In the current economic climate, it is now much harder to get finance from mortgage lenders for your property. While banks and building societies used to lend up to four times a person’s salary or four times the joint income for a mortgage, there are now much stricter laws coming into place. The FSA (Financial Services Authority) is in the process of enforcing tighter controls on mortgage lenders in terms of how easy they make it for borrowers to receive finance.
The assessment criteria for how much a loan provider is willing to give you will now be much tougher. In addition to looking at your salary to evaluate your ability to make repayments, lenders will now also weigh in all your monthly financial outgoings and the size of the deposit you are able to make. There will also shortly be a cap on the maximum amount banks can lend and 100% mortgages (where you make no deposit whatsoever) are soon to be banned altogether.
The following guide will show you that ways to boost your mortgage borrowing power so that you can both increase lender confidence in you and get the best deal possible.
Research and Calculate
The old saying ‘act in haste, repent in leisure’ certainly holds true when shopping around for a mortgage. While financing isn’t the most exciting of subjects for most, if you take the time to carefully research the different packages available on the marketplace as well as read the fine print, you could save a significant amount of money in the long run. It’s also crucial to clearly calculate what your monthly repayments will be so that you can be sure not to overstretch your budget. Luckily, most lenders provide an online mortgage repayments calculator to allow you to make it easy for you so figure out the approximate monthly charge you will pay. This will also help you decide what term length you can afford. To get an exact figure however, you’ll need the APR thrown into the calculation, plus bear in mind that interest rates are subject to ups and downs according to the fluctuating Bank of England rates. Another factor that affects your budget planning is that mortgage providers vary in how they calculate the repayments, such as daily, monthly or yearly. Also don’t forget to save for added fees such as life insurance and arrangement costs.
As explained above, mortgage lenders are increasingly stringent on how they calculate you the borrower as a credit risk. It stands to reason that if they see you have large sums of outstanding debts on credit cards and loans etc, they might be wary of your ability to meet your monthly repayments. For this reason it’s a good idea when aiming to take out a mortgage to reduce your debt amounts as much as possible. Doing this will also give you more cash to add toward your mortgage deposit, which will not only lessen the amount you need to borrow and thus the interest you will pay, but also boost lender confidence in you.
Maintain a good credit rating
These days, finance providers are only prepared to take a risk on those with a good credit rating. For this reason it is vital to take good care of your credit history, which means being more stringent about keeping up with payment commitments and not going too far beyond your overdraft. It’s also a good idea to be clear on your rating before you apply for a mortgage to avoid any disappointments. It will cost a mere £2 to get a copy of your credit file. You’re advised to check it thoroughly to make sure it’s both accurate and up-to-date
The Guarantor Option
If you feel you might run into difficulties in terms of being a good credit risk or getting a large sum to cover the property you want to buy, you could consider the option of using a guarantor to underwrite your mortgage. In other words, they would co-sign as a safety net in the event you have any problems meeting your loan payments. First time property buyers especially could benefit from this. It must be said however that these days there are not many guarantor mortgages offered on the marketplace, although many lenders may consider this on a case by case basis.
The Joint Buying Option
When the price of properties you’re interested in and thus the loan amount you need to borrow goes way beyond your budget for meeting the mortgage repayment, you might want to consider buying with another person. This would put far less strain on your bank account and significantly boost potential as a good credit risk which means lenders will be more comfortable offering you a larger loan amount.
Boost Your Loan Amount with Your Own Funds
If you find yourself in the frustrating position of being offered less of a loan sum than you need to cover the finance of your dream property, you can always make up for the shortfall with your own funds, such as using your credit card or taking out a bridging loan. The disadvantage of this however is that your interest rates in total will consequently be much higher than taking out a single mortgage amount. Also, when reviewing your financial situation banks or building societies might find you overstretched and thus be concerned about your ability to make your monthly repayments. Thus, you should go down this road only if all else fails.
The above guide will help you bolster your borrowing potential and your ability to finance the home of your choice. When comparing different loans, it’s always a good idea make sure the monthly repayments match your budget by using a mortgage repayments calculator.
Sean Raston – economics student and mortgage repayments calculator developer.