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Did you know, four in 10 (41%) 18 to 24-year-old homeowners have experienced a mortgage rejection before buying their current home. That compares to 15% of 35 to 44-year-olds and 8% of those aged 45 to 50.

One in six (16%) mortgage holders have overcome being rejected for a mortgage in the past, and over half (54%) of homeowners who were rejected took longer than three months to be accepted for another mortgage – which proves that getting a mortgage is not something to be complacent about.

The top reasons for a declined mortgage application:

• Adverse credit
• Low credit score
• Income is too low
• Affordability (loan applied for is too high)
• Little evidence of income (recently self-employed)
• The property does not meet lender requirements
• Discrepancies with the underwriter
• The correct lender is not approached from the outset

If you’re a first-time buyer thinking of taking out a mortgage, this blog covers some of the main ways you can increase your chances of it being approved.

Some of the tasks will need to be carried out months before applying, so make sure you plan ahead and fully-understand the situation you need to be in before applying as all attempts are recorded on your credit file for a year and will have a negative impact.

1. Boost your credit score

This isn’t something that can be fixed overnight, unfortunately, it takes time to improve. Lender’s need to ensure you’re a profitable customer and can make your repayments. It does this by assessing your credit score to try and predict your future behaviour based on your past.

If your score is poor, almost all lenders will reject you. Here are some quick tips to help improve your credit score:

• Get on the electoral roll at your current address
• Check your credit file and deal with any negative issues
• Check the addresses on your credit file
• De-link from any past relationships of shared finances
• Spend on a credit card and make monthly repayments
• Never miss a payment (or pay late) on direct debits or credit cards
• Keep other applications to a minimum in the months before a mortgage
• Never withdraw cash on a credit card

If you’ve got issues such as county court judgments for unpaid bills on your credit file, these are wiped from your record after six years, so wait until these have been cleared before you apply.

2. Get a healthy deposit in place

The bigger your deposit, the less you’ll need to borrow. This means you’ll be considered by a wider pool of lenders and will have a higher chance of the mortgage being approved.

Just putting down 0.1% more than the minimum deposit required can boost your chances of being accepted, or at least cut the amount of documentation the lender wants to see. For example, if you’re applying for a 75% maximum LTV loan on a £100,000 property, instead of putting down the minimum £25,000, put down £25,100. That extra 0.1% could increase your chances and even speed up the application process.

3. Stay out of your overdraft

If you’re constantly using your overdraft, this could be seen as living close to the edge of your finances, so avoid it if possible. Some lenders may even refuse to lend to you if you’ve used your overdraft at all in the last three months. If you’ve had to use your overdraft because you’ve been struggling, should you really be getting a mortgage?

4. Avoid payday loans like the plague

Not only are the interest rates extortionate, but some mortgage lenders will simply reject anyone who’s got a payday loan as it indicates poor money management and lack of funds.

5. Close unused credit cards

While having a credit card and making the monthly repayments is healthy for your credit score, if you have lots of unused credit available, this can be seen as negative. This is because you have the credit available to borrow large amounts on a whim without passing further credit checks.

Even if you’ve paid an old card off and stopped using it, it’ll still show up as active and available credit unless you shut it down. If you’re not using it and won’t need it in the near future, it’s a good idea to close the account.

6. Provide all the necessary paperwork

The application process will run much smoother if you provide everything needed. It’s also vital you’re transparent in the application as failing to do so will increase your chance of a declined application then and in the future.

7. Use a broker

While you can apply for a mortgage yourself, a broker can increase your chances of the mortgage being approved down to their extensive experience in the industry. They also have access to the whole of the market and have built up strong relationships with lenders which means they may also be able to get you the best deal.

Do you need a mortgage?

Speak to our specialist mortgage broker if you’re a first-time buyer or looking to re-mortgage.

If you’re thinking of taking out a mortgage for the first-time, it’s important you’re aware of how they work. A mortgage is, for most, the biggest financial commitment you’ll ever make, so be sure to understand what you’re taking on.

In this blog, we’ve answered some of the most commonly asked mortgage questions, but if you need any further advice, you can contact our specialist Mortgage broker here.

How much deposit do you need?

To get a mortgage, most lenders will require a minimum deposit of 5% – 10%. To get a good interest rate, currently, you’ll often need more than 20% of the home’s value as a deposit.  A higher deposit will mean you are considered by more lenders and will be able to get a better interest rate.

How long should I set the term for?

The duration of the mortgage is often overlooked. Most people go for 25 years. You need to consider how old will you be when the term ends and whether you’ll still be working and able to make the payments.  Many lenders won’t allow you to take it into your retirement period.

The longer the mortgage term, the more you pay. Lengthening the term to 30 years means you pay less each month, but you pay more interest overall. Shortening the term is a bit like overpaying and is cheaper if you’ve got the funds to do so.

If the mortgage allows you to overpay, it’s often better to keep the mortgage long to give yourself flexibility, then make overpayments if you are able to.

What is an interest rate?

The interest rate is the cost of borrowing money. If the rate is 1%, that means if you borrow £1 over a year you’ll repay £1.01. If rates are 44%, you’ll need to repay £1.44.

