What happens if I can’t pay my mortgage?

Mortgage Arrears and can’t pay my mortgage?

Circumstances can change without warning, leaving you unable to pay your mortgage on time, or at all. These situations are often out of our control, and not something you would ever plan for when you first take out a mortgage. If you find yourself in a situation where you are unable to pay your mortgage, there are steps you can take to help limit the damage. Ignoring the problem or avoiding dealing with it will only make the issue worse. Read on to learn what happens if you can't pay your mortgage.

First things first, speak to your lender

If you are worried you aren’t going to be able to make your mortgage payments for any reason, the first step is to speak to your lender. They have teams and procedures in place to help their borrowers when they are struggling financially. They may be able to come up with a payment plan to help you get back on track, or look at extending the term so you can lower your monthly payments.

Remember that the lender is on your side, and asking for help before things become more difficult is better than delaying this difficult conversation. Lenders don’t want to repossess homes, as it means they will have to sell them and could lose out on their investment. They want you to keep a roof over your head, so don’t be afraid to ask for help when you need it.

What if you have missed a payment?

When you miss a payment on your mortgage, this is reported as a late payment and marked on your credit report. You will now be categorised as “in mortgage arrears” by your lender. Late payments should be avoided at all costs, as these will stay on your credit score for around 5 years and can affect your ability to remortgage or secure further credit, even once your financial position is more secure.

Check if you have insurance

You may have taken out Mortgage Protection Payment Insurance to protect you in the event you are unable to work due to injury or redundancy. Now is the time to check if you have MPPI and to take advantage of it if you do.

MPPI will pay off your remaining repayments if you are made redundant or unable to work after an injury. However, this type of protection is not standard, and you may have other options such as a redundancy package or generous sick pay.

There are other types of insurance that may cover you in the event you are unable to make your mortgage repayments. Check with your lender to find out if you have any coverage that could help.

Check if the Government can help

It might not be the most obvious route, but there are schemes available to help some people manage their mortgage payments if they hit a rough patch. The Government offers a benefit called Support for Mortgage Interest, which will help with a portion of the payment. This can help to lessen the financial strain and allow you to get back on your feet faster. It’s worth checking if you are eligible for any other benefits, as this will all help to ensure you don’t fall behind with your mortgage.

Could you remortgage your home?

If you’re in a tight spot, remortgaging your home would allow you to restructure your payments and could even release some equity. Any time you make changes to your mortgage and release equity, this will lengthen the term of your mortgage and it will take longer and cost more to pay it off. But if this is the only option available to you, it could be preferable to losing your home.

If you are unable to remortgage your home due to your financial situation, you could sell your home (even with mortgage arrears) and downsize. You could also move into rented accommodation temporarily until your situation improves. If you are unable to remortgage, it may be difficult to secure a mortgage on a smaller property, even with a large deposit from the sale of your home.

What happens if my home is repossessed?

If you continue to miss mortgage payments, your lender will eventually take action. This is the last resort and the worst-case scenario for everyone involved, so lenders will always try to work with you to avoid this outcome.

Your home will be put up for auction to help secure a fast sale and this could mean that it sells below market value. The lender will use the proceeds of the sale to pay off the remainder of the mortgage, including any mortgage arrears. If your home doesn’t make enough to pay off the remainder of the mortgage, then you will still be liable for the rest of the balance.

Once your home is repossessed, your name will be added to a register permanently. This can make it more difficult to get a mortgage again. If you fear that your home may be repossessed, it can often be better to sell it yourself, as you are more likely to get a fair market price. This could leave you with some money left over to put towards a smaller property or getting back on your feet.

Tips to avoid mortgage arrears

You are likely to be familiar with budgeting tools if you saved your own mortgage deposit. If you are running into financial trouble every month, it might be time to tighten your belt. Look for ways to reduce your monthly expenses and start to build an emergency savings fund.
In an ideal world, you should try to save 6 months of expenses to help protect yourself in the event your financial situation changes. This will give you some breathing room to help get your finances back on track.
Avoid using credit to pay your mortgage. Getting into debt to pay off debt is never a good idea. This can quickly spiral out of control, so never use a credit card or take on additional loans to pay your mortgage.
Never sell your home without a backup plan. Try to line up somewhere to live before you sell your home. If you sell your property at a lower price to secure a quick sale, you could soon find yourself homeless.
Don’t walk away from the property. Returning the keys won’t make your problems go away, and it could leave you with even more debt. You’ll still be responsible for payments right up to the day it sells, so you won’t solve anything by walking away.

