Your mortgage is likely to be the biggest financial commitment you’re ever likely to make – and with the new Mortgage Market Review (MMR), affordability checks could mean that the rules as to who can and can’t get a home loan are tightening up. Applicants are likely to have to provide greater evidence of their income & expenditure, so they aren’t taking out loans they may not be able to afford in the long term.[1]
However, Experian research[2]found that almost three quarters (72%) of aspiring homebuyers in the UK do not know what the Mortgage Market Review is, and of the 28% that say they do, many are confused or ill-informed as to what these new affordability measures could mean for their property dreams.
Almost half (43%) think the introduction of the MMR means they can apply with smaller deposits, though larger deposits are likely to be needed so as to make mortgage repayments more manageable. In addition, 19% believe that MMR means that lenders will relax their lending criteria, when checks will actually become more stringent. Just 44% understand that lenders are likely to be more careful about ensuring that mortgage applicants can afford their repayments.
To stand the best chance of securing a mortgage, and to get one with the best interest rate, homebuyers need to get their finances in the best possible shape. However, a fifth (19%) don’t plan on preparing their finances before their mortgage application, while another fifth (18%) only plan on preparing a month prior to their application.
And fewer than one in four (23%) have checked their credit score in the last six months, which could help provide a clear picture of their financial situation, and how they are likely to be viewed by lenders.
Understanding what is on your Experian Credit Report[3] can help you put yourself in a stronger position when it comes to applying for the credit you want – for example: a mortgage or a loan – as lenders use it to help decide if you’ll be able to afford to make new repayments on time.
Time spent preparing your finances now could pay dividends in the future, and simple steps can make a real difference to how lenders see your ability to afford and manage a mortgage.
Some simple tips to help manage a mortgage application
1. As soon as you decide to look for a property, scrutinise your last few months’ outgoings carefully to understand your spending habits. Are there things you could do without to finish each month with cash in the bank?
2. Try to work out your likely repayments, with online calculators and the like. Importantly, play with the interest rate settings to see if you could afford repayments if rates rise by 1%, 2% or more. Checking your credit report is the first major step in taking control of your financial situation. Get your FREE Experian Credit Report and Score*
*A monthly fee of £14.99 applies after your free trial. You may cancel during your 30 day free trial without charge.
3. To make yourself a more attractive proposition to mortgage lenders, it’s important to ensure that your credit report is accurate, up-to-date, and reflects your present circumstances. If you find anything that isn’t, then contact the relevant lenders and credit reference agencies to get it altered.
4. The Experian Credit Report & Score is a guide that will help you understand how your credit history is likely to be seen by lenders. It can show you how the way you’ve managed credit in the past can affect future credit applications, and can help you monitor your progress as you get your finances in order before you apply. Making little changes to improve your credit report can make a big difference; not only to getting credit, but also to the interest rates you could be charged.
5. Finally, from now until your application, try to appear like an ideal mortgage borrower. Try not to take out additional borrowing and try to demonstrate you can comfortably manage any outstanding credit commitments you have.
[2] Research conducted April 2014