Helping UK new home buyers
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In an economic climate where more than half of those who apply for a low rate, low deposit mortgage are rejected it is important to take steps to give you the best chance of having your mortgage application approved.
Lenders are conducting more thorough credit and affordability checks and may pass on rejection information to credit reference agencies that will make rejections from further mortgage applications more likely.
Most lenders will require a mortgage application fee. This is an upfront charge to cover the administration costs of the application. These fees have tripled over the last ten years. A typical application fee is now around £500. However, the application fee can be as high as £1000 for some fixed-rate deals.
Application fees can often be added to the loan, and it is a good idea to take this option. Some lenders may refuse to give a refund (or partial refund) of the application fee if they reject your mortgage application or if you change your mind or are unable to proceed with the mortgage for whatever reason.
In addition, lenders will require a surveyor to value to the property. They charge you a valuation fee which varies according to the price of the property. This is also non-refundable if the mortgage application is refused. Be mindful that many lenders are using the mortgage valuation as a means of increasing their profits. In spring 2011, a valuation fee on a £150,000 property was around £280-£310 of which the surveyor would be paid just £89-£119.
Nearly all house builders require a non-refundable fee on reservation, typically ranging from £300 to £500. If you cannot proceed because you cannot get a mortgage, you will lose this, in addition to the lender’s fees and charges.
Many mortgages are refused each month because of homes are worth less than both sellers and buyers realise. This is especially relevant to new homes, where under valuations can be common. Check with the site sales staff that the price of the new home is accurate for the area and current market conditions. Lenders will reject you if the valuation is lower than the price agreed.
Go to a fee free mortgage broker will know which lenders are currently favouring borderline applicants. A broker will check your forms for mistakes or even fill them in with you. They are getting a commission on the deal, so it is in their interest too that the application is not rejected because of simple mistakes such as not giving a landline telephone number or listing wages and bonus payments in the wrong boxes.
If you have any problems with your credit report this can cause an automatic rejection. It is wise to check for any mistakes, false links to ex partners or neighbours with bad records as well as your current debt levels. You may have forgotten a store or credit card or a loan facility you may never have got around to cancelling. You will also be able to check for any potential ID fraud on your file.
Many lenders reject applications from people who have taken out a Payday type loan even it was repaid on time, regarding it as evidence of financial distress. Payday loans provide short term credit usually over two or three weeks but charge very high annualised interest rates often as high as 300% APR. Anyone who has taken out a Payday loan within the last three months, or has had two or more in the last 12 months is likely to be refused a mortgage. Payday loans leave the wrong kind of footprint on your credit record.
Lenders do not now just look at loan as a multiple of salary, they also calculate whether you can afford the loan by looking at all your bills and may even ask to see your bank statements. If you have gone overdrawn recently, it may be better to postpone the application until you have at least six months in credit. Cancel any discretionary spending standing orders such as gym memberships unless you can afford them.
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