or if you have to borrow money from friends and family at the end of the month, this could raise some questions. Likewise for activities like gambling. Lenders don’t want to see gambling websites appear regularly on your bank statements.

In the run-up to your mortgage application, keep your spending in check and don’t make any lavish purchases. Create a budget and then stick to it to show your lender that you are responsible with money.

Closing thoughts

Affordability calculations don’t always rule out your application, sometimes they just make the cost of borrowing more expensive. So while a few missteps on your bank statements might not seem like the end of the world, this could impact the interest rate you are offered, and this could increase the cost of borrowing in the long-term.