How to Prepare for a Mortgage

When it comes to buying property, it isn’t as simple as handpicking a home that falls in line with your budget. In many cases, you must get “credit ready” before looking into various mortgage options.

To start off, you need to paint your borrowing history in a positive light so that mortgage lenders can work with you without hesitation.

Here are steps to help you prepare for a mortgage:

Registered Voter

Lenders need to confirm your postal address and for this purpose, you must be registered on the electoral roll. This also helps the lender track down your credit history when the need arises.
Unless you’re registered, it’s quite unlikely that the lender will process your application due to not having enough information.

Credit Applications – Be Selective

Too many rejected credit applications are going to look bad when you apply for a mortgage. This will 100% suggest to the mortgage lender that you’re simply not ‘credit worthy’ or that you’re desperately trying to get your hands on any mortgage you can find – which will raise a lot of eyebrows so as to whether you can repay your mortgage.

Take a Close Look at Credit History and Score

You should check your credit browsing history and score ahead of time. Lenders expect correct information regarding your ability to make mortgage repayments – therefore, you need to deal with any inaccuracies in advance.
Furthermore, a low credit score will reduce your ‘credit worthiness’ in the eyes of lenders. So before you make a mortgage application, determine what credit habits you can improve in order to bring up your credit score.
With that said, credit scoring bands may vary between credit reference agencies. Do your research or hire a Mortgage Advisor.

Cut Down Debt-to-income Ratio

As you might imagine, this is the ratio of debt in relation to your income. The higher your debt, the higher this ratio is.
Lenders will always prefer applicants with a lower debt-to-income ratio because this tells them that they are capable enough to make the mortgage repayments on time each month.

Eliminate Unnecessary Borrowing

Six months prior to taking a mortgage, it is never a good idea to open up new credit lines. This will inevitably increase the debt-to-income ratio, which again, will reflect adversely on how capable you are when it comes to repaying mortgage loans.

Don’t Close Older Credit Accounts

We don’t want to close these off because they can show lenders that, in the past, you have successfully made repayments over a certain time frame.
Inactive accounts, on the other hand, should be closed as that would indicate to lenders that you have a lot of credit lying around that you don’t need.

Pay Your Bills on Time

Before filling out your mortgage application, make sure that all bills are paid on time even if your credit history looks healthy.

Since borrowing records are persistent, any shortcomings in terms of bill payments might signal a red flag and cause the lender to cast doubt on your ability to make mortgage repayments.

Get Rid of Outdated Financial Associations

Your financial associations can negatively affect your chances of obtaining a loan. For instance, you may have had a financial association for paying bills with a separated spouse or a joint account with a former housemate.
You need to end this association because their borrowing habits in the near future might impact your credit applications.

Run a Check on All Joint Applicants

If it’s a joint mortgage application you’re making, the credit worthiness of everyone involved comes into play. Lenders are going to take everyone’s credit history into account before agreeing to offer you a mortgage.

Do I need life insurance for a mortgage?

While not a compulsory requirement for securing a mortgage, it is a good idea to consider life insurance. Life insurance can help your loved ones and dependents to cope financially should you pass away. No one likes to think about death and what will happen to their family if they pass away, but when you have a mortgage to pay, it can help to provide some reassurance to loved ones.

What does life insurance cover?

Policies vary, but in general, life insurance will provide a lump sum or regular payments if you die. This money can then be used to pay off the rest of your mortgage, ensuring that your loved ones still have a roof over their heads. It can also be used to help with the cost of household bills, childcare and day-to-day expenses.

Do I need life insurance for a mortgage?

A lot of people think that you need to take our life insurance to be accepted for a mortgage. This simply isn’t true. While many mortgage providers will advise you to take our life insurance, it isn’t a requirement. For example, you won’t have your mortgage declined if you don’t have life insurance.

The only type of insurance that you require when taking out a mortgage is buildings insurance. Again, this isn’t technically a legal requirement, but it is often included as a condition of the loan. It will cover you in the event your home is damaged by fire, flood, storms or malicious damage. You need to ensure you have coverage from the date contracts are exchanged, as this is when the property becomes your responsibility.

Should I get life insurance anyway?

The question of whether you should get life insurance anyway really depends on your personal circumstances. If you are single and have no dependents, when you pass away, the lender will force your estate to sell the property to pay back the mortgage. In this instance, there would be no need to have insurance in place as there would be no beneficiary.

If you are married and/or have dependents, life insurance can give you some peace of mind that they won’t be forced to move house in the event of your death. You will be able to choose the level of coverage, so you could make it a lump sum that will cover the rest of the mortgage or regular payments that will allow your partner or dependents to continue paying the mortgage.

Is mortgage life insurance an option?

Another type of insurance which may be relevant to you is mortgage life insurance. This kind of specialist insurance is linked to your mortgage. It offers decreasing term coverage, meaning that as time goes by, the amount of payout decreases. This is because you will have paid off more of your mortgage. As a result, you will need a smaller lump sum to be able to pay the debt in full.

What about mortgage protection insurance?

There is another type of insurance called mortgage protection insurance. This helps to ensure you don’t miss payments in the event of long-term illness, an accident or redundancy. This type of cover helps to alleviate your worries that you could miss a mortgage payment and you could face repossession.

Most mortgage protection insurance policies will cover you for up to two years. They will also pay around 65% of your regular income. This doesn’t cover you in the event of death and the policy would end if you pass away.

If you aren’t sure if you need insurance, or which type of coverage is right for you, get in touch with our friendly team today. They will be able to advise you on the types of cover and which would be more suitable for your needs.

Can multiple people apply for a mortgage?

When applying for a mortgage, the higher your income, the better. But did you know that this income can be split between multiple people?

We all know about couples applying for a mortgage together, but did you know that some mortgage providers will accept applications from up to four applicants?

They’re commonly used by family members or friends to help boost the deposit and income and make the application more attractive to lenders.

Imagine if you only had to save a quarter of an average deposit? Or if you saved a full deposit by yourself but then this amount was multiplied by four?

It then becomes easier to understand why some people choose to band together to make their home ownership dreams a reality.

Here are some of the things you need to know about applying for a mortgage with up to four people.

Why would you want multiple people on a mortgage application?

The simplest reason that people might band together to get a mortgage is to make their application more attractive. One person with a modest income and savings might struggle to get a mortgage. If they apply with two friends or family members, the monthly earnings and deposit will be much bigger. This can help low earners onto the property ladder, or help a group afford a more valuable property.

What is a joint borrower sole proprietor mortgage?

In some cases, the additional applicants aren’t planning to live in the same house. This is known as a joint borrower sole proprietor (JBSP) mortgage. In this case, an applicant with low income or a small deposit is supported by a friend or family member.

With a JBSP, the friend or family member’s income is used to determine eligibility, but their name is not added to the property’s title deed. This means that they are a non-legal owner, and would not be entitled to any gain in the property, either from rental yield or an increase in property value. Instead, they could only take out of the property what they have put in.

What is the maximum number of people for a mortgage application?

This will vary depending on the lender. All lenders will consider applications from two people, either a married couple, an unmarried couple or a pair of friends looking to purchase a property together. Some lenders will accept applications from three or four individuals.

At the moment, there are no lenders that will accept applications from more than four people. Most lenders will only accept applications from four applicants where there is a family tie.

It’s important to remember that every lender is different, so it’s worth speaking to a specialist mortgage broker as they will be able to put you in contact with the right lenders for your situation.

How do we calculate the income?

When applying for a mortgage as a sole applicant or as a couple, you might find lenders willing to offer up to 5 or 6 times your annual income. However, when there are three or more borrowers on the application, this will usually be capped at around 2 to 3 times the annual income.

For example, if you were to apply on your own, and you earn £25,000 per year, you might be able to secure a mortgage that is 6 times your annual income, or £150,000.

For three people, with individual incomes of £18,000, £25,000 and £27,000 (£70,000 total) this would be capped at three times the annual income, or £210,000.

While many lenders will accept applications from four applicants, very few will accept the income from all four applicants.

How do we split ownership?

There are two main ways you can split ownership. If you all agree to have equal shares in the property, you would be known as joint tenants. You would essentially be one legal entity and everyone would have their name on the lease.

If you want to have pre-determined shares in the property, you would be known as tenants in common. A legal document known as a Deed of Trust would need to be prepared. This will outline each person’s percentage of ownership.

If you decide to sell the property, all parties would need to agree on this. In the former instance, the proceeds would be split evening between all owners. In the latter instance, you would be entitled to your percentage share.

Next steps…

If you’re interested in securing a mortgage with three or four applicants, get in touch with our friendly team. We have in-depth knowledge of lenders and their individual requirements. So you can be sure you are on the right track with your mortgage application.

If you have any further questions about mortgages for multiple people, get in touch with our team today who will be more than happy to assist with your questions.

Can you have a guarantor on a mortgage?

