While COVID-19 has caused enormous disruption for those trying to get on the housing ladder, there are still some simple things you can do to boost your chances of getting a mortgage.
As things change rapidly during the coronavirus (COVID-19) crisis, this guide will be updated regularly to reflect changes in rules and regulations.
If you’re trying to buy your first home right now, you may feel like the odds are stacked against you.
Even before the Coronavirus pandemic wreaked havoc on people’s jobs and household finances, mortgage lenders were tightening their requirements for lending to first-time home buyers.
But thankfully there are a range of simple, free and quick things you can do to improve your chances of getting a mortgage, even during these difficult times.
Before going any further, it’s worth taking some time to sit and examine your household finances.
Getting a mortgage is likely to be one of the biggest financial commitments you ever make. So you really need to be sure that you’ll be in a position to make regular payments to your mortgage lender.
To work out how much you can afford to spend on a home, you need to work out:
Your total income
Subtract your outgoings from your income to see how much you can pay on a mortgage each month. You can then avoid getting one with repayments you cannot afford.
You can work out how much you can spend on a home by using a mortgage cost calculator. Enter the mortgage amount, interest rate and term to check how much repayments will cost.
Check if you can afford the mortgage by comparing this amount to how much you can afford to pay each month.
There are many other costs when you buy a property, as well as the mortgage. Here is how much buying a home can cost in total.
If you’re trying to get an understanding of how much you can afford to borrow, it may be a good idea to speak to a mortgage broker. A mortgage broker is an intermediary who will help you to find and arrange a deal on your mortgage.
Even if you’re not immediately in a position to apply for a mortgage right now, speaking to a broker can be a good way to understand what kind of deals may be suitable for your requirements and personal circumstances.
Brokers who are ‘whole-of-market’ may be able to give you access to a larger range of mortgage products than simply going directly to a bank or building society.
A good, trustworthy mortgage broker can be very useful, as they can take the time to find a mortgage deal for you based on your financial and personal circumstances.
When a lender is deciding whether to offer you a mortgage, they consider a number of factors to determine if you can afford to make your monthly payments.
A big part of this process involves banks and building societies checking your credit record. This is a report card that lays out your financial history. It shows:
Whether you pay your bills on time
How much debt you have
How many times you've applied for credit
Whether you've missed any payments
If you've had any county court judgments (CCJs) filed against you
Your current and previous addresses
Any other applications you have made, e.g. for credit cards and mobile phone contracts)
Any time a company has checked your credit record in the last two years
Financial links with anyone you share an account with, e.g. joint mortgage
Lenders use this information to try and predict your future behaviour and determine whether you are a reliable borrower. So, anything you can do to improve your credit record is going to be a big help in increasing your chances of getting a mortgage.
It’s important to bear in mind that any changes you make to improve your credit rating can take some time to show on your credit file. Improving your credit score will take some time.
You might want to think about doing some of the things in this guide up to a year before you start applying for mortgages.
If you have not already explored your credit file, there are some easy, free ways to do it. There are three main credit referencing agencies (CRAs) - Equifax, Experian and TransUnion.
These firms compile great swathes of information about you (including the things listed above) to build a picture of your financial history. Banks, utilities providers and lenders also report into these agencies with information about your finances.
You can sign up to a range of free services to check what is on your credit record with a credit reference agency, including:
*These services offer access to your credit report free for 30 days, before charging for a monthly subscription
Register to vote
When you sign up to your local Electoral Registration Office, two things happen:
You will become a registered voter for your address
There is an official record you live at your address
This improves your credit score, as lenders can easily identify where you live by accessing the electoral roll.
If you’re reading this, it’s likely that you’re renting a property, or a room in a shared house or flat.
A common complaint from people who find it hard to prove to a lender that they’ll be able to make regular mortgage payments is that they have been paying rent regularly, many for a very long time.
There are now a range of free services that allow you to record your rent payments on your credit report. Many of these are available to use for free (they make their money by selling you services on the side, like home insurance and mortgage broker services).
This may sound odd, but it can actually help improve your credit score, especially if you pay off your balance after making a purchase on your credit card.
This helps build your credit score as it proves you can get into and out of debt, showing you are reliable when repaying what you owe.
This may be tricky right now, especially if you’re struggling financially due to the impact of coronavirus on your income. But getting into the habit of spending on your credit card, and then swiftly paying it off can help boost your credit score.
One way of ensuring you pay off your balance on time is to set up a direct debit every month from your current account.
However, you should avoid withdrawing cash from a credit card, as this will leave a mark on your credit record and cost you interest.
It sounds incredibly unfair, but your credit score can sometimes be affected if information about your financial history is incorrect on your credit record.
Look for anything that isn't true, such as a wrong address or a missed payment that you had paid on time.
Check your credit record before you apply for any credit accounts to improve your chances of getting accepted.
Some lenders and financial services firms have started developing smartphone apps to help guide you through the process of getting onto the housing ladder. These include:
First Home Coach
This app says it can guide you through being a first time home buyer ‘from saving up to moving in’.
The platform helps users create a savings plan to work out how much cash they need to put aside each month for their desired home.
It can also help you work out how much you can afford to borrow, by using a chat function which asks you questions about your financial circumstances.
It also shows you a range of savings accounts that might help you towards your savings goal.
The app offers a range of other functions, so it might be worth taking a few minutes to have a play with it to see if it could help you.
Life Moments, the firm that created the app, makes its money by earning commission when a customer buys mortgage products, legal services or insurance from its commercial partners through the platform.
There are a number of government initiatives designed to help you afford your first home.
The Help to Buy Equity Loan scheme offers an interest-free loan for five years towards a new build property worth up to £ £600,000. It is only available for first-time buyers in England.
The government has also announced a second Help to Buy Equity Loan scheme only open to first time buyers purchasing a newly built home. This version of the scheme will run from 1 April 2021 until 31 March 2023.
Under this second scheme, the maximum price of the property you can buy will depend on where in the UK you’re looking to live.
There are separate schemes for:
Wales, where the scheme works in the same way but with a maximum purchase price of £300,000
Scotland, where the Affordable New Build Schemes let you buy a home with a 5% deposit and a 15% equity stake provided by the government
Northern Ireland, where you can buy a home worth up to £150,000 through their Co-Ownership scheme