Help! I can't get a mortgage!
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With many borrowers pessimistic about their chances of getting a mortgage, lovemoney.com's resident broker Tim Wilson looks at how to overcome certain hurdles like previous rejections or small deposits.
Around two-thirds of applicants are being turned down by lenders offering best buy mortgages, according to some recent research by Legal & General Mortgage Club.
If you’re one of those people, or you want to take out a mortgage but fear you’ll be turned down, what should you do?
There are a number of reasons why people cannot get a mortgage. It’s not an easy market out there at the moment so we sometimes need to think outside the box. I am going to cover a few of them here and give you some hints and tips on what to do.
I have been declined!
First of all, just because one lender has declined and said no to lending you the money doesn’t mean that’s it. Each lender has its own criteria so if one door closes another one will open.
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Let your mortgage broker take a look at the file and they can go through it with you. This will give them a better idea of the sorts of lenders that will want to work with you, and are most likely to accept you.
If your credit rating is very poor and you have Defaults and County Court Judgements, again this might not be the end of the road for you. Your choice of lenders will be limited as you will be a higher risk to them, so you will need lots of equity in the property and your interest rate will be quite high.
I don’t have a big deposit!
If you do not have much of a deposit to put down then it can be very difficult to purchase a property, but some lenders will allow you to take the deposit out as a loan.
So for example you might have 5% deposit but the minimum deposit is 10%, you could speak to your bank and borrow that extra 5% as a loan. Now it is vitally important to understand the risks involved and the lenders’ reasoning behind this.
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Secondly it is even more important for you to look at the affordability and make sure you can also cope with a mortgage payment and a loan. I would suggest going through a detailed budget planner, such as this one from the Money Advice Service, to get a proper idea of what you can afford.
I don’t have a large enough income
If you do not have enough income to borrow the loan then maybe you could be stretching yourself too much and the loan you are going for is too high. The lenders are very keen on not letting you get into too much debt.
But there might be occasions where you need that little bit extra. Let’s say for example your partner is self-employed for one year only and he will need two years’ accounts to be included on the mortgage. So you are stuck with one income to use and it isn’t enough to get what you want.
Again this is something that you would need to speak to a mortgage broker about so they can go into the figures and work out how short it is. It might mean you could put someone else on the mortgage in place of your partner. This doesn’t mean they have to be on the mortgage for the whole term - you can replace them when your partner can provide their income figures.
Now, it is important for the person to understand that if they are coming onto the mortgage they are liable for mortgage payments just as much as you are and they will be underwritten on the same basis. It’s very similar to having a guarantor mortgage which is very hard to come by.
Hopefully these hints and tips can help you onto the property ladder. Everyone has a different story and not all of you are going to be able to get on the ladder right now, but if you would like to have a chat with me to see if there is something we can do then drop me an email firstname.lastname@example.org and I am more than happy to guide you.