10th July 2015
Mortgage lending volumes neared an eight year high in May but with buyers jostling for position in the overheated housing market, those who need to borrow to buy should make sure they’re mortgage ready.
Research by credit report company Equifax showed May this year was the second highest month in terms of mortgage lending volumes in the past eight years, beaten only by March this year when lending volumes reached £15 billion.
Residential mortgages sold by intermediaries increased year-on-year by 10.6%, or £1.1 billion, as competition in the property market remained strong and borrowers continued to be offered low mortgage rate deals.
Lisa Hardstaff, credit information expert at Equifax, said the competition in the market meant that borrowers should make sure their finances are up to the scrutiny of lenders.
‘Lenders will typically look at an applicant’s credit history when determining whether they meet affordability assessments,’ she said.
‘It is therefore worth anyone planning on applying for a new mortgage or remortgage to get themselves ‘mortgage ready’ by checking their credit report before making any applications. They should also remember that lenders will take into account the information provided on the application form, as well as look at an applicant’s income and outgoings to ensure they can afford the mortgage they are applying for, now and in the future.’
Here is a nine-step plan to get mortgage ready:
1. Check your credit report: apply for a credit report as much as 6 months before you start applying for a mortgage to allow you to review the report and make sure it is accurate and up-to-date.
2. Do you have a credit history?: lenders look at credit history when making a decision on a mortgage. If you have a history of meeting your financial obligations, including repaying credit cards, loans, store cards and service contracts like mobile phones, lenders can use this to decide whether to approve your application. If you do not have much credit history you may want to take out a small amount of credit to show you can manage it and repay debt.
If you take out a credit card make sure you repay the balance in full at the end of every month to avoid interest charges.
3. Are you registered?: many companies check the electoral roll for identity verification and to combat identity fraud. It is important to register yourself at your current address.
4. Correcting errors: if there is a mistake on your credit report in relation to a specific account or contract, contact the lender or service company it relates to and ask for the error to be corrected. If you do not know who to contact, you can ask the credit reference agency who can contact the lender or service company on your behalf. It takes up to 28 days for a change to appear on your report.
5. The right to explain: a ‘notice of correction’ can also be added to your report to explain any missed payments, such as losing your job. The ‘notice of correction’ will only be recorded with the credit reference agency you provide it to and will stay on your credit file indefinitely. The lender will then see it when considering your application.
6. Individual voluntary arrangement (IVA) and county court judgements (CCJs): if you are bankrupt or have an IVA it could impact your ability to gain a mortgage. If you’ve had a CCJ and it is now settled, make sure the settlement is recorded on your credit file. If not contact the court to get confirmation details and inform the credit reference agencies.
Both of these will stay on your credit report for six years.
7. Managing existing credit agreements: try to pay more than just the monthly minimum on any loans or credit cards you have, and where possible keep credit balances low. Settle debt, such as personal loans or hire purchase agreements in full.
This demonstrates your ability to repay debts. Missed payments may make lenders think you’re already struggling with debt.
8. Have you got cards you’re not using?: lenders will often look at the total amount of unutilised credit available to any individual and consider this when making a lending decision.
9. Don’t apply for credit too regularly: avoid multiple applications in a short space of time. Each application logs a search on your credit file. Too many could appear as if you already have too many commitments.