Despite the apparent increased availability of 95% mortgages, many potential home buyers will be refused a loan. Whilst banks and building societies have relaxed their lending criteria to some extent, those wanting a home loan will still have to pass certain tests of credit worthiness.
There is evidence that an increasing number of mortgage applicants are being refused a loan because they have bad debts on their credit record. Lenders are refusing to say exactly what criteria they use to decide whether or not they will approve a loan because they believe people will cheat the system. They also get to keep the application fees, whether the mortgage application is successful or not!
Even a relatively minor one-off lapse can result in a mortgage application being refused such as:
- Missing a monthly payment on mobile phone or broadband or pay TV contracts.
- Going over an agreed overdraft limit.
- Failing to pay at least the minimum balance of credit cards.
- Even not having a credit card can count against you, as lenders may interpret this as an indication you cannot handle credit.
What you should do:
- Get copies of your credit rating from Equifax, Experian or Call Credit for a nominal fee.
- Cancel any credit and store cards you no longer use. Too many cards will look like you already have too much credit.
- Keep outstanding balances on credit cards to 25% of your total credit limits.
- ALWAYS make the minimum payment on all loans and credit cards. The more you pay off each month the better your score.
- Never take out any Payday loan.
- Never go over agreed overdraft limits! This can leave a negative on your credit file for up to six years.
- Make sure anyone else on the mortgage application has a good credit history too.
Finally save as much as you can for a deposit. Not only does this show the lender that you are responsible and can budget and plan, but the more you can save for a deposit, the cheaper the loan will be. Those with a 10% deposit will save around 1% on a fixed rate deal compared to buyers who need a 95% mortgage.
As a result of the government’s Help to Buy scheme together with a relaxation of lending criteria, Britain’s housing market is now booming. More sales will be recorded in 2013, than at any time since the 2007 boom. The increased demand for homes has, according to the Halifax, resulted in the ninth consecutive monthly rise in house prices, up 0.7% in October and up 6.9% over the last 12 months. The Halifax reports that the average UK home is now valued at £171,991. It has never been an easier to sell a home and estate agents are cashing in on the easy money, charging around 2% of the sale price. This can be a total of £6,000 (including vat) for a home that can sell for £250,000 in a matter of days, sometimes before they even put the property in their window!
However a growing number of sellers are choosing to avoid the traditional method and are marketing their homes online and saving several thousand pounds in the process. Most online services charge flat fees between £200 and £900 depending on the services offered and optional extras. With many homes selling in a matter of days, people thinking of selling their home are starting to ask themselves why they need an estate agent at all. The RICS say that around 5% of all completed property sales arise from low-cost online agents and private sale websites.
Even without David Cameron mad decision to bring forward Help to Buy (2) the state-backed mortgage indemnity for lenders by three months, the housing market is already doing quite nicely.
The latest data from Sequence, a national network of 300 estate agents shows, the number of new buyers has risen 58% in the last 12 months and UK house prices are rising at 7% a year.
As the housing bubble inflates, with buyers finding they can borrow more for less and sellers reacting to the increased demand by raising asking prices, estate agents are cleaning up. So much so that they are focusing on ‘easy’ sales rather than ‘best price’ sales, by grading buyers according to their potential ability to complete the deal quickly, without any delay or complications. Showing houses to the best buyers first – those most likely to be able to complete the quickest and easiest. According to Francis Long of buyer’s agent Hanslips, top of their list are buyers with cash.