With the FSA (Financial Services Authority) putting forward new proposals to enforce stricter controls on mortgage lenders, the average borrower will find it much more difficult than before to finance their homes. While building societies and banks used to lend up to four times a person’s salary or four times the joint income on a property mortgage, this is now becoming a thing of the past with the advent of a much tougher set of assessment criteria. In addition to your salary, lenders will now carefully consider the size of your deposit and monthly financial commitments. There will also soon be a cap on the maximum amount banks can lend and 100% mortgages are due to be banned.
Whether you’re a first time property buyer or looking to remortgage, the following guide will provide the top ways you can strengthen your borrowing potential in this new climate of stringent lender scrutiny.
Do your research
It is vital to put in the research of thoroughly comparing mortgage loan providers, clarifying what your monthly repayments will be and calculating the amount you’ll be able to borrow under the new regulations. To do this, a mortgage repayments calculator is indispensible. Be aware however that this will be an approximate guide. The final figure will require inclusion of the APR. It’s also important to know that the interest rates which affect your monthly repayments are subject to rises and falls according to the Bank of England rate fluctuations. Furthermore, mortgage lenders calculate repayments in different ways, such as daily, monthly or yearly. It’s also crucial to bear on mind that
your mortgage cost will also be dependent on such factors as life insurance fees and the mortgage term you choose.
Care for your credit rating
Increasingly, the golden rule in mortgage financing is that banks or building societies are only prepared to lend money to those who demonstrate a good credit risk. Thus, it has become crucial to maintain and understand your credit rating in order to increase your chances of getting a good loan deal. It will cost you just £2 to get a copy of your credit file. Make sure it’s both up-to-date and accurate so that you don’t get any nasty surprises when you start applying to lenders.
Reduce income drains
Loan providers are increasingly using affordability calculators to set the amount they are prepared to lend – these will take into account your regular expenditures and debts since these deplete your monthly income and thus can make you a greater repayment risk. Thus it’s a wise idea when planning for a mortgage to reduce your outstanding balances on you overdraft and credit cards. This will also free up funds so you can save for a bigger deposit. All of these factors can significantly boost the amount a lender is comfortable loaning you.
Consider a safety net
First time property buyers in particular could benefit greatly from arranging for a guarantor to underwrite their mortgage, since lenders could be more willing to provide finance if a relative or friend with a reliable credit history is listed as a safety net in the event of repayment difficulties. These days there are not too many guarantor mortgages on the market; however lenders may consider them on a case by case basis.
Consider sharing the weight
Another option is to buy a property together with another person. This will significantly boost your monthly income amount and thus your standing as a good credit risk. Mortgage lenders will then be happy to offer a larger size loan.
Budget for Plan B
If you find mortgage loan providers are not willing to give you the amount you need to buy that dream home, there is always the final option of using your own credit to make up the shortfall. A personal loan, credit card or bridging loan can be used for just that. Be aware though that building societies or banks might not grant you a mortgage loan if they feel you’re overstretched. There is also the downside that your interest rates in total will then be much higher. While using your own funds is a solution if all else fails, it’s essential to calculate your budget carefully to make sure you can cover all these debts without landing yourself in trouble.
The above top tips are useful ways to increase your loan potential to buy or refinancing your home. Most importantly, shop around carefully for a deal that best suits your needs and keep a mortgage repayments calculator close at hand to make sure your monthly expenses don’t overshoot your income.
Sean Raston is an economics student and mortgage repayments calculator developer.