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How To Get On The Property Ladder If You Are Missing A Few Key Rungs

30th September 2021

The stamp duty holiday deadline ends today and the UK property market - which has been hot over the last few months - is predicted to settle down. Pressure on prices, the race for space and the return of gazumping fuelled by the recent intense demand is predicted to significantly lessen.

A return to normal post pandemic and intense competition amongst mortgage providers means there are now more opportunities for those who wish to enter the housing market and realise their dream of home ownership.

First Step – The Credit Check

While the lending criteria – essentially their appetite for risk - for each mortgage provider will vary, they all start with some form of credit check or credit search.

This is a review of your personal credit and how you have managed your debts and repayments which usually results in a credit score – or ranking of your creditworthiness.

An at-a-glance view of your credit is like an affordability check - a quick look at your credit, which together with your salary details and outgoings.  However, most mortgage providers will undertake a robust search to fully understand your credit history.  These robust checks are logged onto your credit history and too many of these checks can impact your credit score in the short term as they are logged for six months.

What impacts a credit score?

Many things can negatively impact your credit score and it’s worth reviewing the list before you apply to a mortgage provider, in case you can positively influence a change to your credit score.  For example, one of the biggest negative impacts is simply not being on the electoral register.

Before applying for a mortgage, can you address any of these key credit score criteria?

  • Not being registered on the electoral roll in the UK
  • No employment history in the UK
  • No UK bank account
  • No permanent address in the UK
  • No utility bills in your own name

Data from PWC suggests there could be up to 14 million people in the UK with less than perfect credit history.1

Poor credit history…there are still plenty of options

A 2021 survey2 from Metro Bank discovered that 81% of consumers with adverse credit history believed that banks and other lenders weren't interested in helping them and this figure rose to 90% for older consumers aged 45-54.

However, there are many lenders who will consider potential homeowners with poor credit scores or poor credit history. These mortgages can be called near prime or subprime and are offered by specialist lenders who have the flexibility to take the severity and the reason for your credit issues into account when assessing your application.  However, the interest rates they offer and the charges they make are likely to be higher than standard mortgage deals.

What the mortgage providers are willing to offer and at what rates will vary significantly, so potential homeowners should shop around or find a specialist mortgage adviser to help in the search. Contacting your own bank directly or using a price comparison website such as MoneySupermarket.com is a good place to start a search of the market, or you can check the financial services register run by the Financial Conduct Authority to ensure you find a registered mortgage broker to advise you.

Loan to Value – LTV – The Deposit.

In addition to differing interest rates and charges, mortgage lenders are likely to ask for different loan to value rates – essentially the size of deposit you will need to provide before the mortgage is granted.

For example Metro Bank has a near prime mortgage range offering up to £500,000 capital and repayment only loans with a maximum LTV of 80%.  So if the property you wished to purchase cost £150,000 your deposit would need to be £30,000 or 20% as Metro Bank would be willing to lend 80% of the home’s value.

Bank of mum and dad and grandad and auntie….

UK property prices can make owning your own home seem unobtainable, but some providers like Metro Bank offer greater flexibility with affordability.  Essentially they offer a joint borrower, sole proprietor mortgage.  This means that the incomes from multiple close family members can be included when determining the affordability of the mortgage repayments without putting their names on the deeds.

Pre-Approved & Ready to Search

By following these simple steps and checking the market, potential homeowners will be able to get a pre-approved mortgage offer which will tells them how much they can afford to borrow in the search for their first home.