So getting a mortgage should be simple now? Unfortunately not. It is not impossible but there is still more you can do to increase your chances of being successful.
1. Keep saving and make your deposit as big as possible
The more deposit you have, the more favourably you will be looked at by lenders. The bigger the deposit, the less risk you are to them and this will have a couple of knock on effects.
Firstly, you will get a better interest rate and so the mortgage will cost you less. And secondly, you may get a bit more leeway in the assessment of your application. For example, this may mean you are able to borrow slightly more or past credit issues are more easily ignored.
Lenders are currently pricing and assessing risk on deposit size which tends to be in 5% increments. So you will get a certain interest rate at borrowing 75% of the purchase price but this will be different at 75-80% and again at 80-85%, 85-90% and 90-95%. So unless you can move down one of these bandings with a bigger deposit, you will be charged the same at 86% as 90%.
So the more you can put towards the new property from your own funds, the better off you will be.
2. Continuity is the key
Lenders like to see consistency. This makes it easier for them to say "yes" to your mortgage. This applies to all aspects that they look at:
If you have had 5 addresses in the last 3 years (or cannot be traced at some of them) you will not be viewed as favourably as someone who has lived in the same house for 10 years. It is not a competition as both these scenarios could well be acceptable to a lender but it is about making the decision to say "yes" as easy as possible for them. So if you have moved a lot, there is not much you can do about it but having as few addresses as possible in the last 3 years will improve your chances of getting a mortgage.
The same situation applies to job history. If you have changed jobs every 6 months, it is harder for the lender to say yes as there is less of a track record of earnings with the current employer. If your line of work relies on bonuses or commission then changing jobs just before applying for a mortgage could be detrimental.
Obviously you would not change jobs if you expected to earn less but lenders do not rely on emotion or common sense, Just cold hard facts. If you have not got a track record at your new employer of earning the bonuses or commission, do not expect the lender to take it into account when working out what they will lend to you.
If you want the overtime and bonuses to be used - make sure they are consistently received for the 3 months prior to making an application. This will help you. If you can show that it is reliably paid to you, there is a good chance it will be included in the calculations.
Paying your bills on time has already been covered in these posts previously but it has relevance here too. You will increase your chances of being successful if you consistently pay everything on time rather than a hit and miss "every other month its a bit late" approach.
3. Tips for the self-employed
One of the advantages of self-employment is that certain expenses can be offset against income so that you pay less tax. Paying less tax is a good thing for most of us (unless you go about it the wrong way like Jimmy Carr!) but bear in mind that when applying for a mortgage, the figure that a lender looks at to determine what you are able to borrow is the NET profit.
So if you have not put everything through the books and have piled in as many expenses as possible to pay less tax, you will not be able to borrow as much when you come to apply for a mortgage.
Therefore, purely from the point of view of being able to get the mortgage that you want, before deciding to move or buy for the first time, make sure all your income is being declared (as you should do anyway of course!) and be careful with your expenses claims so that you are not harming your mortgage chances.
Lenders are nowadays not just relying on accounts to prove income. They often ask to see confirmation from HMRC of your earnings. Therefore you will need to supply SA302's fot the last 2 or 3 years which you will have to order from HMRC. As this can take up to 2 weeks for them to arrive, it is best done well before you actually need the mortgage.
4. Best of the rest
Here are some other top tips to give yourself the best chance that your mortgage application is successful:
Be conservative with the value of your own property for a re-mortgage. Seek advice from an estate agent (not just Zoopla) as if your expectations are not realised, it could scupper your application and mean a worse interest rate. It is better to do the research before applying for a mortgage rather than afterwards!
Keep all your paperwork. Expect to be asked for lots of paperwork and you will not be disappointed. This can range from 3 months bank statements to tenancy agreements to P60's. You need to become a hoarder just so you can supply the lender with everything they ask for. Don't throw anything away that you possibly might need.
Stay in the black. Most lenders will ask for bank statements and they do look at them. So try to bear this in mind and keep them as healthy as possible for the few months before applying for the mortgage. So that means staying within your overdraft limit, not having direct debits and standing orders returned and paying all those bills on time.
None of these tips are guaranteed to make your application successful but they are about presenting your application in the best possible light and giving the lender reasons to say "yes" rather than "no".
I am obviously on hand to guide you through the process and give you as much advice before, during and after your application. If you have any questions, please call me on 0844 736 1920.