However, when you borrow a large amount of money over a long period, the interest can be a lot, even if the interest rate is low. For example, if you borrowed £150,000 on a 5% rate for 25 years, you’d repay £113,000 in interest alone.

Can you still get a Help-to-Buy ISA?

The Governments Help-to-Buy ISA ended in November 2019, however, a Lifetime ISA may be a suitable alternative.

What is a Lifetime ISA?

The Lifetime ISA (LISA) is designed to help you buy your first home or save for retirement and is available for people to open between the ages of 18-40.

You can pay in up to £4,000 into a LISA every year. This can include cash, so you accumulate the interest, or stocks and shares investing, so you potentially get share growth (or loss).

The Government will then add a 25% bonus on top of the money you but in. The maximum bonus is £33,000 (as of 2020), if you open it at 18 and max it out until you hit 50.

You can use your LISA to help you buy your first home if the property costs less than £450,000. If you’re buying with someone who is also a first-time buyer you can both use your LISA savings and bonus.

What’s a repayment mortgage?

On a repayment mortgage, your payments include the amount you have borrowed to purchase the property as well as the interest over the term of the mortgage (25 or 30 years for most people).

What’s an interest-only mortgage?

Interest-only mortgages mean you only ever pay the interest on the amount you borrow, and you’re not reducing the amount you owe. For example, if you borrow £100,000 at an interest rate of 5%, the cost is £5,000 a year. However, after 25 years of paying the interest on a £100,000 loan, you would still owe £100,000. Most lenders today will not consider an interest-only mortgage for a first-time buyer.

Should you go for a repayment mortgage or interest-only?

A repayment mortgage is the only option which guarantees you are paying off some of the debt every month.

While a repayment mortgage costs more each month than an interest-only mortgage, it has the big bonus that it pays off the original debt too, meaning you owe nothing at the end. And if you ever decide to re-mortgage, you’ll have paid off more of the debt, so you’ll be able to get a mortgage with a lower LTV and therefore a lower interest rate.

What is a fixed-rate mortgage?

Regardless of what happens to interest rates, with a fixed mortgage your repayments are fixed for the length of the deal. Because you are being protected against interest rates rising, a fixed mortgage will often cost more than a variable mortgage.

A three-year fixed mortgage will generally have a higher rate than a three-year variable mortgage.  When a fix ends, most borrowers move on to their lender’s standard variable rate, but this can be costly.  And if you’re worried you may need to move home within the term of the fix, check that you can move your mortgage with you (known as porting).

What is a variable mortgage?

With a variable mortgage, the monthly payments can and will usually move up and down due to a number of reasons including changes in the economy.   However, to complicate things, variable rate deals fall into four categories:

• Trackers

A tracker rate tracks a fixed economic indicator which makes it very transparent. You know that only economic change can move your mortgage rate, rather than the commercial considerations of the lender. However, this can bring some uncertainty as if rates rise, so will yours.  You may also be locked into a fixed relationship, so if you are paying a large amount and interest rates jump, it could mean huge future costs.

• Standard variable rates (SVRs)

Each lender has an SVR which tends to roughly follow the Bank of England base rate. SVRs can be anything from 2 to 5 or more percentage points above the base rate, and they can vary massively between lenders.

If interest rates are cut, your rate will likely drop too. But there’s no guarantee you’ll get the full benefit of all rate changes as the lenders can increase rates at their will.

As well as being cheap in some circumstances, there are usually no early repayment fees, meaning the mortgage can be paid back in full at any point without costing you. However, these are rarely available to new first-time buyers and are often the rate you go to when your fixed or tracker special offer deal has ended.

• Discount rates

These track a lender’s SVR by a set amount at a lower level. For example, if the SVR is 4% and the discount is 1%, you’ll be charged an interest rate of 3%. Discount rate mortgages are also subject to change, as the SVR can go up or down – it’s just the discount amount that is fixed – so if the SVR increases to 5%, you’d pay a 4% rate of interest.

• Capped

These are also linked to the lender’s SVR, but the rate won’t go above a set level. Alternatively, a capped mortgage interest rate won’t fall below a set limit. These products are much less common than other deals, especially for first-time buyers.

Can you overpay your mortgage?

Overpaying your mortgage means paying back more than you need to so that you can clear the debt much quicker as well as pay less interest.

Most mortgage lenders will allow you to overpay, however, some will charge a fee or restrict how much you can overpay.

Additionally, some mortgages will allow you to get the overpayments back if needed, which means you can effectively use your mortgage as a high-interest savings account. And by leaving money in the mortgage temporarily, the net effect is the same as earning interest tax-free at the mortgage rate — very few savings accounts will beat that.

However, if it’s at a much higher rate, the increased cost on your debt may outweigh the savings gain.

What is an Offset mortgage?

An offset mortgage provides flexibility for the borrower and is specifically designed to allow you to use it as a place to put your savings. An offset mortgage is linked to your savings account to let you reduce how much interest you are charged.

