There’s a lot of information out there about getting your first mortgage – don’t have debts, work on your credit score, compare what’s out there. But there are a few surprising elements to getting your first mortgage that you might not be aware of. Making a few of these mistakes could cost you dearly.
1. If you’re going to the pub, get cash out
Mortgage lenders these days are likely to not only look at how money comes in and out of your account, but where it goes. That doesn’t just mean direct debits or your rental payments.
Your bank account is like a map of your life, and it tells a story. Expensive meals, continual take-aways, big purchases on pay day? A few too many transactions at your local pub and you start to look like a bad bet. After all, the lender has to trust you with their money.
We’re not saying you can’t go out or enjoy anything anymore, but if you’re planning on a big night out, get the money out in cash, so what you’re spending on doesn’t show up on your statement.
2. ‘Statement banter’ could cost you your mortgage
It’s probably happened to you, depending on how ‘hilarious’ you friends are. You go out for a meal, or you buy a shared gift, or you’ve made the booking for your holiday. Your friend transfers you the money later on. When asked for a transfer reference, they put something funny. Like ‘drug money’ or a swear word. You see it and laugh, it’s all banter.
Until the mortgage underwriter sees it.
Jokes like this can make you seem irresponsible, and as the lender will be going through your bank statements, sometimes up to 6 months’ worth, it’s important not to let your friends’ sense of humour damage your chances of becoming a home owner.
3. Get ready for a stress test
It’s not just about your income any more. Whilst in general you can workout how much you can borrow based on your salary, that’s not really the main concern of the bank.
After all, if you have a decent salary but still manage to get into debt every month, why should they trust you? As such, lenders now check to see you’d still be able to afford your mortgage if it increased by 3% above their standard variable rate (the rate you’d be on when your introductory offer ended).
This could mean that if you were getting a mortgage for £766 a month, you’d have to prove you could afford to pay £1478
Don’t panic though, lenders are likely to adapt stress tests in order to remain competitive in the market. It is worth remembering in the run up to getting your mortgage that your statements will be assessed and having a good think about where your money goes before that happens.
4. Don’t own things on finance!
There are multiple reasons you might have chosen a finance plan to buy something you want. You may have got into the habit of buying items on finance to build your credit rating. It might have been the only option when considering the item you needed.
However, don’t underestimate the negative impact of owning a large item on finance, especially if the monthly repayments are high. A finance plan, in the eyes of the lender, is a debt. Usually a rather large one. This could limit the amount you could get from a lender for your mortgage.
If you can buy your car outright, or limit any debts, you’re likely to get a better deal on your mortgage.
5. Don’t apply for credit
If you know you’re going to be applying for a mortgage in the next few months, don’t apply for a credit card, loan, or anything else that could be refused.
Taking out a debt when you are about to apply for an even larger one suggests you won’t be able to handle the responsibility of a mortgage.
- Do a statement spring clean – check where your money is going and what it says about you. Too many nights out? Constantly buying clothes? Paying a lot every month for a loan or an item on finance? Get your finances in order before applying for your mortgage.
- Get your friends to pay you back in cash, or don’t be responsible for paying the total bill. Statement banter can cost more than you’d think.
- Think about what you’re buying and how it would look to a lender – one example included an underwriter seeing a large payment to a baby brand, leading the lender to ask if the borrower was pregnant. This could impact the mortgage amount and their terms.
- Make sure you have a ‘money cushion’ every month in your account – money that just sits there, unused, which will help you out when your account is stress tested.