getting a mortgage Archives

Does Getting Rejected for a Mortgage Affect a Credit Score?

May 20, 2022 By Mortgage Light Leave a Comment

The short answer is, no, getting rejected for a mortgage will not directly affect a credit score. However, the long answer to this question isn’t quite as black and white as that. Whilst rejection of a mortgage application itself won’t harm your credit score, the lender you have approached will have conducted a ‘hard search’ on your credit file as part of their assessment process. The record of this search may then have an impact on your score. If you have numerous hard searches on your credit file in a short period, then this can affect your credit score in a negative way.

So, what can you do to try to ensure that your credit score doesn’t get negatively affected when applying for a mortgage? In this article, we offer our top tips on keeping your credit score in check.

Common reasons for a mortgage rejection

Firstly, let’s talk about some of the reasons a mortgage application might get rejected. Whilst this is by no means an exhaustive list, it does contain a few of the more common reasons:

A large number of credit applications in the past six months, resulting in multiple hard searches recorded on your credit report
Poor credit history
Recent missed or late credit payments
A County Court Judgement (CCJ) or other adverse judgement on your record
Large amounts of existing debt
Not registered to vote on the electoral roll. This is important as it allows lenders to check some of your personal information and link that in with your credit history
Failed the mortgage affordability assessment based on your current income and expenditure
Self-employed or a contract worker with insufficient proof of consistent income
Mistakes or inconsistencies on your application form and in supporting documentation, such as the incorrect address or spelling of names. Perhaps the payslips provided don’t match up with the claimed annual income
Insufficient deposit available
Failing to meet the income criteria for the size or type of mortgage applied for
You’ve lived in the UK for less than three years
They didn’t like the house that you were buying

If you do get rejected for a mortgage (or any other credit), it’s a good idea to try to find out the reason why. Mortgage lenders are not obliged to give any explanation for their decision, however, most will provide feedback if requested.

Find out more – ‘What happens if a mortgage application gets rejected?’

Why is my credit score so important when getting a mortgage?

When you apply for any type of credit, but particularly a mortgage, lenders will start by looking at your credit score to help them decide if you are creditworthy enough for them to lend to. This is because your credit score is a reflection of how you’ve managed credit facilities previously and is, therefore, an indication of how you are likely to manage your finances now and in the future.

A high credit score is generally an indication that you can be considered creditworthy and therefore lower risk to lend to. Applicants with a lower credit score will generally be considered a higher risk. They may find it harder to secure credit facilities. A low score is a warning to potential lenders that you may have a history of poor personal financial management. It may suggest a risk of future missed or late payments.

Although not all lenders will reject an application based simply on a poor credit score, they are likely to restrict any offer they make to mortgages with a less desirable interest rate. This is to compensate them for the increased perceived risk that they are taking in lending to you.

Find out more – ‘How does bad credit affect a mortgage?’

Why does a hard search affect a credit score?

A hard search on your report is evidence that you’ve applied for a credit facility of some sort. A lot of hard searches over a short period of time might suggest that you have a high reliance upon credit to fund your lifestyle or perhaps that you’ve had applications for credit rejected several times and are struggling to secure the mortgage you need.

This is generally taken as a warning sign and will negatively affect your credit score for at least the next six months. As we know, a poor credit score is likely to reduce your ability to get approved for credit in the future.

How to avoid mortgage rejection due to a poor credit score

Of course, no one wants to see their mortgage application get rejected. Especially because of a poor credit score. Luckily, there are some things that you can do to try and keep your credit score healthy and minimise the chance of your mortgage getting rejected.

Avoid applying for credit

Applications for credit usually stay on your file for a minimum of 12 months. However, they can stick around for a maximum of two years. With that in mind, it’s a good idea to avoid applying for too much credit in the months ahead of making a mortgage application in order to minimise the number of hard searches on your report.

If you do need to apply for credit, make sure that you only apply for credit you have been pre-approved for or that you are confident that you are eligible for. Some credit lenders will allow you to do a soft search before applying for credit to see if you are likely to be accepted. A soft search will generally not affect your credit score. Additionally, try not to make more than two or three applications for credit every few months. It’s a good idea to try to space them out as this may also help to protect your credit score.