A guarantor mortgage can help you to get on the property ladder with no deposit, adverse credit history or low income. They aren’t always called guarantor mortgages. You might see them referred to as a family mortgage or even a springboard mortgage.

They work by allowing the mortgage applicant to name an additional person as a kind of “back up” on their mortgage application. This person will have to be a homeowner. Parents will often do this for their children in order to help them buy their first home.

If you are unable to keep up with the mortgage repayments, then the obligation would fall on your guarantor. If they are unable to keep up with the payments, you could both lose your homes.

What does a guarantor have to do?

They will have to be a homeowner and be willing to vouch for you. This means putting their own home up as collateral against your mortgage and your future mortgage payments.

They won’t be listed on the deed and they do not own a share of your property. Instead, they will have to sign a legal document agreeing to make your mortgage payments if you fall behind.

They will usually be asked to offer a security deposit, usually in the form of their own home or their savings. A lender might ask them to put a lump sum into a savings account owned by the lender. They will be unable to touch this money for a set period of time, usually until the borrower has paid off an agreed amount of the mortgage.

Do I need a guarantor?

If you have been turned down for a mortgage, you might want to consider applying with a guarantor. Lenders are more likely to accept your application if you have a guarantor on your side. If any of the following apply to you, you should consider a guarantor.

You can’t afford to save a deposit
You only have a small deposit (less than 5% of the property value)
You are a first-time buyer
You are on a low income
You want to borrow more than lenders think you can afford
You have an adverse credit history

Who can I ask to be my guarantor?

When choosing your guarantor, it’s important to think carefully about who to ask. Most lenders will accept a family member or even a friend to be your guarantor, provided they meet the criteria and are willing. However, some lenders will only accept applications with a guarantor who is your parent, grandparent or step-parent.

If the relationship breaks down, there is no way to end the agreement. The guarantor has to feel confident in the lender’s ability to continue making payments. However, they should also be comfortable making the payments for them if required. It’s not a good idea to be a guarantor for someone if you can’t really afford to make the payments.

What requirements are there for the guarantor?

The most important thing is that your guarantor needs to fully understand what they are agreeing to and what their obligations are. Their own home could be at risk if the borrower fails to keep up with their payments. Your guarantor will need to...

Own their own property outright, or have enough equity in it to be able to meet the lender’s threshold. In most cases, the guarantor will need to own at least 30% of their property. This means that a new homeowner is unlikely to be eligible.
Have enough income to cover their own expenses, plus the additional mortgage payments if required. It’s important not to stretch your income just to meet the lender’s requirements.
Have a good credit history. A poor credit history could be a sign to banks that your chosen guarantor might struggle to make the mortgage repayments. Therefore they will look for someone with a good history of repaying debts on time.

Next steps…

If you’re ready to start thinking about your options for a guarantor mortgage, it’s always best to seek the advice of a specialist mortgage broker. Our team can help you to navigate the guarantor mortgage process with ease. Get in touch today to find out if you need a guarantor, or if another mortgage type might be more suitable for your circumstances.

Can a self-employed person get a mortgage?

Before the financial crash of 2008 and the subsequent Mortgage Market Review, it was a lot easier for the self-employed to secure a mortgage. Self-employed individuals could use something known as a self-certification system to let lenders know how much they earned.

They could simply state their self-employed earnings and lenders would believe them without asking for proof. Unfortunately, this led to some people inflating their earnings in order to borrow more money.

Abuse of this system was one of the reasons for the credit crunch, which is why this type of mortgage was outlawed following the Mortgage Market Review. It’s still possible to get a mortgage while self-employed, but it is certainly more difficult than it was in the past.

What is a self-employed mortgage?

There is no such thing as a self-employed mortgage. Once you have passed the checks for a mortgage, you will have access to the same products and services as any other borrower. What is different about the lending process for the self-employed is how you prove your income.

When you are self-employed, you are responsible for your own taxes. When you submit your tax return, you will be given a SA302 form. This outlines your income for the tax period and is used by mortgage providers to determine affordability.

How do I prove my income?

Those in full-time employment have a fairly easy ride when it comes to proving their income. They simply need to show three month's worth of pay slips. The self-employed can sometimes be asked to share three year’s worth of accounts. This all depends on the individual lender.

Some lenders are more comfortable working with the self-employed and will ask for just one or two year’s worth of accounts. Some will even allow you to submit just 9 months of accounts if you have an accountant.

You can also provide evidence of earnings through things like work contracts or supplier contracts. For example, if you are a builder, showing that you have future work in the pipeline can help to bolster your application.

What else do I need to do?

