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.