Keep on top of your financial commitments

It may seem obvious – and we know that it’s easier said than done – but try and keep on top of your financial commitments at all times, but especially before applying for a mortgage. Make sure that all repayments on any loans, credit and utility bills are made on time and in full.

Ensure that credit card payments are also made on time. If possible, pay off outstanding balances each month. If you have any credit cards that aren’t in use, then it may be a good idea to close these down. Ironically, it can help your score to maintain and use at least one credit card. However, only if you keep well within the approved limit and clear the outstanding balance in full each month.

Ensure you are on the electoral roll

Lenders use information from the electoral roll to confirm details such as your full name, address and residential history. These details must match up to what you have put on your mortgage application. If they don’t match or you cannot be found on the electoral roll, then some lenders may choose to decline your application at this point.

If you are not on the electoral roll, try to get this rectified before applying for a mortgage. Check that all your details are recorded correctly, including spellings etc.

Check your credit file regularly

Obtain a copy of your personal credit file to make sure that the information recorded is accurate and up-to-date. Mistakes can and do occur. If you spot any errors then contact the lender concerned to get this corrected as soon as possible.

It is important to do this regularly to try and spot possible identity theft. This is where fraudsters use your personal details to fraudulently obtain credit. They then default on this credit, leaving you with adverse history on your credit file. This is becoming increasingly common. It can have a devastating impact and take a huge amount of time and effort to get corrected. You can obtain a free copy of your credit file from companies such as ClearScore.

Speak to a mortgage advisor

Lastly, speak to a mortgage advisor before you actually make any mortgage applications, particularly if you have concerns. No one will be better placed to help you than a professional.

A mortgage advisor, such as us here at Mortgage Light, will be able to help pinpoint any potential issues and put you on the path to success when applying for a mortgage. We’ll match you with the most suitable lenders for your situation and contact them on your behalf when we are confident that you are in a good position.

We’re here to give you the best possible chance. Need our help? We’re available to chat on 01908 597655 or you can contact us via our website.

How do Joint Mortgages Work?

April 16, 2022 By Mortgage Light Leave a Comment

There can be many advantages to purchasing a property jointly with somebody else. For example, by pooling your resources together, you might be able to provide a larger initial cash deposit. This would reduce your loan to value (LTV) and therefore getting access to lower interest rate mortgage deals.

Combining incomes could also help you get a larger mortgage offer, allowing you to purchase a more desirable property. And of course, having more than one household income should make owning a home more affordable. It means you can share the cost of mortgage repayments and household bills, etc.

To achieve these benefits, you would need to take out a joint mortgage. You may choose to purchase a property jointly with your partner, a friend, a group of friends, a business partner, your parents or a family member. Perhaps you yourself are a parent looking to take out a joint mortgage with your adult child to help them get onto the property ladder.

There may be many motivations for taking out a joint mortgage. In this article, we’re going to explain how a joint mortgage works.

What is a joint mortgage?

A joint mortgage is simply a mortgage that allows you to borrow money jointly with another person. You can then purchase a property that you will own jointly. With joint mortgages, all applicants must be over 18. They will be joint owners with a legal claim to the ownership of the property. They will all be liable for the entire mortgage and its repayments. This means that if one person is unable or unwilling to pay their share of the mortgage repayments, then it falls to the other person (or people) to pay the full amount due.

Joint mortgages can be very attractive, however, because they allow you to combine your savings with another person. You may then be able to put down a larger mortgage deposit than you would have been able to do alone. This could give you access to better mortgage deals, given the lower LTV represented. It should also mean that all of the costs involved with purchasing and maintaining a home can be split between those on the joint mortgage, as opposed to falling to just one person.

Who can take out a joint mortgage?

Most commonly, joint mortgages are taken out by just two people. This is usually couples in a relationship. You don’t need to be a married couple to take out a mortgage and in fact, cohabiting couples are the fastest growing family type in the UK.

Unmarried couples have a few different options when it comes to taking out a joint mortgage. They can opt to be joint tenants. This means that both parties have equal ownership of the property. If one person were to die, the joint tenant and partner will automatically inherit the other’s share of the property.

