Difficulty getting a mortgage? Here are seven tips to increase your chances

Financial planning for getting a mortgage

Make sure you stay within the red limits and remember that now is not the time to take out a new car loan. Photo: Getty

If you’re looking to take the first step up the real estate ladder but find it hard to get accepted for a mortgage, you’re not alone.

New research from the Aldermore bank found that only one in five first-time home buyers were able to get a mortgage on the first try. This compares to almost half (48%) who were able to do this pre-COVID.

Further findings show that nearly one in four (38%) have been mortgaged once, and nearly half (43%) have been rejected multiple times. Prior to the pandemic, only a third (36%) reported being rejected once, and only 17% said it had been rejected more than once.

Why are starters rejected?

According to the survey, the most common reason why first-time buyers were turned down was poor credit history, while the second most common reason was not having a large enough down payment.

Separate findings from financial comparison platform NerdWallet paint a similar picture. They show that COVID-19 has halted home ownership plans for three in ten potential first-time buyers.

John Ellmore, from NerdWallet, said: “The pandemic has created challenging conditions for the UK mortgage market. The resulting economic volatility has led some providers to tighten their lending criteria and as such, some first-time buyers may find obtaining a mortgage more difficult than they would otherwise have.

Things can look up

Encouragingly, there has been a significant increase in the number of mortgage deals available in recent weeks, financial analyst said Money Facts.

This is good news for those trying to get a foot on the ladder.

But while a wider range of deals to choose from should make life easier, there are also a host of simple steps you can take to increase your chances of getting your first application accepted.

The key is to be proactive in your efforts to make the homeownership dream come true.

1) Improve your credit score

Having good credit can have a big impact on your chances of making a successful application, so you need to make sure your track record is in top condition.

You can get a copy of your report by contacting one of the major credit reporting agencies: Equifax, Experian or TransUnion.

Rachel Springall, a financial expert at Moneyfacts, said, “Make sure everything is accurate and up to date. If you find any discrepancies, have them corrected.”

Other simple tips to help you improve your credit score include paying off bills and making sure you never miss a refund. Setting up automatic debits can be a good way to do this.

Watch: What do stamp duty reductions mean for buyers and house prices?

James Padmore, of comparison site Comparethemarket.com, said: “Just a few small changes can make all the difference, such as being registered on the electoral roll, not opening too many accounts at once, and your credit card balance 25% below the limits.”

Also, disconnect from any financial ex-partners if, for example, you had a joint bank account in the past. That way, you can make sure that someone else’s credit doesn’t hurt your score.

2) Get your paperwork in order

Set aside time to collect all your documentation. Ideally, do this months before you begin your application.

By being well organized, if something is missing, you have the time to look for it or request a replacement where possible.

Andrew Montlake, of independent broker Coreco, said: “Have your last three bank statements and three months’ worth of payslips on hand as lenders will want to see them to check affordability. If you’re self-employed, make sure you have them. your accounts are fully up to date. Lenders will also want to see proof of the deposit funds. If the money is donated by parents, the lender will need written confirmation.”

3) Be careful with your spending

Since lenders go through bank statements with a fine-toothed comb to make sure you’re not overloaded to keep up with monthly repayments, you’ll need to consider your expenses leading up to a mortgage application.

Springall said: “It’s worth keeping your spending in check in the months before you apply. If possible, avoid large purchases at this time.”

Make sure you stay within the red limits and remember that now is not the time to take out a new car loan.

Montlake adds, “Go through your own budget planner so you know exactly which monthly mortgage payments you can easily afford and which non-essential items you can miss.”

4) Clear as much debt as possible

Since lenders take into account any outstanding debts, before applying for a mortgage, clear as much of what you owe as possible. Better yet, become debt free.

Springall said: “If you can’t do this, look closely to see how much of your income goes towards paying back debt. If it is a significant amount, it could set alarm bells ringing with a potential lender and you could be turned down.”

5) Hard to save

Before applying for a mortgage, focus on saving the biggest down payment you can.

Montlake said, “The greater the down payment you collect, the greater the choice of mortgage agreements available to you.”

Don’t forget that there are also many costs associated with taking out a mortgage, so you need to make sure you have enough money to pay those as well.

6) Use a broker

Especially as a starter with little experience in the mortgage market, it is worth talking to a professional broker when applying for a home loan. He or she can look at your situation and navigate the mortgage maze to find deals that fit your circumstances.

Don’t rely solely on your bank as they can only offer their own limited products; a broker can scan the entire market.

7) Be honest

When submitting a mortgage application, don’t try to hide or “forget” to disclose any relevant information that you believe could put the home loan at risk.

Montlake said: “This is one of the worst things you can do and it will always be picked up at some point. Speak honestly and openly with a broker who will always help you get the best possible way of presenting your application to a lender. A broker knows how to package your application to give you the best chance of being accepted the first time.

Watch: How Much Money Do I Need to Buy a House?

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