If you are worried about missing mortgage payments, always speak to your lender first. They have systems in place to help their customers through temporary rough patches and will be able to help you choose the best route forward.

Next Steps After Mortgage Declined by Nationwide

If you’ve been declined for a mortgage by Nationwide due to your credit history, we can help advise you on the next steps. Nationwide is one of the country’s largest building societies and mutual financial institutions run by its members.

The structure of the organisation means that they make very prudent financial decisions and are unlikely to take on high-risk debt. As such, they are more likely to decline mortgage applications where there are red flags present.

Their success shows that they must be doing something right, but this doesn’t stop it from being frustrating for unsuccessful applicants. If your mortgage application is declined by Nationwide, you should expect to wait three months before submitting another application. Any sooner and you can expect the same outcome.

Nationwide not only looks at the obvious credit history factors like your credit score and adverse payment history, including CCJs, missed payments and defaults. Nationwide dig a lot deeper than most and have additional lending criteria that you will need to meet.

Nationwide looks at your application as a whole to create a clearer picture of your finances. A good mark in your favour would be something like long work history or no missed debt payments. A bad mark in your favour could be something like your debt to income ratio. Even if you pay off your debts on time and never miss a payment, a large amount of debt will always be a negative mark for Nationwide.

If you are close to your credit limit on your credit card, this can be a negative. While your debt may be under control, this could present a problem for the Nationwide underwriters. Remember that none of these issues will hold you back from getting a mortgage. Sometimes it’s just a case of finding the right lender.

Before moving forward with your application, consider paying down some of your debts as much as possible. You should also explore the other lenders available to see if you could increase your chances of being accepted with another lender.

Nationwide is a very large and very popular choice for mortgages, so they can have their pick of low-risk applicants. If you have an adverse credit history, you may be better using a niche lender that does not run these types of credit checks or one that places less weight on the outcome of these checks. Get in touch with Niche Mortgage Info to find out how we can help with bad credit mortgages.

Can I get a bad credit mortgage from a high street bank?

Our customers often ask us about the chances of securing a mortgage with bad credit from a high street bank. You might be wondering if you have any chance of securing a mortgage with past credit problems, particularly from a high street lender.

Missed payments, defaults and CCJs will often present an issue for mortgage applicants. High street lenders in particular are more likely to reject applications from those with bad credit. But we all know that past behaviour isn’t always a reflection of your current circumstances, so should bad credit really hold you back?

Often it’s a case of finding the right lender. Since the 2008 credit crunch, lenders have been forced to tighten their lending criteria. And the big high street lenders are the ones hit the hardest by these regulations. While smaller lenders might be willing to take on some risk, larger high street lenders are more likely to reject all but the most straightforward applicants.

As frustrating as this is, it doesn’t mean that it's the end of the road for your mortgage application. Even with bad credit, some lenders will consider the bigger picture. It all depends on the severity of the issues, how long ago they happened, and what you have done to rectify the situation.

In general, we can help:

CCJ and defaults over 2 years old
First time and next time buyers
Buy to let applicants
Missed credit card payments or loan payments in the last 24 months, with no more than 2 missed payments.
Minimum deposit of 15%

Securing a mortgage is a complex process and lenders will want to look at the whole picture. Often, it’s easier to secure a mortgage if you can get your application in front of the right lender. This is where Niche Mortgage Info can help. We have experience working with bad credit applicants to help them get on the property ladder and put their bad credit history behind them.

In the case of more severe debt problems such as an IVA or bankruptcy, you can expect lenders to want to see the following:

Minimum 30% deposit
Discharged IVA or bankruptcy over 3 years old

As you can see, even the most severe debt problem won’t necessarily hold you back from securing a mortgage. Get in touch with Niche Mortgage Info today or explore our extensive bad credit mortgage guides to learn how you can get on the property ladder with bad credit.

Help! I’ve been turned down for a help-to-buy mortgage, what can I do next?

The help-to-buy mortgage scheme is designed to help more people get on the property ladder, so it can be frustrating if you are turned down. If a lender turns down your application, this will prevent the sale from going ahead and you could lose out on your dream home. Such as the help to buy equity loan being declined. The good news is that being rejected by one lender does not mean that all lenders will reject you. Often, you just need to find the right lender with the right approach to help put your dreams of owning a home back on track.