Just like any other mortgage application, you will also need to ensure your credit score is strong. Show that you are responsible with money and try to avoid getting any CCJs. Staying within 50% of your total credit limit every month can also help to strengthen your case.

If you can save a larger deposit, this can also help your application. There are two ways you can do this. You can either wait longer before submitting your application and save money in the meantime. Or you can look for a property with a lower value. By choosing a lower value property, you might be compromising on certain aspects, but it can reduce the amount of loan to value you are applying for.

What if I am rejected?

If you are rejected by one lender, don’t despair! All lenders are different and it doesn't mean you cannot secure a mortgage. Get in touch with our specialist brokers to find out which lenders are best suited to your circumstances and how to boost your chances of securing a mortgage while self-employed.

How to get a mortgage if you are an older borrower

Unfortunately, as we get older, it becomes more difficult to secure a mortgage. Older borrowers know the struggles faced when trying to get a mortgage as you near retirement age. Since most people will see their earnings fall when they retire, lenders can see this as a sign that you won’t be able to keep up with your mortgage payments.

If you’re nearing retirement age and thinking about applying for a mortgage, or if you’re already retired and want to understand your options, read on. We’ve gathered some of the most common questions we hear from older borrowers. We’ll also share our tips on how to make sure you are still attractive to lenders, even after retirement age.

Is there an upper age limit for getting a mortgage?

While there is no upper age limit for applying for a mortgage, most lenders will have their own limits.

It’s important to remember that lenders will consider each application on a case-by-case basis. This means that being rejected by one lender doesn’t necessarily mean you will be rejected by all lenders.

There are two age limits to consider. The age when you take out the mortgage, and the age when the mortgage term ends.

Most lenders will have a maximum age limit of 65-80 for when you take out the mortgage. The age limit for when the mortgage term comes to an end is usually around 70 to 85.

Age obviously isn’t the only factor that lenders will consider. They will also look at things like your credit history and your income to see if you are likely to be able to afford the payments for the life of the mortgage.

Why is it harder to get a mortgage when I get older?

Most people get a mortgage earlier in life with the intention of completing the repayments before they retire. However, there are many life events that might mean you need to apply for a mortgage later in life.

For example, if you want to get a better deal on your existing mortgage, you may wish to remortgage your existing home. It’s also very common for older people to want to downsize after their family members have moved out. This might mean selling your home and moving to a smaller property. While the downsize might mean you have enough to afford the property outright, there may be a shortfall that you need to cover with a new mortgage. Or you may not have finished paying off the mortgage from your existing property.

The simple reason that it is often harder to secure a mortgage when you are older is because of retirement. When you retire, your income will decrease. Lenders might see this as a sign that you won’t be able to keep up with your payments.

All lenders have to follow something known as the Mortgage Market Review rules and ensure that they check your mortgage will be affordable for the full term. If there are concerns that your income could fluctuate, this will impact the lending decision.

Can I get a mortgage after retirement?

Yes, there are lenders out there who will allow you to take out a mortgage after you have retired, or allow you to take out a mortgage with terms reaching into retirement.

The important thing to remember about mortgages is that the rules aren’t there to exclude people for arbitrary reasons. Lenders are solely focussed on affordability. If the income from your pension will be enough to cover your mortgage payments, you should be able to secure a mortgage.

In many ways, a retired borrower can be a lower risk than a working borrower. This is because your pension income will be fixed, but a worker could lose their job and their income at any point, making their mortgage unaffordable.

Steps for securing a mortgage as an older borrower

If you are concerned that your age will impact your ability to secure a mortgage, you may need to secure proof of your retirement income.

If you are yet to retire, contact your pension provider and ask them to provide proof of your existing pension pot, your expected monthly pension amount and your expected retirement date.

Income is often easier to prove after retirement as you can show evidence of your monthly pension income.

Your income isn’t the only thing that lenders will consider. They will also look at things like your credit history and the size of your deposit.

All lenders are different, so you should always shop around before submitting an application. Working with a specialist mortgage broker can help you to navigate this difficult area with ease and increase your chances of matching with a lender that works for you.

If you’re ready to discuss your options, get in touch with Niche Mortgage Info today.

Mortgage With Satisfied CCJ On File

A lender can decide to take legal action against a borrower if they consistently fail to pay back their debts. If you are taken to court and issued with a CCJ, you will need to pay back the debt in full, or a portion of the debt by agreement. This judgement will be recorded on your credit file for six years unless you pay back your debt before the CCJ is issued.

