Five top tips for getting a mortgage
There’s more to moving than just spotting the ideal home. Here are five ways to ensure you do don’t spend more than you need to when stepping on the housing market.
Check your credit rating
You may think you’ve got a great credit record, and if you’ve always paid credit or store card debts on time, never got into arrears with your landlord or fallen behind with other payments, you’re probably right. However, it’s worth getting a copy of your credit file from the three companies that the financial sector speak to when reviewing mortgage applications – Experian, Equifax and Callcredit.
You can get a copy of your credit report for £2, but be aware of ‘free trials’, as these tend to lead to monthly payments that you could do without. If you subsequently spot an error, contact the credit file company and ask them to correct it.
There are a number of government schemes that could help you to buy a home. These include Help to Buy: equity loan, through which you can borrow up to a fifth of the value of a new-build home in England (a similar scheme operates in Scotland and will be launched in Wales from January 2014).
There’s also the Help to Buy: mortgage guarantee, which can be used for older property and not just new-build homes. This is a UK wide scheme that can mean that you will only need to find a 5% deposit on properties worth up to £600,000.
Homebuy is another scheme you could use. This allows you to buy at least 25% of your council or housing association home and pay rent on the rest of it. You can increase your ownership share over time until you own the property outright.
Innovative lender schemes
Some lenders, including high street banks and building societies, operate mortgage schemes that take into account the fact that a borrower will need more than a 5% deposit to get their hands on keys to their desired home.
Each provider works in a different way. For example, some allow local authorities to indemnify up to 20% of the value of the property, so you can get a more attractive mortgage rate, as a large proportion of the borrowing is underwritten.
Other mortgage providers allow parents to use their savings as a guarantee. The money they put into an account is not handed over to their children and will earn interest, but it can be recovered by the lender if the homebuyer defaults on their mortgage payments. For this reason, you’d get a preferable mortgage rate, but need to be aware of the risk should you fall out with your guarantor.
Check with your bank or building society to see what schemes you could use.
Fix a budget and be flexible about location
Stamp duty bands, removal costs, solicitor’s fees, estate agent costs, home insurance, utility bills, and general living costs all add up. So it’s essential to work out the likely costs, add a little more for unexpected costs and use your total as a barometer when looking at what property you can afford.
It’s worth considering homes in areas slightly outside of your target location. Who knows? You could save a fortune just by living in a neighbouring postcode.
Independent mortgage advice
Buying a home is the biggest outlay you’ll ever make, so it’s important to explore all the options available to you. It’s worth taking independent mortgage advice from a broker, who will not be tied to any one provider and can source mortgage products to give you more choice.
All information accurate as of 09/12/2013.
This article is provided by the Money Advice Service.