The pool of lenders that will deal with help to buy applications is smaller, but by working with Niche Mortgage Info, you’ll have access to valuable insight for all of them. This means you could be in with a better chance of securing a mortgage by working with the right broker.

How Niche Mortgage Info can help with declined mortgage applications

Our brokers have experience dealing with many unique and challenging mortgage applications. There may be a difficulty with your application that even you aren’t aware of. Our team will help to dig out these issues to put you in the best possible position. This includes:

Self-employed workers with just one year of accounts
Foreign nationals on Tier 1 or 2 visa
Multiple income streams
Income from shift, car and large town allowance
Income from tax credits
Income from bonuses and commission
Securing mortgages above 4.5 income multiple
Gifted deposits
Arrears on personal loans and other credit issues
Missed payments on phone contracts, credit cards or catalogue cards

There are more serious credit report issues that can make it more difficult to secure a help-to-buy mortgage. These include:

Mortgage arrears. If you miss 1 payment in 12 months or 3 payments in 36 months this will reflect badly on your application.
CCJs. If you have 3 CCJs of any value, this can detail your application.
Defaults. Lenders may reject your application if you have 5 or more of any value on your credit report.
IVAs. If you are on a debt management plan, whether active or satisfied, this can prevent you from securing a mortgage.

There are also common issues with the type of property you would like to purchase. A less experienced broker, or working without a broker, can lead you to apply to the wrong lender. Some lenders will not consider:

New build blocks of flats that are up to 20 storeys.
New builds flats above commercial premises.
New build flats with a non-standard (NHBC) warranty.

If you are struggling to secure your help-to-buy mortgage, Niche Mortgage Info can help. We have helped countless first-time buyers over the years to get on the property ladder.

Where to get a mortgage with bad credit?

Over 30% of the UK population have asked this question. Where can I get a mortgage with bad credit? Which Bank? Well, getting a mortgage with bad credit is difficult, but not impossible. Many people assume that their bad credit will stop them from getting a mortgage altogether, but this is rarely the case. Unless you have a seriously adverse credit history, and you are currently in financial difficulty, you should be able to secure a mortgage if you have the right approach.

Securing a mortgage is all about affordability and risk. Lenders want to see that you are a low-risk option and that you will be able to make your repayments. Those with bad credit might raise some red flags, but it doesn’t have to be the end of the road. In many cases, lenders will go ahead, but they will protect themselves from the increased risk by charging higher interest rates.

If you have poor credit and you are thinking about getting on the property ladder, we’ve created this simple guide to getting everything in order. You might need a multi-pronged approach to your mortgage application, fixing what you can and strengthening other parts of your application. Read on to learn the top tips from our CCJ mortgage specialists.

Check your credit report

Do you know you have bad credit, or do you just have a feeling you have bad credit? You’d be surprised how many people assume their credit is awful and are pleasantly surprised when they finally look it up.

There are three main credit reference agencies: Experian, Equifax and TransUnion. You can sign up for trials from all three by joining ClearScore, Experian and Credit Karma. This will give you a complete view of how lenders see you and will allow you to see any potential issues with your report. See our credit report page here.

Fix any mistakes

It’s not uncommon for mistakes to land on your record, including closed accounts not being removed, payments being flagged as missed, or not being registered at the right address on the electoral roll. By checking that everything is up to date, you will be better prepared for the application process.

Start building your credit score

There are some simple steps you can take to build your credit score. This includes making sure that all payments are made on time, and that you keep your credit accounts under 20-30% of the limit. If you are in perpetual debt, this can demonstrate to lenders that you are irresponsible with money and won’t help to support your application.

If you have no credit accounts, this can be just as bad as having an adverse credit history. You should try building your credit by taking out a credit card. Spend a small amount on your card every month and pay it off in full. Keeping a low credit limit will remove the temptation to spend too much that you can’t afford to pay it back.

Speak to a specialist broker

If you’re worried that poor credit might hold you back, you should look for a mortgage broker to help you to navigate the industry. They will be able to help you understand your credit report and how this will impact your ability to secure a mortgage. They will also be able to point you in the direction of the lenders most likely to accept your application.

While a mortgage broker might be an additional cost, if this step helps you secure a better deal on your mortgage, then you will save money in the long term. It could also save you from needing to wait between mortgage applications if your first one is rejected.

Spruce up other areas of your application

Your credit history isn’t the only factor that lenders will consider. They will also look at your current financial situation and employment, and your deposit. As we outlined above, lenders are looking to manage their risk.

