Sellars' Market - Top Tips for getting a Mortgage
21 July 2009
Sellars'Market by Chris Sellars
Top Tips for getting a Mortgage
First-time buyers are returning to the property market — albeit not exactly in droves. The Council of Mortgage Lenders (CML) says that 45 fewer first-timers took out mortgages in June this than in June last year. This is not so much an indication of lack of demand from those trying to get on to the bottom rung of the property ladder but of tight lending criteria, which remain a barrier to many first-timers.
Money is still tight . . .
Brokers say the situation has eased since the middle of last year but it is still difficult for many people to obtain credit. Figures from Moneysupermarket.com show that the number of mortgage rejections has increased fourfold over the past two years, with nearly one in ten applications that meet lenders’ basic income and credit scoring criteria being rejected.
. . . But a deposit really helps. The key to obtaining a mortgage is the deposit. In recent years first-time buyers have needed a large deposit to bridge the gap between what they could borrow and the price they had to pay. Today, the need is dictated by the withdrawal of many of the high loan-to-value products. It is possible to borrow 90 per cent, or even 95 per cent, of the purchase price of a property, but it will cost you. The greater the deposit you can put down, the lower the mortgage rate you can expect to pay. Nationwide recently announced a 125% product but in reality this is only for existing customers already in negative equity.
Who’s lending?
If you have only 10 per cent of the purchase price to put down, go to HSBC, which recently launched a range of competitive deals available up to 90 per cent loan to value. You have to open an HSBC Plus current account (which costs £12.95 a month) in order to gain access to these deals, but it is worth it. Other lenders who are prepared to offer mortgages to those with a small deposit charge a hefty premium because of the risk of negative equity. For example, Abbey is offering a five-year fix for borrowers who have a deposit of just 5 per cent, but the rate is 7.09 per cent and the fee is £2,499. By contrast, if you pay a 25 per cent deposit, you can get a two-year fix at 2.99 per cent from First Direct with a £898 fee.
Fixed rate or variable?
First-timers should consider opting for fixes rather than variable rates. With base rates at just 0.5 per cent, there is risk in taking a variable deal. If you do take a variable deal there could be trouble ahead if rates take a turn back up.
Whiter than white: Keep your nose clean. Lenders are much more fussy about who they will lend to. Your credit score is now very important: make sure you are registered on the electoral roll, keep all your payments up to date and make sure that your credit file is accurate.
Affordability: Income multiples remain important, but the amount you earn is only the start. Lenders will take your debts and other outgoings into account as well as your income. So if you have a lot of credit or store card debt, you may want to clear this first if you can.
Inter-generational subsidy: If you are unable to obtain a mortgage on your own income, the obvious solution is to turn to the Bank of Mum and Dad, to help out with the deposit or to act as guarantors. Guarantees are risky as Parents house is ultimately at risk if you default and some Lenders, for example the Barnsley are not accepting Guarantees.
A friendly arrangement If your parents cannot help, you could buy with friends. Some lenders will take the incomes of up to four friends into account when deciding how big a mortgage to give you. If you are buying with friends, get a legal document drawn up so that everyone knows exactly who gets what when the arrangement comes to an end.
Contact me at Banner Jones 24 Glumangate Chesterfield
Tel 01246 560560
Fax 01246 220390
cjs@bannerjones.co.uk
www.bannerjones.co.uk
Top Tips for getting a Mortgage
First-time buyers are returning to the property market — albeit not exactly in droves. The Council of Mortgage Lenders (CML) says that 45 fewer first-timers took out mortgages in June this than in June last year. This is not so much an indication of lack of demand from those trying to get on to the bottom rung of the property ladder but of tight lending criteria, which remain a barrier to many first-timers.
Money is still tight . . .
Brokers say the situation has eased since the middle of last year but it is still difficult for many people to obtain credit. Figures from Moneysupermarket.com show that the number of mortgage rejections has increased fourfold over the past two years, with nearly one in ten applications that meet lenders’ basic income and credit scoring criteria being rejected.
. . . But a deposit really helps. The key to obtaining a mortgage is the deposit. In recent years first-time buyers have needed a large deposit to bridge the gap between what they could borrow and the price they had to pay. Today, the need is dictated by the withdrawal of many of the high loan-to-value products. It is possible to borrow 90 per cent, or even 95 per cent, of the purchase price of a property, but it will cost you. The greater the deposit you can put down, the lower the mortgage rate you can expect to pay. Nationwide recently announced a 125% product but in reality this is only for existing customers already in negative equity.
Who’s lending?
If you have only 10 per cent of the purchase price to put down, go to HSBC, which recently launched a range of competitive deals available up to 90 per cent loan to value. You have to open an HSBC Plus current account (which costs £12.95 a month) in order to gain access to these deals, but it is worth it. Other lenders who are prepared to offer mortgages to those with a small deposit charge a hefty premium because of the risk of negative equity. For example, Abbey is offering a five-year fix for borrowers who have a deposit of just 5 per cent, but the rate is 7.09 per cent and the fee is £2,499. By contrast, if you pay a 25 per cent deposit, you can get a two-year fix at 2.99 per cent from First Direct with a £898 fee.
Fixed rate or variable?
First-timers should consider opting for fixes rather than variable rates. With base rates at just 0.5 per cent, there is risk in taking a variable deal. If you do take a variable deal there could be trouble ahead if rates take a turn back up.
Whiter than white: Keep your nose clean. Lenders are much more fussy about who they will lend to. Your credit score is now very important: make sure you are registered on the electoral roll, keep all your payments up to date and make sure that your credit file is accurate.
Affordability: Income multiples remain important, but the amount you earn is only the start. Lenders will take your debts and other outgoings into account as well as your income. So if you have a lot of credit or store card debt, you may want to clear this first if you can.
Inter-generational subsidy: If you are unable to obtain a mortgage on your own income, the obvious solution is to turn to the Bank of Mum and Dad, to help out with the deposit or to act as guarantors. Guarantees are risky as Parents house is ultimately at risk if you default and some Lenders, for example the Barnsley are not accepting Guarantees.
A friendly arrangement If your parents cannot help, you could buy with friends. Some lenders will take the incomes of up to four friends into account when deciding how big a mortgage to give you. If you are buying with friends, get a legal document drawn up so that everyone knows exactly who gets what when the arrangement comes to an end.
Contact me at Banner Jones 24 Glumangate Chesterfield
Tel 01246 560560
Fax 01246 220390
cjs@bannerjones.co.uk
www.bannerjones.co.uk