In the past, people with poor credit and CCJs could secure bad credit mortgage or remortgage. Since the credit crunch and reform of the mortgage industry, lenders have been forced to become more responsible. As a result, getting a mortgage with a satisfied CCJ on your file has become a little more difficult.

Many high street lenders will reject people with CCJs and defaults on their file as they view them as high-risk borrowers. Others may accept your application but will request a higher deposit or offer a higher interest rate. This can mean buying a house becomes much more expensive.

If you have a CCJ on your file and would like to secure a mortgage you have two options. You can either wait six years until the CCJ drops from your credit report and start building your credit again, or you can shop around. Your credit report is just one part of the whole picture that lenders will consider when making a decision.

There are steps you can take to make yourself a safer choice, including securing a bigger deposit of around 20-30%. The more deposit you can provide, the better. You can also shop around and try niche mortgage providers who may be more inclined to work with borrowers with poor credit histories.

Joint mortgage after finishing IVA?

Getting a mortgage after completing an IVA can be more difficult but it isn’t impossible. If your partner has a strong credit report, this might be just the thing needed to assure mortgage providers that you are a reliable borrower.

An IVA is a legal agreement between you and your creditors to freeze interest and pay back what you owe over a fixed period of time. During this time, you will not be able to take on any new debt and will have to stick to the terms of the agreement. As it is an Individual Voluntary Agreement, these cannot be combined between two people, such as a couple. This means that if only one person has an IVA and you are thinking about getting a joint mortgage, it might not be as impossible as you first thought.

Time heals all when it comes to credit reports. The IVA will only be visible on your record for six years. If your IVA lasts for five years, it will still be visible on your credit report for 12 months after you have received your IVA Completion Certificate. In many cases, you can simply wait until after the IVA has dropped from your credit report and then begin building your credit score again.

If you are keen to get a joint mortgage sooner, there are steps you can take to make this more likely. If your partner is able to afford the mortgage on their own, the simplest step may be to simply have them submit the application. If you would both like to be listed on the mortgage, you can approach niche mortgage providers who specialise in mortgages for people with adverse credit. Securing a larger deposit can also help to increase your chances of being able to acquire a mortgage.

Is there any way a mortgage provider could find out that I have a pending CCJ hearing?

A creditor can decide to take action against you if you are struggling to repay your debt to them. They will inform the courts that they plan to take legal action, and if upheld, the court will issue something known as a County Court Judgement. This is a legally binding order from the court to repay your debt or a smaller portion of your debt if it is unaffordable.

If you are able to repay the debt in full, the CCJ will not be issued and your credit score will not be affected. If you cannot repay the debt in the required time, you will be required to stick to a payment schedule. The CCJ will appear on your credit report for six years, even if you pay it back early.

For those with a pending mortgage application, this can lead to a difficult situation. If you are disputing the debt or if you plan to pay off the debt in full before a CCJ is issued, there is no reason a mortgage provider would know as it is not listed on your credit file. However, this can be risky. For example, if you are unable to repay the debt as planned, or if the dispute does not go your way, this could impact your mortgage application further down the line.

If you have secured a mortgage in principle, there may be more extensive checks further into the application process that could put the brakes on your mortgage. You may also be asked to sign documents which state that there are no pending hearings, and so you would be committing fraud to go ahead with the application before the CCJ is settled. The best thing to do is to wait until you know the outcome and then go forward with the mortgage application when your credit report is clear.

Is it impossible to obtain a mortgage until 6 years after IVA finish date?

An IVA is an abbreviation for an Individual Voluntary Arrangement. This is a legally binding agreement with your debtors to pay back a portion of your debts over a fixed period, usually five years. An IVA is often a better solution for the debtor and creditor as it is an alternative to bankruptcy.

A record of your IVA will remain on your credit report for six years, and this can have an impact on your ability to take on further debt, including a mortgage. Even if the debt it affordable with your current circumstances, the presence of an IVA can make some lenders concerned about your ability to pay back debts on time.

The IVA will be visible on your credit report for six years, so this could be a further 12 months after you have received your IVA Completion Certificate. In many cases, it is best to wait until the IVA has dropped from your credit report before trying to secure a mortgage. However, there are some instances where you could secure a mortgage before the IVA has gone from your record.

Not all lenders approach this issue in the same way. Some lenders will automatically rule out an applicant with an IVA, while others will consider them if they can provide a bigger deposit, for example. If you are determined to secure a mortgage with an IVA on your record, the first step should be to look at your credit report across all three credit reference agencies.

These are Callcredit, Experian and Equifax. Once you have a clear view of your position, you can approach niche mortgage providers to see if any of them will consider your application.