And this means that a borrower with an adverse credit history might not pose a problem if the loan is easily affordable and they have a healthy deposit. This is because the risk to the lender is reduced when the LTV is lowered through a larger deposit.

By focussing on other areas of your application, you can minimize the risk that a lender will see you as high risk. It might not be all that easy to maximise your income, but it’s not uncommon to speak to your employer about a pay rise before you apply for a mortgage.

This will show your employer that you are looking for job security, which means you are less likely to be looking for another job. If a pay rise is all it takes to keep your loyalty, this may be a small price to pay.

Try to save as much as possible for your deposit, as this will reduce the risk for the lender. In general, you should aim for a deposit of 20-25% of the property value. You can increase your deposit value through government schemes, or by looking at things like shared equity.

Through shared equity, you could get onto the property ladder and own a percentage of the property while paying rent on the remaining percentage. You can then take on a bigger portion of the ownership by increasing your payments in a process known as staircasing.

Don’t assume one rejection is the end of the road

Time heals most things when it comes to a poor credit report. So if you are rejected for a mortgage once, don’t assume this is the end of the road. You may simply need to save a bigger deposit, pay down more of your debt, or wait for things like CCJs to fall off your credit report.

It might put a damper on your dreams of homeownership for the time being, but you could be better off in the long term. A mortgage with very high interest rates and fees could cost you a lot of money in the long run. So waiting until your credit score has improved could save you a lot of money when you think about the lifetime cost of a mortgage.

Mortgages for self employed with 1 years accounts

Self-employed individuals often have far greater control over their income. If they have a quiet month, they can market their skills or increase their prices. Full-time employees, on the other hand, would have to request a pay rise, and this could take months or even years to be accepted. Despite this increased control over their income, the self-employed often have a much tougher time trying to get a mortgage.

While a full-time employee only needs to be working for a company for 3-6 months to be considered, the self-employed need at least one years accounts in order to apply for a mortgage. All mortgage providers are different, and some will require up to 3 years of accounts before they can go ahead with a mortgage application.

Ultimately, this is to protect the lender and the borrower. Lenders want to make sure that the borrower is going to be able to continue making payments further down the line. As of December 2017, the following applicants would be eligible for a mortgage, subject to status.

Limited company directors trading for 12 months
Sole traders trading for 12 months
Established businesses recently limited
Contractors working for at least 12 months
Self-employed for 12 months with poor credit
A buy-to-let mortgage with no income
Up to 95% mortgage amount with help to buy scheme

It’s a common misconception that you need years and years of trading history in order to get a mortgage. If you’ve been refused a mortgage because you are self-employed, a sole trader or the director of a limited company, this might have more to do with the mortgage provider and nothing to do with your financial circumstances.

If you are serious about getting a mortgage, read on to find out about the ins and outs of mortgages for the self-employed, even if you only have one year of accounts.

Frequently asked questions about mortgages for the self-employed

To help answer many of your pressing questions, we’ve compiled this guide covering some of the most commonly asked questions about self-employed mortgages with 1 year’s accounts. Get in touch if you have any questions which aren’t answered on this page, or if you would like more information about how we can help.

How long do I need to be self-employed to get a mortgage?
Can I apply for a mortgage before I have 12 months of accounts?
How to get a mortgage with under 2 year’s of trading history
How much can I borrow?
Which occupations are acceptable for lenders?
Why am I having trouble getting a self-employed mortgage?
Which figures are most important for my mortgage application?
Can I get a mortgage when self-employed and with bad credit?

How long do I need to be self-employed to get a mortgage?

The majority of lenders, including most high-street lenders, will ask to see 3 year’s of accounts before you are eligible for a mortgage. However, there are mortgage providers that specialise in mortgages for the self-employed. These will consider 2 year’s of accounts when making a lending decision. They will often consider the average of the last 2 year’s of your income, if one is higher, or consider the most recent year if your income remains the same. A small number of mortgage providers will accept applications from the self-employed with just 12 months of accounts. You will need to work with a niche mortgage advisor in order to find out which lenders are most likely to accept your application.

Can I apply for a mortgage before I have 12 months of accounts?

If you haven’t filed your first tax return yet, then it is unlikely that you will find a mortgage provider that is willing to accept your application. This is because mortgage providers use the figures from your tax return to verify your income. You wouldn’t lie about how much money you have earned, because this would mean that you owe more tax and have broken the law. So, lenders use tax returns as a way to verify your income.