Another option is to be tenants in common. Again, this is designed for unmarried couples, but who perhaps have different earnings and would like to contribute different amounts to the mortgage. It protects the difference in contributions should the relationship break down. It also means that in the event of one partner dying, the surviving partner would not automatically inherit the other partner’s share of the property.

It’s not just couples that joint mortgages appeal to. Depending on the lender, you can take out a joint mortgage with up to three other people. The maximum number of people who can be on a joint mortgage is normally four. This can make it an attractive option for groups of friends living in an area where property prices are higher, such as London, who want to combine their resources to purchase a property together. It might also appeal to business partners who want to invest together in a buy-to-let property. However, this is something of a specialist area and subject to other rules and opportunities.

Perhaps two parents want to help their adult offspring take their first step onto the property ladder. They may take out a joint mortgage in all three names. Parents should be aware that if they already own a property, they may have to pay an additional 3% Stamp Duty Land Tax charge when purchasing a second property. There may also be capital gains tax to pay on their share of the property if and when it gets sold in the future.

If this is a concern, parents may decide to act as mortgage guarantors instead of taking out a joint mortgage. This way they can still provide security for their child without having to be named on the mortgage or title deeds. They would also, therefore, avoid some of the tax implications.

Find out more – ‘What is a mortgage guarantor?’

How much can you borrow with a joint mortgage?

Generally speaking, you can borrow more when you buy with someone else. A lender will take into account your combined income when assessing your mortgage affordability. When a lender assesses affordability, they normally multiply the applicant’s income by a set amount (usually around four times). This will determine how much they are willing to lend.

Clearly, joint incomes will be greater than a single applicant’s income. This will generate a higher mortgage offer. At the same time, having two incomes supporting a mortgage application will provide greater comfort to a lender. If one person lost their income, there will still be another person to provide financial support.

Let’s say you earn £25,000 a year. The person you are taking out a joint mortgage with earns £30,000 a year. This puts your combined income at £55,000. If a lender is offering a mortgage up to four times your combined income, this would mean you could be able to borrow up to £220,000.

Determining affordability is not quite as cut and dry as that, however. A lender will also want to take a close look at your incomes. They will also look at your individual credit records, any debts outstanding, your personal incomings and outgoings and any other liabilities or financial responsibilities you may have. If you would like to find out how much you could potentially borrow on a joint mortgage, speak to us here at Mortgage Light.

Can I get a joint mortgage with bad credit?

This will depend on the level of any bad credit you have. It will also depend on the criteria of the lender you approach. Of course, when you apply for a joint mortgage, a lender will run the usual credit checks and take the combined credit histories into account. If one of you has a particularly good credit score, this can benefit the overall application. Similarly, an applicant with a poor credit score could bring down a joint application.

If you have a particularly low credit score, it may work to your advantage to apply for a mortgage jointly with someone who has a good score. Your combined score may be strong enough for you to get mortgage deals that would otherwise have been denied to you if it was your name alone on the application. Of course, your poor score will negatively impact your joint applicant. However, as long as your combined score is sufficient to be accepted, then having your joint incomes and therefore access to possibly higher borrowing may offset this.

If you are worried about getting a joint mortgage when you have bad credit or with a joint applicant who has bad credit, then we recommend you speak to a mortgage advisor and broker for guidance. At Mortgage Light, we know how best to structure applications. We know exactly which lenders to turn to when working with people who have a less than perfect credit score.

Find out more – ‘How does bad credit affect a mortgage?’

How to get out of a joint mortgage

The problem with joint mortgages is that you may come to a point where one person would like to be removed from the mortgage. Perhaps you took out a joint mortgage with a partner and you’ve decided to separate or divorce. Perhaps you took out a joint mortgage with a friend. They’ve now decided they’d like to move away or get a joint mortgage with their partner instead. These situations can be challenging, but there are a few different options available to you.

You could sell the property, all move out, pay off the mortgage and split any net sale proceeds between you. Alternatively, one person could seek to buy the other out by taking out a new mortgage in their sole name (or jointly with a new partner). They would then fully refinance the existing mortgage and pay off the leaving partner with their share of the property’s equity. It’s worth mentioning that all owners must agree to whatever course of action is taken. All joint owners have a legal right to remain in the property unless a court order rules otherwise.

