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News that the economy is officially on the up – even if it’s by just 0.1 per cent – should be making us all a bit more confident about the future. And, if you’ve been thinking about buying a house, it could be just the incentive you need.
Before you start getting on first-name terms with any estate agents, though, you’ll need to take a long, hard look at your finances and work out what you can afford.
Despite a report from Halifax that more properties are now within reach of first-time buyers, getting a mortgage is still pretty tough. Only those with hefty deposits and sparkling credit ratings qualify for the best deals. The same goes for people moving up the property ladder – you’ll need more than a big slice of equity to get the most favourable remortgage terms.
Whether you are a first-timer or looking to move, the process starts with your credit report. This is the personal history of your credit accounts, such as cards, loans, catalogue and mobile phone agreements, along with your repayment history. Lenders look at it when you apply for a mortgage to help them work out how likely you are to repay what you owe and what terms to set, so it makes sense to be sure it is up to date and reflects your circumstances accurately. Make checking your Experian credit report a part or your financial routine with a free 30-day trial of the CreditExpert service.
It is never too soon to start preparing to get a mortgage. These tips will give you some ideas.
1. Save it for later. As a nation, we are not too good at putting something aside for a rainy day – even in a recession. But first-time buyers will need to save around 15 per cent of their new home’s purchase price for a deposit and all buyers will have expenses, such as moving, new furniture and home improvements, so you’ll need to save every spare penny you can. If you’re a first-timer, consider moving back in with your parents – if they’ll have you – or even asking the Bank of Mum and Dad to help out with a deposit or to guarantee your mortgage.
2. Cut your costs. Analyse your income and outgoings and look for ways to cut back on your everyday spending. Going out one less night a week could save you £100s over just a couple of months. And don’t forget regular expenses, such as car insurance and utility bills – using a price comparison website, such as www.LowerMyBills.co.uk, could save you enough for your new white goods.
3. Give your finances a spring clean. Check through your credit report to see which accounts you really need and if there are any you can settle and close. You should also correct any errors, such as a wrong address, or add a note of explanation if circumstances explain past problems – perhaps you missed a repayment because you were ill, for instance.
4. Think outside the box. Getting on the property ladder is still tough, so be prepared to consider all your options. Buying with friends is becoming increasingly popular, as is joining a shared equity scheme in which a commercial partner – usually a housing association – retains a proportion of the property you buy. The Government offers a similar scheme to help key workers, such as teachers, nurses and police officers. You can find out more about shared equity schemes from your local housing association or council.
5. Register to vote. Getting your name on the electoral roll at your current address will not only mean you can have your say at the coming election but also make you more attractive to lenders. They use the information to check you live where you say you do, as a precaution against fraud.
6. Shop the market. When it comes to finding a mortgage, make sure you speak to a mortgage broker who covers the whole market. That way, you will be able to compare every offer available, rather than a select few from a single lender. It’s also a good idea to do a bit of research yourself, so you’ve got an idea of what’s out there and the kind of deal that will suit you best.
7. Tidy up your past. If you had any joint accounts with a former partner, make sure they are now closed and the financial association has been removed from your credit report. Lenders could take your ex’s credit history into account when you apply for a mortgage, which might not be good news if he or she is a bit unreliable with money.
8. Get a credit history. First-timer buyers who have not built up a credit history may improve their chances of getting a good mortgage deal by taking out other forms of credit, such as a credit card – providing it is paid off in full and on time every month. Lenders need to know that you are a responsible borrower who can be relied on to make repayments and this will help show them you know how to manage your finances.
9. Know your limits. Do all your costings in advance and don’t be tempted to go for a property that is beyond what you can comfortably afford. Interest rates may not always be low – some mortgage providers are already raising their standard variable rate, even though the Bank of England’s base rate has been frozen at 0.5 per cent since last March – and you will need a buffer against unexpected expenses.
10. Handle with care. When you are ready to apply for your mortgage, make sure you read the small print and avoid making multiple applications just to see what kind of offer you will get. Every application you make will leave a record, or footprint, on your credit report that can be seen by other lenders and may make them suspect you are desperate for money or even that a fraud is taking place. Before you apply, recheck you credit report to be sure that your credit history looks as good as it can – it’s free to see your Experian credit report with a 30-day trial of CreditExpert.
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