If you are nearing the end of your first year of trading, you could, in theory, apply for a mortgage in principle. This is a statement from a mortgage provider that outlines how much they would be willing to lend you. They are valid for 3 months and are used by many people to help them put in an offer on a property with confidence. Once an offer has been accepted, your application will then be processed.

Having a mortgage in principle can allow you to start your search for a new property before the end of your first full year of trading. By the time comes to do your actual mortgage application, it’s likely that you will have your full 12 months of accounts.

How to get a mortgage with under 2 year’s of trading history

Most mortgage providers will ask to see 2 years of accounts, but an increasing number of lenders are waking up to the idea that more and more people are heading down the self-employed route. Many lenders will now simply ask to see as much of your trading history as possible. If you were previously employed in a similar industry and drawing a regular wage, you could also use this in support of your application. If you have 20 months of trading, for example, the lender might also choose to make a project for the full 2 years based on the information provided.

How much can I borrow?

Once you have been accepted by a mortgage provider, you will be treated the same as any other applicant. This means that you will be able to borrow the same amount as any other employee. The actual amount that you can borrow will be based on your income. It will usually be around 4x to 5x your annual income. If you are on a higher income, it’s possible that you may be able to stretch this further, provided you can prove that you can afford it.

The more accounts you can provide, the better, but in general, lenders will be on the cautious side unless you can demonstrate why they should increase the amount. If you have incomplete accounts for your second or third year, you may be able to use projections to show why you should be able to borrow more.

For example, if you net profit for the tax year ending in 2017 was 22,000 and your net profit for the first 9 months of 2018 was 25,000, then an accountant might be able to demonstrate why your earnings are likely to be higher. At an average rate of £2,770 per month for 2018, the full 12 months could be as high as £33,300 for the whole year.

A lender offering 5x annual income would offer a £166,000 mortgage on the projected amount or just a £110,000 for the first year of trading. This is a huge difference, so it’s worth investigating if your mortgage provider will consider projected income estimates. Income isn’t the only thing that your mortgage provider will consider.

Which occupations are acceptable for lenders?

Lenders aren’t so too concerned with your occupation, provided the work is legal and that you create a tax return every year. Lenders are very flexible about who they lend to and are more concerned with determining affordability. It’s common for taxi drivers, plumbers, electricians and tradespeople, musicians, landlords, retailers, those running online businesses, professionals and investors to all be able to secure a mortgage. If you’re not sure if your occupation will be accepted, it’s best to speak to a mortgage provider to get clear answers before proceeding. In general, however, your actual occupation won’t be contested by a mortgage provider.

Why am I having trouble getting a self-employed mortgage?

Prior to 2011, the self-employed could take advantage of self-cert mortgages. These allowed the self-employed to tell lenders how much they earn without providing any evidence. This type of mortgage helped many self-employed people to get on the property ladder. Unfortunately, they soon became known as the liar’s mortgage, as so many people inflated their income to be able to borrow more money. These mortgages were ultimately not affordable and many people lost their homes as a result.

In 2011, this type of mortgage was banned during the Mortgage Market Review. As a result, it’s now a lot more difficult for the self-employed to get mortgages as lenders now have to take more steps to ensure they are lending responsibly. While it is harder to secure a mortgage when self-employed, it isn’t impossible. If you are rejected by one lender this doesn’t mean that you cannot get a mortgage.

Which figures are most important for my mortgage application?

The majority of lenders will want to see your net profit for the past 12 months to three years. Many people forget that turnover is not the same thing as net profit. This is why most lenders will ask to see your SA302 statement in order to calculate how much you can borrow. The SA302 statement is your end of year tax statement which shows your income and tax liability for the year.

Some providers will also ask to see detailed accounts showing where your money is coming from and how often you get paid. These will often need to be drawn up by a qualified and chartered accountant using professional accounting software. Even if your accounts are handled by an accountant, it’s important that you have a solid understanding of your finances. This can be helpful in explaining things like seasonal fluctuations or spikes in your income.

If you are hoping to use projected income figures as part of your application, then it’s important that you can explain why your income is likely to increase or remain steady in the next few months and years. If you have recently secured a large contract, for example, this would be helpful in securing a higher mortgage amount.

Can I get a mortgage when self-employed and with bad credit?

