6 ‘make or break’ moves for first-time buyers to increase chances of mortgage approval as ‘tide finally turns’ on rates
GETTING the funds together for a home deposit is one thing, but actually getting approved for a mortgage is another.
First-time buyers have been finding it increasingly difficult to get on the property ladder due to soaring mortgage rates.
It comes as the Bank of England has hiked the base rate several times in a bid to tackle inflation.
The BoE base rate is used by banks to set interest rates for borrowing, including mortgages.
It stood at 0.1% in December 2021 but is now at 5.25%.
But the base rate has stayed the same in recent months, as inflation has eased, and experts predict it could now start to fall this year.
Lenders have already begun to cut mortgage rates with a flurry of the biggest banks starting the year by announcing rate reductions.
This has led to the number of buyers out home hunting shooting up by 10% compared to this time last year, according to Zoopla.
Nicholas Mendes, technical manager at broker firm John Charcol, said: “2024 has started with a refreshing breath of opportunity and optimism.
“The past 18 months have been incredibly difficult for mortgage holders and first-time buyers trying to navigate around a volatile market.
“Not to jump the gun, but it’s safe to say that the tide has finally turned.”
If you’re looking to make the most of falling rates and get yourself on the property ladder, it’s a good idea to make sure that your finances are all in order.
We picked Nick’s brains to find out what first-time buyers should be doing now to increase their chances of getting their mortgage approved – and he said they could be “make or break”.
Get a mortgage in principle
A mortgage in principle is an official estimate from a lender of how much it’s willing to lend to you based on what you can afford.
It can be a pretty useful thing for those hunting for a first home because it shows that you’re a serious buyer.
Nick said: “There are typically two types of clients when it comes to getting a mortgage.
“There are those that ensure they do their due diligence and those that do not.
“Although there isn’t a requirement to get an agreement in principle with a lender before having an offer accepted on a property, getting this done first will avoid a heart-breaking moment where you find out you cannot borrow enough for the property you’ve set your sights on.”
To get an agreement in principle, you can either go to a mortgage broker and see what deals are available that you may be eligible for.
It’s important to remember that a broker may charge a fee to put together an agreement in principle for you, so make sure to ask about this first.
Alternatively, you can go directly to the lender that’s offering a deal that you’re interested in.
Going to a lender doesn’t mean that you have to borrow from them when it comes to applying for a mortgage, so don’t worry about getting tied in.
Get mortgage advice
It can be tempting to go directly to a bank or building society for your first mortgage, but doing so could severely limit your options.
Nick said visiting a broker six months in advance can be useful to help you work out what your maximum purchase price will be.
He added: “It’s essential to ensure you have a qualified experienced broker or mortgage adviser.
“Their advice can increase the chances of success when it comes to getting a mortgage and they will keep you informed if rates reduce during the application process so you don’t miss out on benefiting from any rate reductions.”
A broker will be able to review a wider range of products and advise you on the right one for your circumstances, as well as assess any hidden costs which can sometimes be difficult to find.
Remember though, they’ll take a fee for their services so you’ll need to factor that into your costs.
Check your credit score
If you’ve got a bad credit record, the best thing to do in the first instance is to find out what your score is, Nick said.
“As an applicant applying for credit it’s important to make sure that your credit score and history are in the best shape possible to ensure a lender will look favourably on your application,” he added.
Nick noted that this should leave you better placed to go for a mortgage which will suit you.
You can check your credit file for free on websites like ClearScore and Credit Karma.
If you find that you do have bad credit, this isn’t to say that providers won’t lend you any money.
Nick said: “Having a healthy clean credit file – or improving your score since any bad credit events – will mean you benefit from getting the best rates available for your situation.”
“Ensure you continue to pay your bills on time, are on the electoral register and avoid any unnecessary hard searches on your credit file.”
Not being on the electoral roll can be viewed as a negative point by lenders, Nick added – even if the reason is that you don’t vote.
Don’t take on debt
You should avoid applying for any new credit at least three months before getting a mortgage.
Your lender will be aware of this new payment and wonder if you’re over-stretching your finances.
Nick said: “Applying for loans or finance during an application can cause a lender to make changes to their assessment and even reduce or decline the mortgage.
“It’s best to avoid taking on new debt if you can when you’re looking to submit a mortgage application.”
Avoid changes in circumstances
Trying to get a mortgage when you have gone through a lifestyle change can be stressful.
Lenders look at your outgoings alongside your income, so big changes to your income could impact your application.
Nick said: “When lenders assess your income, they also look at sustainability.
“Changing jobs regularly or worse, changing your job before an application can have a detrimental effect even if you’re going to receive a pay increase.
“Lenders want to ensure that the mortgage remains affordable – and some lenders can take a negative view on probation periods because there’s an element of uncertainty.”
Going from employed to self-employed despite being in a similar position financially can impact your mortgage options, Nick said.
This is because some lenders assess income differently for employed and self-employed applicants.
But that doesn’t mean it’s impossible to get a mortgage if you’re self-employed, you might just need to jump through a few more hoops.
The Sun has put together a handy guide on ways you can get a mortgage if you are self-employed.
Share your information
When you apply for a mortgage, you must be truthful and honest to the mortgage adviser and the lender.
Nick explained that withholding information, or not disclosing information, can result in a lender pulling the mortgage at the last moment.
If you have recently gone on maternity leave, for example, and do not disclose this to the lender, it will likely be picked up on payslips and bank statements, which could negatively impact your application.
Working reduced hours would also have to be disclosed for the same reason, for example.
“Being honest with the lender will help them to understand your circumstances and lend responsibly, which benefits you in the long run,” Nick said.
Meanwhile, here are six first-time buyer schemes where you only need a deposit as low as 1%.
Plus, we round up six things to do now if your fixed-rate mortgage is coming to an end.
Do you have a money problem that needs sorting? Get in touch by emailing money@the-sun.co.uk.
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