Are you mortgage ready?

BUYING a first home is often painfully slow. You’ll need to save enough money to cover the deposit and other costs, find the right property, have your

BUYING a first home is often painfully slow. You’ll need to save enough money to cover the deposit and other costs, find the right property, have your offer accepted and get a mortgage — and that’s before you’ve even exchanged contracts. A lot of boxes will need to be ticked regarding your finances and, if the smallest detail is missing or unclear, the process could temporarily grind to a halt. By thinking ahead, being organised and prepared, you can reduce the hold-ups. Here’s what to do to ensure you get the keys to your own front door as soon as possible.

1. Boost your credit rating

A less-than-perfect credit rating will affect your chances of getting a mortgage and accessing the best deals, so get hold of your credit report from Experian, Equifax, Callcredit or ClearScore.

‘Your credit score is, essentially, a temperature gauge of your financial health,’ says John Webb, consumer affairs expert at Experian. ‘Keep this looking as good as possible by avoiding small mistakes such as missed payments.’ Simple steps such as checking you’re on the electoral register, having a landline phone number and paying off more than the minimum amount on your credit card each month will also make a difference.

2. Reduce your debts

Lenders will go through your bank, credit and store card statements with a fine toothcomb in assessing affordability, so try to reduce any debt and avoid committing to extra, unnecessary expenditure such as a new gym subscription. Interest rates on savings accounts are currently so low that using savings to pay off debts could well be a wise move, and will have a positive effect on your credit rating.

3. Maximise your savings

‘Products such as bank and building society accounts offer greater security but currently pay very low rates of interest. Consider savings schemes like the Help to Buy ISA which allows you to save £200 per month, with the Government giving you a 25 per cent bonus (up to £3,000) on the total funds saved when you come to buy,’ says David Blake, Principal Mortgage Adviser, at Which? Mortgage Advisers. If you’re planning to buy with someone else, you can both open separate Help to Buy ISAs, but as the money is released on completion, you won’t be able to put it towards the deposit.

4. Cut your outgoings

The bigger your deposit, the more likely you are to be approved for and get a good deal on a mortgage, so it makes sense to reduce unnecessary expenses to boost savings. ‘Taking packed lunches to work and cutting out morning coffees are great ways to save money without needing to make wholesale lifestyle changes,’ says Michelle Barnsley of Lovell. ‘Working under the proviso that a coffee and shop-bought lunch amounts to £6 per day, you could save £1,440 in a year, working on a 48 week basis.’

5. Show a solid employment history

A solid employment history is as important as a decent credit score, so now’s not the time to go self-employed. You won’t be offered a mortgage without at least a year’s audited accounts signed off by an accountant, and even then you’d only qualify for specialist products with high rates of interest. Ideally, you’ll need to supply three years’ accounts, plus documentation from HMRC showing how much tax you’ve paid — your accountant will be able to help with this.

6. Talk to a mortgage adviser

‘A mortgage adviser will look at your income, any debts you have, and your deposit, to make an assessment on how much you can borrow. It’s important to do this at the start of your house hunt, so your search is realistic,’ says Katie Griffin, President, NAEA Propertymark. ‘You should also be able to get a mortgage offer in principle, which shows sellers that your finances are already in place and that you’re an attractive buyer.’ You’re far from alone if you’ve miscalculated the costs involved in buying — in a recent poll, Zoopla found that first-time buyers underestimate the size of deposit required by an average of nearly £3,500.

7. Investigate affordable housing schemes

Schemes such as the Help to Buy equity loan and shared ownership could get you on to the property ladder sooner rather later. The former provides a loan of up to 20 per cent of the purchase price (40 per cent in London) on selected new builds costing up to £600,000, and you’ll only need a five per cent deposit. Shared ownership allows households earning a maximum of £80,000 (or £90,000 in the capital) to part buy and part rent a home. Find out more at ownyourhome.gov.uk.

8. Have your paperwork ready

You’ll need to submit reams of paperwork to kick start your mortgage application, so start gathering the required documentation. ‘This may vary slightly depending on whether you are employed or self-employed, so check beforehand,’ advises Brian Murphy, Head of Lending at Mortgage Advice Bureau. ‘Typically, an employee will need three months of recent payslips, your last P60, three months of recent bank statements, two utility bills to prove your current address, your passport or birth certificate, and a bank or savings account statement to evidence your deposit amount, or a letter if this is being gifted to you.’

9. Get help from Bank of Mum and Dad

Legal & General recently disclosed that Bank of Mum and Dad will fund more than one in four property transactions this year, making it the ninth largest mortgage lender. While some parents are in a position to help by cashing in investments, others may need to remortgage their own home to raise funds, or borrow money against it via an equity release scheme. Or, if a parent acts as guarantor for the mortgage, your combined incomes will be taken into account, increasing the amount you can borrow.

10. Buy with someone else

According to Halifax, almost half of 18-34 year olds are planning to buy with a BAE. By sharing the deposit and pooling income, owning and running a property will become far more affordable, so considering co-buying with a partner, friend or family member if you haven’t already done so. It’s important to agree in advance what will happen should circumstances change — for example if one of you wants to move out — so get a legally binding co-ownership contract drawn up to cover such eventualities.

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