Many people assume that it’s the end of the road if you have poor credit, but this couldn't be further from the truth. Even with a CCJ, some mortgage providers will still consider your application and the occasional late payment isn’t enough to make you ineligible for a mortgage.

As a general rule, applicants with poor credit will need a higher deposit, usually around 15% of the property value. CCJs and defaults more than 2 years old will also be ignored, even if the CCJ isn’t settled. Even missed or late payments on your credit accounts in the last 12 months won’t rule you out for a mortgage. Many lenders also disregard any issues with mobile phone companies.

If you are concerned about your credit report getting in the way of securing a mortgage, the best thing you can do is ensure you have a complete picture. There are three different credit agencies in the UK and you can access your records for free by signing up for free trials with Experian, UK Credit Ratings and Check My File.

Once you have a complete view of your credit profile, you can correct any mistakes, close dormant accounts and ensure everything is up-to-date. If you aren’t sure if your credit report is going to be an obstacle to getting a mortgage, then speak to a mortgage advisor who will be able to read between the lines of your report and identify the aspects which lenders look out for.

How can I improve my credit report in the eyes of lenders?

The way lenders interpret your credit score is not an exact science and they don’t generally publicise their approach. Your credit report is one part of a wider picture and it is used to get an idea of your past financial behaviour in order to determine if you are a low-risk borrower. Mortgage providers want to see that you make payments on time, so the worst thing you can do is stop using your credit facilities. They can’t see that you have a track record of making credit payments on time if you never use your credit card.

It’s also important to check your credit file regularly so that you can spot problems as they arise. It’s not uncommon for people to move house, fail to close their phone account properly and then end up with an open account that they have no idea about. This can quickly turn into a CCJ if the phone provider can’t reach you. By checking your credit report quickly, you can respond to issues like this in a timely manner before they become problematic for your credit application.

Can I get a help-to-buy mortgage when newly self-employed?

The number of lenders offering the attractive help-to-buy mortgage scheme to the self-employed is low, but they are out there. The help-to-buy scheme allows people to apply for a 95% mortgage with just a 5% deposit. It is intended to help people get on the property ladder who might otherwise struggle to save up a large deposit.

There are restrictions on the help-to-buy scheme and lenders will make much stricter checks. For the self-employed, this means that you will need to jump through yet more hoops in order to prove your eligibility. For example, if you have a CCJ of over £500 registered in the past 3 years, you won’t be eligible for a help-to-buy mortgage. You also can’t use the help-to-buy scheme for a home you intend to rent out (buy-to-let) or for a holiday home.

Can I remortgage my property with just one year’s accounts?

Remortgaging is often a similar process to securing to main purchase mortgage. You will need to prove that the repayments will be affordable and you will need to provide at least one year’s accounts in support of this. If you are thinking about remortgaging, it’s often best to return to the bank that supplied your first mortgage. They have a pre-existing financial relationship with you and may look more favourably on your application than a new mortgage provider would.

How do I increase my chances of getting a mortgage while self-employed?

Lenders will always look at the bigger picture, which includes factors such as your past financial behaviour, your current circumstances and commitments and the general affordability of your loan.

The simplest way to increase your chances of getting a mortgage is to secure a large deposit, usually around 15%. This helps to bring down the amount that you are borrowing. The next step is to clear up your credit report and ensure your accounts are all up to date. And finally, you should get your accounts in order so that you can prove your income. If you have been trying to keep your income down through legal methods in order to limit your tax liability, it’s important that you stop this or you could end up being able to borrow much less.

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.

What Do UK Mortgage Underwriters Look for On Bank Statements?

When you are applying for a mortgage, you may be asked to supply your bank statements as part of the application process. This is common for self-employed applicants as well as salaried employees. While this may seem daunting, it’s an essential part of the mortgage process.

A mortgage underwriter will examine these statements and use the information to help inform their decision to grant you a mortgage. If you’re getting ready to apply for a mortgage and want to make sure your application is in the best possible shape, you may want to keep an eye on your spending.

What is an underwriter?

Mortgage underwriting is the process used by banks to determine how much of a risk it will be to lend money to an applicant. If you have a steady income, responsible finances and pay your bills on time, this will look a lot better than someone who is in debt and persistently late with their payments.

The underwriting process is all about deciding if the risk of lending to you is worth the reward (the interest you pay). It might not be a fun subject, but you need to understand this before going forward with an application.

Why do they look at your bank statements?

