Listen to this article here
What you Need to Know
The mortgage application process is a source of stress for many, but as you begin your mortgage journey there are several steps you can take to make the process as smooth as possible.
Paying Down Debt
Many banks initial decision making has become strongly automated, so making sure your credit file is in good order and up to date has a large impact on the decision in principle.
Clearing Credit Cards
Many banks will consider Credit Card balances to be debt even if they are paid off in full monthly. It would be advisable to not use a credit card at least 6 weeks before application. If not possible to fully stop using, reduce as much as possible.
Explore the Housing Market
You may not have your dream property in mind when approaching a broker, but a general idea of the borrowing you will need to find your ideal property is important. This will allow the broker to discuss whether your preferential properties are affordable, or if you can go even higher.
Begin to Gather Documentation
Either before or after your call with a broker it is helpful to have the relevant documents to hand. This would include three months bank statements and payslips for each applicant, as well as credit reports. It is also worth making sure the address is correct on all of your accounts.
How Important is Credit Scoring?
While credit scoring is significantly important lenders have recognised there are other ways to assess worthiness for a loan.
- The use of alternative data: Lenders are increasingly using alternative data, such as rent payments and utility bills, to assess creditworthiness. This is because traditional credit data, such as credit card and loan payments, does not always provide a complete picture of a borrower’s financial situation.
- The focus on payment history: Lenders are now placing a greater emphasis on payment history than they have in the past. This is because it is a strong predictor of future repayment behavior.
- The use of risk-based pricing: Lenders are now using risk-based pricing, which means that borrowers with higher credit scores are offered lower interest rates. This is because borrowers with higher credit scores are considered to be lower-risk borrowers.
- The use of machine learning: Lenders are increasingly using machine learning to assess creditworthiness. Machine learning is a type of artificial intelligence that can analyse large amounts of data to identify patterns and trends. This can help lenders to make more accurate decisions about who to lend to and at what interest rate.
If you have bad credit, there are a number of things you can do to improve your chances of getting a mortgage. These include:
- Get a copy of your credit report and dispute any errors.
- Pay your bills on time.
- Keep your credit utilization low.
- Get a cosigner.
- Shop around for a mortgage.
- Be patient.
How We Helped a Client Who Was Declined by a Lender
We were approached by a couple who wanted to buy a new home. They had a mortgage on their current home with a high exit charge, so they wanted to transfer it to the new home to avoid paying a penalty. The property was a new build, and the developer had recommended a broker they work with. However, the couple experienced significant delays and were told that it might not be possible due to their credit score. They decided to get a second opinion.
We reviewed their credit profile in detail and were able to help them improve it within 48 hours. We then reviewed the market and factored in their exit penalty. We decided to port the existing mortgage and take additional borrowing that the couple had requested. As their current fixed rate was due to expire within three months, we incorporated the new borrowing into their existing loan. This small change will save them over £18,000 across the mortgage. Thanks to our work on improving their credit profile, the application was approved without any problems. The couple was approved 12 hours after submitting the application, subject to valuation. The previous broker had taken three months and not reached this stage.
When the valuation was returned to the bank, the surveyor had made an error. The bank requested that we reduce the loan amount by £17,500 to accommodate the information. While most high street banks are unwilling to challenge a valuation report, we were able to work with our contacts at the bank to have a revised report created by the surveyor. This ensured that the client was not disadvantaged and was able to receive the full amount applied for.
Mortgage applications through high street banks are heavily dependent on the results of credit scoring. There is little to no appeal process if you are declined at this automated stage. This is why it is important to work with a broker who understands the nuances of credit profiling. If the couple had remained with their original broker and switched lenders, it would have been a costly mistake.
If you are in a similar situation and wanted to discuss what options are available to you. Contact Orton Financial today.