What’s stopping YOU getting a mortgage?
It’s tough at the moment isn’t it?
There are so many people trying to buy a property, or trying to raise money on one they already own.
Don’t get me wrong, there are lots of mortgages being approved and taken up. Lenders have money to lend, that’s not the problem. But they are being more cautious with their lending, the main reason being COVID-19.
We’ve looked through the enquiries we’ve received since lock-down started. Those we’ve turned away fall into three main categories (and by the way, you won’t be surprised by these at all).
• Lack of deposit
• Being self-employed
• Poor credit record
Let’s go through these one by one.
Lack of deposit
There was a time when a 5% deposit was enough to get a mortgage. If you had a good credit record and enough income, a 95% mortgage was yours.
However, at the time of writing (August 2020), there are very few 95% mortgages.
Apart from Barclays, with their “Springboard” mortgage, this area is dominated by smaller, regional, building societies, many of whom are looking for additional security. By additional security, we mean taking a charge on a family member’s property, or by having a family member act as a guarantor.
The picture is a bit better if you have a 10% deposit. “High Street” lenders such as HSBC and Nationwide are offering 90% LTV mortgages, but that’s about it. Coventry Building Society have dipped in and out of the market in the last couple of months, taking applications for a few days, then exiting again.
Why are lenders avoiding low deposit mortgages?
They are worried that house prices will fall in the next few months. If they have lent 95%, and prices fall, there may be no equity in the property at all.
No lender wants to be in this position. Nor does any borrower.
Service is another reason. Because there are so few lenders offering low deposit mortgages, those that do attract a lot of business.
Service then suffers.
Instead of turning applications around in two or three days, this becomes ten days or more. Add to this staff working from home because they can’t all be in the office (COVID 19 social distancing), and all of a sudden a lender has a major headache.
No wonder so many lenders avoid this part of the market. Of course, if more lenders joined in with this area of the market, they could share the burden and the risk. But this isn’t happening.
What can you do?
The obvious course of action is to save more money. But that’s so obvious, and if you could save more, you’d probably be doing it already.
Ignore that then.
Next option… The Bank of Mum and Dad. Or ‘BOMAD’ as it’s often known. Can ‘BOMAD’ give you a cash gift? The majority of lenders are happy for parents to help out.
(In fact, if ‘BOMAD’ were a lender, they would already have lent enough to be a Top Ten mortgage lender).
Buy with a friend
Buying with a friend enables you to combine your deposits and incomes, potentially getting you the mortgage (and property) you want.
As ever, there is a down-side…. what if one of you wants to sell and the other doesn’t? It could get messy.
This is where you buy part of the property, and pay rent on the rest. This reduces the amount of deposit you need. However, the lender will factor in the rent you pay when calculating how much you can borrow.
Help to Buy
How does it work?
Typically you put in 5% of the purchase price, and the government provides a loan of 20%, so you will need a mortgage for the remaining 75%.
Remember, the government is providing a loan, it’s not a gift. After five years, you start paying it back. And you can only buy a new-build property.
There’s no doubt it’s more difficult to get a mortgage if you’re self-employed. And since the onset of COVID-19, it’s become even more difficult.
There are some lenders that will consider lending to a self-employed client with just one year’s accounts, but the vast majority need two years figures.
In the past lenders would ask for an accountant’s certificate, or documents from HMRC. But COVID-19 has made them more cautious, so they can ask for more information.
As well as asking which industry you work in, they could ask how COVID-19 has affected your business, and what changes you may have made to the business as a result.
Limited company director? They may ask if you’ve supplemented your salary by drawing on retained profit within the business.
Sole trader? Have you taken advantage of the Self-Employed Income Support Scheme (SEISS)?
Limited company director or sole trader? They could ask about any cash injection into the business, and whether you’ve taken a Bounce Back Loan from the government.
In addition, a lender may ask for two years full set of accounts, and last three months personal and business bank statements.
These items can be asked for at short notice, which is why some clients complain about “moving goalposts”.
We know we’re biased but… With all these changes, lenders being more cautious, more questions, more paperwork, it makes it even more important that you use an experienced mortgage adviser. Just saying.
First of all, what do we mean by poor credit?
This includes missed or late payments on credit cards and loans; Debt Management Plans (DMP) and Individual Voluntary Arrangement (IVA); County Court Judgments (CCJ) and defaults; and bankruptcy.
Just as “High Street” lenders have cut back their loan to value lending limits, the same is true for ‘specialist’ lenders that lend to clients with credit issues.
Everyone’s getting nervous!
Here’s a list of the ‘specialist’ lenders that will consider clients with poor credit:
85% LTV - Aldermore
80% LTV - Foundation, Kensington, Pepper
75% LTV - Bluestone, Gatehouse, Kent Reliance, Masthaven, Precise
As you can see, the greater the deposit, the more lenders to choose from.
But these are not the only lenders that will consider clients with poor credit
Some of the smaller, regional building societies will consider clients with credit ‘blips’, as will some “High Street” lenders. For example, we’ve recently arranged a mortgage for a client with two defaults with Halifax at 85% LTV. Both these defaults were ‘historic’, one in 2015, the other in 2016.
Lenders like Halifax don’t have specific schemes for clients with poor credit. Instead they look at things on a case by case basis. The case we placed with Halifax was helped by both defaults being ‘historic’. If the defaults had been more recent, the application probably wouldn’t have been approved.
How do you get approved if you have poor credit?
1. Get a copy of your credit report. Identify the problem(s).
2. Apply when you have a regular income, and a decent size deposit.
3. Be prepared to wait. The further in the past your poor credit is, the better.
4. Explain your credit problem(s) in detail. What led to the problem? Redundancy? Relationship breakdown? Be honest.
We know we’re biased but… Speak to a broker. A broker will have access to so many more lenders than you, many of whom will only accept applications through brokers anyway.
Whatever your mortgage problem, we will try to help.
Contact Mortgage Search Go now and we’ll have a chat about it and help you get your paperwork and finances in order.