Lenders look at your bank statements as these are a window into your finances. It helps them to see patterns in your spending, your level of fiscal responsibility and helps to confirm if your income is what you’ve said it is.

If you have told the bank your monthly expenses are much lower than they actually are, your bank statements could be used to dispute this. This is why it’s important to be honest and accurate in your financial disclosures in the earlier stages of your application.

Trying to reduce your monthly expenses to be able to borrow more money will backfire unless you can show that you have actually reduced your monthly expenses.

What do mortgage underwriters look for?

Proof of income. The first thing a lender will look for is a regular source of income. If possible, this should arrive in your bank on the same day each month and it should be the same amount. While you might think an increase in income is a good thing, fluctuating income is seen as a sign of financial instability. This is particularly true for the self-employed who may have different income levels every month.
Regular savings. Transferring money to a savings account can also make you look like a responsible borrower. However, dipping into your savings for small amounts could have the opposite impact.
Responsible overdraft use. An overdraft is considered a good thing, provided you are using it correctly. Your salary should bring you above your overdraft every month, and you should never exceed your agreed amount. Bank charges outside of your overdraft interest could be considered a bad thing.

What are the common red flags?

These are just some of the things lenders may consider to be poor spending habits. If possible, you should avoid the following:

Gambling sites. There have been cases where lenders have rejected applications because an applicant has too many gambling-related transactions on their bank statements. Gambling websites are an obvious red flag, as it could show an out-of-control gambling habit.
Regular borrowing. They will also look for other sources of income. If you regularly receive cash gifts from an unspecified source, such as your parents, this could hint that you are financially irresponsible and often need to be bailed out. This is why managing your income and expenses is vital in the months running up to a mortgage application.
Have you accurately represented your spending habits? If you’ve stated on your application that your entertainment expenses are just £50 a month, but the lender can clearly see that you are spending more than £300 a month on entertainment, this could bring your application into question. Make sure you are accurate in your representation of your spending habits.

What can I do to improve my bank statements?

When you are getting close to applying for a mortgage, it’s time to start thinking about getting your bank statements in shape. You will likely be asked for 3 months of statements, so you need 3 months to prepare. If you want help getting your finances in order, working with a mortgage broker through Niche Mortgage Info can help.

During this time, do the following to keep your spending in check:

Avoid gambling websites, even for withdrawals. You don’t want any gambling websites to appear on your bank statements at all.
Stay within your overdraft limit. If possible, don’t dip into it at all.
Avoid borrowing money for any reason. If a friend or family member owes you money, get it in cash or ask them to wait to return it.
Make all payments on time to avoid late payment fees.
Make sure you always have enough money to cover your bills so you don’t have any payment reversals due to insufficient funds.

Can I Sell My House with Mortgage Arrears?

If you are struggling to keep up with your mortgage payments, you might be wondering if selling the property is an option. Many people ask us: can I sell my house with mortgage arrears? This will depend on a number of factors and will nearly always be linked to your personal circumstances. While one person might be able to sell a house with mortgage arrears and walk away, another person might end up owing more money than is made from the sale. Read on to discover the steps you need to take if you want to sell a house with mortgage arrears.

First things first: speak to your lender

The first step you should take when you’re struggling to make your mortgage payments is to get in touch with your lender. If you are expecting your financial situation to improve in the future, they may be able to come to an arrangement to help you through this difficult stretch. But you will never know until you get in touch with your lender.

Your mortgage would typically be your largest expenses every month, so if you are struggling to make your mortgage payments, you may be struggling with other debts. If there is no obvious way to increase your income to cover the shortfall, selling your home might be the only option. This could give you a lump sum that would enable you to pay off your debts and move on.

Get a valuation

If you decide to sell, you will need to get a valuation on the property. This will help you to determine if the sale of the property would be enough to pay back any outstanding amount on your mortgage and your mortgage arrears. If the property has increased in value since your first bought it, you could walk away with a lump sum that might allow you to get your life back on track. But it doesn’t always work this way, particularly in a harsh economic climate. If the value of the property has fallen below what you owe the lender, this is called negative equity.

What if there is negative equity?

Negative equity occurs when a property loses value. This might happen due to a downturn in the housing market. If the value dips below what you still owe on the mortgage, this is called negative equity. If you sell a home with mortgage arrears with negative equity, you will still owe your lender money after the sale. This is called a shortfall and it could leave you worse off. You would need the lender’s permission to sell the property if there will be a shortfall.

