Mortgages Made Simple
- For most of us, buying a home means applying for a mortgage – and success or failure could depend on your financial history.
Your Credit Report
- Your credit report is your personal financial history. It includes a wide range of information on your credit behaviour, from your credit cards and loans to your repayment record, previous mortgages and details of overdrafts.
The report also confirms whether or not your name is on the electoral roll at your current address and how many times your credit report has been searched.
Credit reference agencies – Experian is the UK’s largest – hold this data on more than 40 million people and 24 million households. So it’s likely that they have information about you.
Making a decision
When deciding whether or not to give you a mortgage, the mortgage lenders look first at the details on your application form. If you don’t fit their criteria for being offered a loan, they are unlikely to search your credit report. Typical deal-breakers include being too young, insufficient current earnings or too short a self-employment history.
- They may then look at any previous relationship that you may have had with them and how you conducted it.
The next step is to search your credit report. A lender may use this information to help create your credit score, by comparing you to past customers with similar characteristics. The result is a numerical assessment of how good a credit risk you appear to be. Normally, the higher your rating, the more likely the company is to lend you the money you want.
- Getting a copy of your report before you apply for a mortgage will allow you to check that the information it contains is accurate and up-to-date.
For example, if you had a court judgment against you but have paid the debt, you should make sure the record reflects this. Equally, if you paid off the debt within one month, the judgment can be removed from your report. Or perhaps the fact that you registered to vote has been missed and your name has not been confirmed on the electoral roll. In this case, you should let Experian know. They will investigate and amend their records accordingly.
If you believe that some of the information on your credit report needs further explanation, Experian will help you to add a brief statement or Notice of Correction to your report. This will be seen and may be taken into account by any lender using the information to which it relates.
If at first you don’t succeed
Lenders turn down roughly one-third of all mortgage applicants. If you are one of the unlucky ones, you should be given an explanation. If not, ask for some guidance.
- For example, you may not be offering enough deposit or appear to be carrying too much debt from other sources. It may be that your credit report rang alarm bells, perhaps because you had missed some payments on a previous loan.
You can always appeal against the decision and ask the lender to look at your application again. This may give you chance to provide further information. For example, your poor credit record may stem from a one-off event that no longer applies, such as a serious illness or enforced redundancy.
- Finally, there’s nothing to prevent you applying for a mortgage from another company. Different lenders may take a different view. But be careful how many applications for credit you make in the short term.
If you allow a significant number of companies to search your credit report, this could damage your credit rating as it could be interpreted to mean that you are desperate for money or possibly that someone is trying to commit fraud. If you know that you have been refused credit because of your credit report, it is always sensible to check it before making any further applications.
No nasty surprises
To help avoid any nasty surprises, you can keep tabs on your credit report by signing up for a free, 30-day trial of CreditExpert, an online credit monitoring service from Experian. It means that you can check your credit report at any time – invaluable when you are applying for a mortgage, when you often need to move fast. You will also be warned by a weekly email or text message when a significant change, such as a new search, is registered.
- Joining CreditExpert also allows you to order a copy of your Experian Credit Score at the special offer price of £5.95. It only uses the information in your credit report but it will give you a good idea of how lenders will rate you.
And if you need to improve your credit report, the CreditExpert site contains plenty of advice, hints and tips that will help you to turn your dream home into reality.
Much maligned for its perceived part in the credit crunch, the 100% mortgage may make a return in the UK during 2011 as a matter of necessity to avoid plunging the UK banks into further swathing write-offs for bad debt.
A serious concern for the Monetary Policy Committee and leading economic advisors is that by raising interest rates in 2011 (arguably required to control inflation and encourage economic growth) it will plunge many customers currently in negative equity paying standard variable rate mortgage rates into a position whereby they can no longer afford their monthly repayments.
Such an impact is considered too great a risk to the economic recovery as large volumes of customers defaulting and banks suffering from reduced profits will undermine the fragile confidence in the banking system. Therefore, the government owned banks (such as RBS, Lloyds TSB & NRAM) are rumoured to be ‘under significant pressure’ to review their lending policies for mortgages.
Essentially the choice offered is stark – either offer existing customers a reasonable rate on a fixed term or risk having to write off £millions more in bad debt as mortgage customers find it difficult to keep pace with rising standard variable rates as the MPC hikes interest rates, as expected, during 2011.
As recent market responses to bank results show, large provisions for bad debt do not help support high share prices so this is something that banks very much wish to avoid.
Put simply, if the banks don’t come up with decent deals, then there will be more people struggling to pay their mortgage payments and thus repossessions will increase and there will then be more people queuing at the door for social housing and less people from ‘Alarm Clock Britain’ focusing on the big society.
- Still with us? We hope so!
- So what does it mean for you and I? Well not a lot if you bought your house before 2005 and haven’t taken any further loans secured against your house.
- If however you bought at the top of the market or currently have a loan to value of 95% and more, then this may be of concern. Worrying about being able to meet your mortgage commitments is not a good place to be in, and actually being in or having mortgage arrears is worse.
Failure to keep up repayments on a mortgage or any other debt secured on your home may result in you losing your home through repossession!
As debt management specialists, we may be in a position to help you change your current unsecured debt repayment arrangements to reduce the impact that an increase to your monthly mortgage repayments would bring.
Help is at hand and here at Lewis Alexander as we have personal debt specialists available to try and help you. If you are in a position whereby your household finances are carefully balanced and any increase in your mortgage rate would cause a real difficulty then call us on FREE today using 0800 018 6868.
