The UK mortgage market has gone through many setbacks over the past five years as banks and building societies try to heal the scars of the financial crisis.
It has become firmly engrained in the public’s psyche that it is almost impossible to get a mortgage and, as a result, many would-be homeowners have instead opted to continue renting, or live at home with their parents.
More bad news emerged this week as the Bank of England revealed lenders were failing to increase their lending levels, as agreed under the terms of its flagship scheme, Funding for Lending (FLS), which is a concerted effort to kick-start the market.
However, the truth is quite different to what you may read in the newspapers. It is true lenders are failing to hit the sort of lending levels the Bank of England wants but that is more likely to be as a result of waning consumer confidence and willingness to take on large amounts of debt than lenders’ unwillingness to lend. The mortgage landscape has changed somewhat since the dark days of the financial crisis but there is money to lend and banks want to lend it, in the main.
In fact, in today’s market you can get some of the best mortgage offers there has ever been. One side effect of the FLS is that rates have fallen quite significantly and forced lenders into a rate war to compete for custom.
For example, last month Yorkshire Building Society launched the lowest ever five-year fixed rate, at 2.64 per cent, and the number of two-year fixed rate mortgages under 2 per cent is now almost in double figures. However, lenders have tended to increase their application/product fees of late in order to compensate for offering such low rates, so seek independent mortgage advice from a qualified broker to find the best deal for you.
There is a warning that must be applied before continuing: while there are some fantastic deals on offer at the moment, the mortgage market has changed considerably since 2007 and lenders are a lot choosier about who they lend to.
But it is not impossible to obtain a mortgage, as many believe. There are several things you can do to ensure you are accepted for a mortgage while rates are so low.
One of the first things borrowers should do is find out their credit score. This is very cheap – Experian charges £2 for a copy of your credit report. These days, unlike in the past, many lenders are after good credit-worthy borrowers – in short, they want to make sure they can get their money back.
Most of the large high-street banks use credit scores to determine whether or not they will advance you the money. To ensure you have the best chance of being accepted, there are a few things you can do:
- Get a credit card – This shows you can manage your debts. Put your petrol/shopping on a credit card to show you can manage debt but make sure you do not miss your monthly payments as this will count against you.
- Make sure you are on the electoral roll where you live – This helps banks prove you are who you say you are.
- Try to avoid moving around too much – Banks like the security of knowing you are not going to up and leave any time soon.
- Make sure you keep up with payments such as utility bills and mobile phone contracts. If you miss even one of these it will make it much harder for you to get a mortgage.
- Be careful you don’t apply for credit too many times. If you apply for a mortgage and get rejected two or three times and continue to apply with other lenders, it can damage your credit score.
In all, if you follow these tips, you will increase significantly your chances of getting a mortgage.