In this situation, a homeowner may be tempted to give back the keys to the property and relinquish ownership to the bank. This is known as voluntary repossession. In this situation, a lender would ask you to sign an agreement saying that you will still pay any shortfall after the sale of the property. So if the home is sold for less than the value of your mortgage, you will still owe for the outstanding amount, in addition to any mortgage arrears.

Could you “trade down”?

If you aren’t dealing with negative equity, you could choose to trade down to a smaller property. This is a popular choice for those in mortgage arrears who are not expecting their finances to improve. Finding a less expensive property to purchase and then selling your current property would allow you to reduce your monthly mortgage payments. You will also be able to pay off any arrears and you may even be left with a lump sum to help pay off any other debts you may have accrued.

Clean up credit file after bad credit

Cleaning Up Your Credit File after Bad Credit

Having money problems can be traumatic, especially when it comes to bankruptcy and everything associated with it. It is probably one of the most stressful things that can happen to a person, but the good new is that nothing is forever and there is a way back, as there are a number of things that you can do to help the process along.

An IVA or a bankruptcy notice is going to sit on your credit file for a minimum of 6 years from the point it started, so the job of rebuilding your credit status isn’t going to start until it’s completed. However, it doesn’t hurt to start employing the right financial habits, even before you’ve settled your debts. The 6 year point is the magic figure though, as even if you clear monies owed before that point, this is when it will disappear from your credit file for good.

Points of note: It’s important that you check that none of your credit defaults are incorrectly dated after your DMP, bankruptcy or IVA started, as this will cause you problems. If they’re wrong, tell your creditors to amend their records. Also, if you’ve completed your IVA and as yet haven’t received your completion certificate, it might be worth checking with your IVA company as to its likely date of arrival.

Checking with all three UK credit reference agencies that your correct status is showing is important too, as some creditors don’t report to all of them. For example, if you’ve been discharged from bankruptcy or you’ve finished your IVA or DMP plan, it should be shown on your file. There’s no point raising the issue with Equifax, TransUnion or Experian, as they will just contact your creditors to rectify the issue. The quickest way is to contact the offending creditors directly – in writing.

Get Some New Credit

Whilst it might seem counterintuitive, one of the first and most important things you can do is to start new credit accounts, like perhaps a low credit card with a nominal credit limit. Many people recovering from bad credit issues swear blind that they’ll never EVER have a credit card again, but this position only means that it will take longer to rebuild their credit rating. Managing your credit the right way illustrates an ability to use it wisely and responsibly and it can really boost your score.

You’ll probably have issues getting a major credit card if you have a low credit rating, but that doesn’t mean that you’ll get refused by them all. There are other options, such as:

A secured credit card
A retail store card
Specialist credit cards for people with bad credit e.g. Vanquis Bank

If you’d prefer to stay away from traditional types of credit card, there is another savings based product that will work just as well at building your credit score. The product is called Loqbox and you basically pay into it for a year and get your money back at the end. It’s that simple and as it’s technically a form of credit, each payment you make into it will illustrate your ability to make regular payments.

You shouldn’t go crazy with applications for credit, thinking that it improves your chances, as it does you no good at all to keep applying. Each application for credit leaves its mark on your credit file. Too many and it can worsen your chances of getting accepted with anyone.

We would recommend avoiding the payday loan market, as it is known for charging exorbitant rates of interest that can quickly push you back into the cycle of bad credit. Another reason is that the three major credit agencies TransUnion, Equifax and Experian view high cost lending dimly, so have accounts like these actually do more harm than good.

Carry On as You Mean to Go On

If you don’t change your spending habits, you can’t hope to expect a different outcome, so you should try and continue the habits you’ve had to follow since your money problems began. It’s the foundations upon which your future financial stability is going to built, so it’s a bit of a must.

Getting into the habit of buying only the things you can afford and living within your means is the best way way to make sure that old routines don’t set back in.

Pay on the Dot, Every Month

If you’re operating a credit card or store card after your money problems, it’s vital that you pay everything on time, without fail. Credit scores are quite easily influenced with even a missed payment showing up, so it’s important that you don’t allow that to happen. Even though you might think “just one won’t hurt”, it could, so it’s better to be safe than sorry and winding up back where you started.

So, there you go. To help your application for bankruptcy mortgages, IVA mortgages and mortgages after CCJs, employ these basic measures and you improve your chances of a good credit score and a successful mortgage application.