First time buyers face some tough hurdles when it comes to landing a mortgage offer, with interest rates rising yet again, record house prices, and lenders who carry out strict affordability checks. The situation hasn’t gone unnoticed, and some lenders are making an effort to make their mortgage products more accessible.
One such measure is the introduction of zero deposit mortgages that do not require a guarantor, such as the one announced by Skipton Building Society a few weeks ago. This is thought to be the first such product since the financial crisis of 2008.
Skipton’s product is a five-year fixed term deal that is designed to give people who are currently renting a helping hand onto the mortgage ladder. Applicants need to prove a consistent track record of making rental payments over a 12 month period out of the last 18 months, plus evidence that they are up to date with household bills.
Any other regular subscriptions and loan repayments must have been made in full and on time during the previous six months, to ensure that the applicant has a good credit record and does not represent a high risk to the lender. In addition, the monthly mortgage payments must not be higher than the amount currently paid in rent.
This may seem to be a great deal for first time buyers with a good credit score who are nonetheless struggling to save for a deposit on a house or flat. It is certainly a chance for those battling with the cost of living crisis and sky high rents to get a toehold on the property ladder.
However, it is worth bearing in mind that the interest rate you pay on a 100% will be higher than that on a more standard mortgage deal, and with no deposit you will face higher monthly repayments than if you can put down at least 5% or 10%.
Some experts fear that the return of no-deposit mortgages could open the door to a new sub-prime market that was widely blamed for causing the 2008 financial crisis, so be prepared for stringent affordability checks.
For this reason, anyone who is hoping to apply for a zero-deposit mortgage in the future is advised to keep a careful check on their credit score. It is helpful to set up direct debits for all your regular payments, to ensure that no accidental missed payments occur and you can keep track of your spending.
Furthermore, Leeds Building Society is introducing a new measure to help make mortgages more attainable. The Times reports that the lender will be using a new service called Experian Boost, which is designed to expand the ways that affordability can be measured for potential applicants.
Experian is one of the major credit reference agencies (CRAs), who work with banks, building societies, and other groups such as retailers to help provide an accurate picture of an applicant’s creditworthiness. This is so that lenders can avoid offering loans to unsuitable borrowers who may default on their debt.
Traditionally, CRAs mainly take into account debt related payments, such as loan repayments and credit card transactions. However, other evidence of responsible financial behaviour is usually not included, such as consistent direct debit payments and other spending. Only missed payments and defaults are considered.
Now, Leeds Building Society are giving customers the opportunity to support their application with evidence of a good track record in meeting direct debit obligations. However, this cannot make up for other marks against a credit history, particularly more serious debt related issues such as defaults, county court judgements, or bankruptcies.
To help improve a poor credit score, there are various steps you can take. The simplest one is to ensure you are on the electoral roll, as this is the main way a lender will verify your identity. If you have any outstanding debts, repay them in full, or arrange a manageable repayment plan with your creditors so that you can repay them at affordable rates.
Other ways you can boost your chances of passing a lender’s affordability criteria checks include reducing your outgoings and keeping track of paperwork. Make sure that you are not paying subscriptions for services that you no longer need or underuse.
In the months leading up to your mortgage application, avoid applying for new loans or purchasing high value products such as overseas holidays or a new car.
If you are looking for IVA mortgage specialists, please get in touch today.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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