Rishi Sunak’s confirmation that 95-per-cent mortgages for first-time buyers are to be brought back came as a relief to many. The new mortgage guarantee scheme means that major lender will once again offer low-deposit mortgages on properties valued up to £600,0000. You don’t even technically need to be a first-time buyer to apply, although in practice the move is meant to help ‘generation rent become generation buy’, as the Prime Minister put it.
Unfortunately, what the mortgage guarantee scheme doesn’t mean is that applicants are guaranteed an approval. Affordability tests have not been relaxed as part of the scheme, which will catch out some buyers without prior experience of mortgage applications. Don’t let this be you – make sure you are prepared for the process of applying for a low-deposit mortgage, with the help of these top tips from Melanie Whiting, Mortgage Manager at the Norton Finance Group.
What does your credit history look like?
You’ve probably heard about the importance of a good credit score. If you are a first-time buyer applying for a low-deposit mortgage, you’ll need an exceptional credit record, explains Melanie: ‘Whilst having a good credit score is nearly always essential, customers will need to have extremely clean credit files, as the scoring and background checks will be very comprehensive for a small deposit mortgage. Keeping up with payments like monthly utility bills and your mobile phone will ensure you have a good credit score, serving as evidence to lenders that you are able to pay back debts.’
And it’s not just your credit score that impacts your chances: ‘Ensure that you don’t have a joint bank account with anyone who has a bad credit score as their activities could negatively impact you.’
Can you afford your mortgage?
Although the mortgage guarantee scheme means that lenders will once again consider applicants with five-per-cent deposits, this doesn’t mean that they will lend if your salary requirements are insufficient. Melanie comments: ‘Currently, most mortgage lenders face restrictions where no more than 15 per cent of their new business can be through offering mortgages that are over 4.5 times annual income, so whilst some customers will potentially receive a mortgage over this level, it’s likely lenders won’t risk higher LTI (loan to income) lending for 5-per-cent deposit mortgages.’ You should be aware of this especially if you’re trying to buy on your own.
Have you been financially impacted by the pandemic?
This is a brutal truth, but it needs to be said: ‘Mortgage lenders will be cautious about future employment prospects if you have been financially impacted by the pandemic. If you have been furloughed, had working hours reduced, or taken mortgage holidays, it is likely that lenders may not be able to provide you with a mortgage. You may be asked for bank statements, your last P60 and proof of deposits as proof of income so they can see you have a stable income, suitable to support your mortgage repayments.’
If you’re not sure where you stand and what your chances of getting approved are, speak to a professional broker before submitting any applications. Melanie concludes: ‘it is a good idea to talk to some experts before you start to apply for any mortgages so you can be sure to have a good understanding of all the financial implications.’