For many years I worked in the financial services industry, selling all manner of insurance policies till I eventually took the route of becoming a mortgage broker. My passion has always been writing and I often look back on the years that I worked in financial services as if I were moonlighting to earn a bit of extra money. I packed all of that in and forged my own path, realising I can make a lot more money as a writer and I haven’t looked back.
I did however pick up some useful knowledge along the way and in a climate where people are complaining about getting mortgages and how difficult it is to get on the property ladder, I thought I would give you 5 quick tips to secure a mortgage.
Clear Existing Debt
You should probably start planning for your mortgage application a couple of years in advance. By probably I mean you really should. Having loans, credit cards, overdrafts, finance agreements etc all have an effect on your mortgage application. Not every lender will view outstanding financial commitments the same but they will ask about them and they will be factored into your affordability calculation.
The best thing to do before you even think about saving for the deposit is to clear down all existing debt. Why is this? Well because firstly, debt interest rates are always higher than savings interest rates so there is absolutely no point having £2000 in a savings account generating 3% interest when you have a car finance agreement with £2000 and an 18% interest rate. Use any existing savings to clear off existing debt.
The only time you should consider an exception to this rule is if you have a credit card with 0% interest (you do get them with introductory offers) and you are going to clear this down in the allotted time frame. Don’t be fooled into juggling credit cards and switching out to other low or non-existent rates as this creates a spiral of debt. Either clear the card down within the time frame on the 0% rate or pay it off in full.
Once you have paid off your credit card, close the account, even having the ability to borrow money or a “limit” on a credit card with a 0 balance will affect some lenders affordability calculations.
Once you have cleared down all of your debt you can begin the daunting prospect of saving for your deposit. There are two things that are going to make this a lot easier now.
First – You’re not going to have the monthly payments on your debts that you had before so that means all of that excess money can go into your savings.
Second – Be selective with your savings accounts, look for the best rate available on the market by using comparison tools like the ones provided by Martin Lewis and then place your savings in those higher interest accounts. When the interest rate runs out, no problem, switch to another savings account with a better rate. Never ever keep your savings in one place, the rate will deteriorate over time and your loyalty is penalised.
In order to budget your deposit correctly it is best at this time to enlist the help of a mortgage broker.
Always Use a Mortgage Broker
A mortgage broker will go through all of your financial information and then will be able to run affordability checks for you. This means that you will know how much it is possible to borrow on your income. With your borrowing amount clear in your mind you will know what kind of value property you can buy. At that point you should be able to calculate how much deposit you will need.
A mortgage broker will always place you with the best lender for you, meaning that you aren’t having to shop around, walking into countless banks and building societies and sitting down with mortgage consultants. They will also be able to point you in the direction of low deposit mortgages which will be extremely beneficial to you if the barrier to entry is the deposit.
There are some lenders who will accept 5% deposits and even a couple of lenders that will offer 0% by way of a springboard option. Discuss your requirements honestly with your broker and they will do the best they can for you. One of my biggest issues working with clients was that pride often gets in the way of people’s honesty and people were reluctant to admit financial difficulties (past/present) and made my job twice as hard.
If you haven’t got a perfect financial history (seriously who does?) be up front about it. Having bad finances does not exclude you from getting a mortgage and there are many lenders that will lend to you even if you have been bankrupt. If bankruptcy isn’t a barrier to entry that should make you feel a bit better about a couple of defaults on your phone payment!
Explain everything clearly to your broker and it will make the whole process of getting a mortgage far simpler.
Another thing I used to find was that clients often had dreams of moving in down the road to their parents etc or into homes or houses that were beyond their financial means. Your first house might not be a palace, it might not even be that nice. The key is to get a property you can live in for the term of your mortgage rate and then move on.
Doing this builds up a mortgage track record, gives you experience of the costs associated with owning a home and allows you to upgrade using the equity from the property to put a larger deposit on a nicer house in the future. (Of course, that is dependent on house prices rising, but on the whole the trend is for property to increase in value over time).
If all you can afford is a one-bedroom property in the back of beyond then so be it. Providing it is habitable and has the potential to increase in value over time then it could be a very good stepping stone onto the property ladder.
The expression beggars can’t be choosers has never been truer than in the mortgage world so suck up the pride and buy something affordable, within your means and work towards your dream property in the future.
The last point on this is be wary about which rate you are tied into on your mortgage if you’re planning to flip the property and upgrade. If you want to do this quickly, taking a two-year fixed rate might be preferable over a five-year fixed rate.
Be Cautious of Help to Buy Schemes
The government in all of their out of touch wisdom have created various help to buy schemes that are aimed at helping people onto the property ladder. But they aren’t always as good as they look. For example if you’re using some help to buy schemes you have to buy “new-build” properties which might seem like a great idea but in truth new builds tend to be sold at inflated cost and you might have been better off without the scheme and purchasing an older property.
Another thing to look out for is that some help to buy schemes offer headline payments that people mistakenly believe will help contribute towards the deposit on a property. The you pay x% and we then pay y% and the remaining percentage is fronted by a mortgage lender. The truth is some of these schemes can’t be used for a deposit at all (it is a complete joke) and the y% is reimbursed to you after the completion of the sale. In other words, an example of this would be that you will need to pay the full 25% deposit to get the 20% paid back to you after you have completed on the property sale.
This is particularly bad and misleading (especially in the heavily regulated financial services industry) for those that feel help to buy will help them with a deposit. Because more often than not, it doesn’t.
The last point on government schemes is there is often some kind of restriction or trade off for equity at some future point. Always read the schemes details thoroughly and have someone else read it to catch anything you may miss. Ask your mortgage broker about help to buy as they will be aware of all of the current schemes and will be able to gauge from your financial situation and long-term plans whether one is suitable.
Follow these 5 steps and you will be able to make actionable progress towards getting a mortgage. There maybe bumps along the way, but your mortgage broker will be able to hold your hand through the process and guide you towards making better financial decisions.
For more practical life advice, try reading: