Tips For First Time Buyers To Get On The Property Ladder
Although the majority of my work nowadays leads into more complex mortgage positions, multiple streams of income, self-employed people, I’m still pleased when I can help even the wider public with getting onto the property ladder. We do help first time buyers, next time buyers, and clients who perhaps fit with the more typical high street lenders but just need someone in their corner who can give the guidance to take them through each step.
With that in mind, I put together a few tips and a longer video which may be useful to you to consider how a lender looks at an application and what to consider.
1. Income and Expenditure
Before anything, ultimately a mortgage needs to be affordable. Is the lender satisfied that, if they lend you enough money to buy the property you’re looking at, you earn enough that they can reasonably expect you are able to make the repayments of the mortgage and maintain, generally, a normal quality of life. They base this on a couple bases – firstly, most lenders will take your household income and multiply it by a certain threshold – that could be 4.5x, 5.5x or 6x your household income for many first time buyers. Beyond that, they will then take into account your more specific expenditure – do you have any committed expenditures that are likely to continue? Loans, credit card commitments, childcare costs can all then subtract from that maximum.
This used to be much more cohesive, with high street lenders being much more aligned in what they offered. Nowadays, you have much more variation. Certain high street lenders offer enhanced income multiples to employed applicants earning above thresholds, others will do the same but include self-employed people within that scope. In my opinion, you should use a broker in nearly all circumstances – don’t take your bank’s word as the final say. They will give you a figure of what they could lend you; that doesn’t mean that a greater sum isn’t achievable elsewhere without compromising interest rate. Regardless of whether you come to us who act as specialists, or more general brokers, a whole of market broker can give you a much wider opinion. You don’t really get many benefits nowadays from bank loyalty with the market being as heavily regulated as it is.
2. Credit Score
Secondly, a lender needs to be satisfied that, even if you can afford it, is it likely that they are going to receive payments or is there a chance that they’re going to have difficulties. In plenty of cases, a lender doesn’t have any pre-existing relationship with you, so they have to form their credit scoring decisions based on external information. How much debt do you have? If you have current and ongoing issues, lenders could be hesitant to lend more money given that it may be simply adding more burden to your situation.
Realistically, plenty of people have little blips here and there. It doesn’t necessarily preclude you from being considered by a lender but it may inhibit you from getting accepted with some high street lenders on credit score. I suppose these larger banks have so many customers already, they can afford to be a little bit more selective and conservative with where they lend their money. A well submitted application can circumvent these problems and brokers have access to decision makers in many cases, rather than simply automated decision making in lots of cases. Again, don’t take a lender’s automated ‘computer-says-no’ approach to mean it’s the end of the road for you.
3. Bank Statement Conduct
Lenders generally look at up to 3 months’ bank statements. Are you managing to make your monthly payments. Do you regularly sit in your overdraft. Do you spend all your spare money regularly on more non-essential ‘frivolous’ spends?
A lender will look at the information provided and that’s all they have to go off to make their decision for your future habits, too. Keep your current account balance healthy enough to avoid returned direct debits, avoid payday loans and perhaps avoid that major one-time purchase immediately before setting out to buy your property.
Lenders are simply looking to see if you’re sensible – regular gambling while missing payments just looks like having your priorities in the wrong order. It sets a bad precedent for someone looking to give what for many is the largest loan they’ll ever have!
PS. Avoid taking on expenses for friends and family as this all counts against you, too, and even if people are repaying you, you don’t get the credit for that
4. Agreement in Principles
Have your mortgage in principle ready before you view your property. Too many times, people have come to me having viewed a property a couple of days ago, now they need to figure out how and if they can afford it. We work to getting figures out the next day at the latest but, even then, good properties just come on and fly out the market. Don’t let someone else beat you to the post – have your proof of funding ready so that, if you see it and like it, you can just put your offer down.