The savings are not used to pay off the mortgage, instead, they sit in a separate savings account that pays no interest. Lenders deduct this amount from your mortgage balance and only charge you interest on the remaining amount.

For example, if you have a mortgage balance of £150,000 and £20,000 in savings, you will only be charged interest on £130,000.

What mortgage fees are there?

Like any finance solution, you need to fully understand the costs involved. A standard mortgage will typically require you to pay the following fees:

• Arrangement fee

This is often the second-highest charge associated with a mortgage, after stamp duty. The arrangement fee is the fee you pay the lender for the set-up of the mortgage and can be anywhere between £500 – £2000.

 In some cases, a lender will charge a fixed % fee based on the amount you want to borrow which can often work out higher than the fixed fee. It can sometimes be cheaper to go for a deal with a higher interest rate and lower initial fee.

• Booking or reservation fee.

As well as an arrangement fee, some lenders also charge a reservation fee to secure a fixed-rate, tracker or discount deal. This costs about £100-£200, is always payable upfront and is non-refundable.

• Broker fee

While you don’t have to use a broker, they can make the application process run a lot smoother and can help you get the best deal. A broker will either charge a fixed fee or a % of the amount you wish to borrow. This made clear from the get-go.

• Valuation fee.

This covers the cost of an inspection of your new home which is required by the lender before they agree on the mortgage. The cost of the valuation depends on the property’s value, and your lender, for first-time buyers purchasing a residential property it can be anywhere between £200-£500.

While a valuation is for the lender’s benefit, a survey is a more in-depth check of the property for your benefit. It can spot things such as damp or structural problems and costs between £400-£700.

• Legal fees

This is paid directly to your solicitor and covers the cost of all the legal work involved with buying a home; such as conveyancing and local authority data searches to check for hidden issues such as poor drainage. If you have to pay for your conveyancing, you’re looking at £500-£1,500.

• Stamp duty

This is paid directly to the Government and won’t be included by your mortgage – but needs to be considered if you’re purchasing a home.

All first-time buyers in England and Northern Ireland are exempt from stamp duty on the first £300,000 of homes worth up to £500,000. If a first-time buyer purchases a property worth more than £500,000, they will have to pay stamp duty like everyone else. In Scotland, first-time buyers pay no Land and Buildings Transactions tax on up to £175,000.

There’s now a new stamp duty system in Wales where you’ll have to pay Land Transaction Tax (LTT) to the Welsh Revenue Authority within 30 days of completion (via your solicitor). You won’t need to pay anything on properties worth under £180,000.

What paperwork do you need to get a mortgage?

Before you apply for a mortgage, get all the relevant paperwork together. This can sometimes take months and if you’re missing anything, you will more than likely get declined for a mortgage.

You typically need:

• proof of income (last three months’ payslips or 2/3 years’ accounts if self-employed).
• Proof of deposit (plus written confirmation from a donor — typically parents — if getting a gift towards the deposit).
• Your last three months’ bank statements.
• Proof of any bonuses/commission.
• Your latest P60 tax form (showing your income and tax paid from each tax year).
• SA302 tax return forms, mainly for the self-employed

Can you get a mortgage for any property?

Just because you qualify for a mortgage based on your finances doesn’t mean you’ll get it. The lender also needs to be comfortable with the property you’re buying as the property acts as security for the loan in the event you fail to make the payments.

Some lenders will not lend on homes near commercial premises, without a working kitchen or bathroom (even if you plan to refurbish), in a high rise, on a council estate, or if it doesn’t like the material used to construct the building.

Do you need a mortgage broker?

You don’t have to use a broker if you’re confident enough you can complete the application currently. However, be aware that any failed attempts will remain on your credit file for a year.

A broker can save you a lot of time by understanding the process inside out. They also have established a strong relationship with lenders and will be able to advise on the best finance solution for you and aim to save you money.

Do you need a mortgage?

Speak to our specialist mortgage broker if you’re a first-time buyer or looking to re-mortgage.

SA11 Property Market Review Q.1 2020

2020 has started as I’d hoped with a solid improvement from where we left 2019. With a new Government and a Brexit plan, confidence has returned to the housing market in South Wales. 

We’ve been fortunate enough to have a large selection of readily available properties suitable for rent that attract local investors and people from across the UK and beyond. 

What’s happened though is we’ve seen that confidence return for the buyers and they’ve come to a market where there isn’t much stock to buy. The days of having 8/9% Yields and “I’m buying 20% below BMV” are few and far between. You’ve got to work smarter to find the property deal you want. 

We’re seeing more people than ever become landlords via Ltd companies this year, we’ve adjusted to the requirements of our buyers and welcomed a new Mortgage Specialist to the team who can help with finance quickly to ensure that you get the property deal you want.

I believe that now In the first quarter of 2020 is the time to sell your property. Based on low stock competition levels, high confidence in buyers, ample new mortgage deals available and data from land registry showing capital growth, I genuinely believe you’re likely to get the most for your property than any time in the previous 2+ years. – Jonathan Morgan. Director, Peter Morgan Estate Agents

Here’s our take on the SA11 Property Market. What’s going on, what values have done, what yields you can expect and the typical rental…