Unfortunately, joint mortgage separation can be complicated. It’s never quite as easy as simply taking a name off the mortgage. Always seek professional advice before settling on a route to go down. It’s important to ensure that the process is handled correctly.

A huge proportion of homeowners take out joint mortgages. It is often the most practical route to buying a property. If you are interested in getting a joint mortgage, let us at Mortgage Light advise you and help secure the perfect mortgage deal. We have access to the whole mortgage market and are confident we can find you exactly what you need.

Simply call 01908 597655 or contact us via our website to speak to one of our friendly advisors.

What Does LTV Mean?

April 1, 2022 By Mortgage Light Leave a Comment

Loan-to-value, otherwise known as ‘LTV’ is a phrase that you’ll quite often hear used within the housing and mortgage market. It’s something that lenders look at when assessing the level of risk attached to any secured loan they may be considering offering. It will often drive the level of interest rate being charged.

It’s an important part of the mortgage process, but what does LTV actually mean? In this article, we explain everything you need to be aware of regarding loan-to-value.

What does LTV mean on a mortgage?

In the mortgage world, LTV is a calculation used by lenders use to describe the relationship between the outstanding mortgage balance and the market value of a property. It refers to the percentage of your property’s market value that is being funded by your mortgage.

For instance, let’s say you put down a 20% deposit on a property. You take out a mortgage to cover the remaining 80%. Your LTV ratio would be 80% because 80% of your home is being paid for by your mortgage.

The higher the LTV, the higher the risk profile for the lender. This is because, in the event of you defaulting your mortgage for any reason, a higher LTV means there is a smaller buffer between what is owed on the mortgage and what the market value of the property might be.

Your LTV ratio will change over time. This is often a result of you paying down your mortgage borrowing each month. This reduces the mortgage amount against the property value. It may also change as a result of the market value of your property changing. A rise in the value of your house will reduce the percentage of your property funded by your mortgage. As a result, it will reduce your LTV.

For example, a £200,000 house with a £160,000 mortgage will have a loan-to-value of 80%. If the market value of the property increases to £220,000, and the mortgage remains at the same level, the LTV will reduce to around 73%. Remember, however, that houses values can go down as well as up. A fall in your property’s market value could result in the LTV increasing.

How does LTV affect interest rates?

To compensate lenders for the higher risk associated with providing higher LTV mortgages, these mortgages generally attract a higher interest rate. Similarly, mortgages with lower LTVs are usually offered at lower interest rates. This means that it can be much cheaper to borrow the same amount of money if there is a lower LTV.

Are higher LTV mortgages really more risky to the lender? Well, think about it this way. A home bought with a 90% mortgage would only have to lose 11% of its value to go into negative equity. This is where the market value of the property isn’t sufficient to cover the balance outstanding on the mortgage. As a result, if the lender were to have to repossess the property for any reason and then sell it to try and recoup the amount outstanding on the mortgage, the sale proceeds wouldn’t be enough to get all of their money back.

Lenders also know from experience that properties that get repossessed tend to have suffered neglect for some time prior to this. Very often, they fail to reach their full market value at auction. As a result, the reduction in value seen in such properties will see them not get all their money back.

A lower loan-to-value mortgage of 60% however, means that the market value of a property can fall by over a third before the lender faces any real risk of loss. This is why lenders save their more attractive mortgage deals for customers with lower LTV borrowing.

Find out more – ‘How much interest am I paying on my mortgage?’

How to calculate LTV

LTV is expressed as a percentage. It is calculated by dividing the value of the mortgage outstanding by the value of the property. There are plenty of online LTV calculators to help you do this.

Let’s say for example that you wish to purchase a house for £200,000. You intend on putting down a 20% deposit of £40,000. To complete the purchase, you will need a mortgage of £160,000. By dividing the required mortgage (£160,000) by the property value (£200,000) and then multiplying by 100, you get the LTV which is in this case 80%.

What is a good LTV?

So, we now know that low loan-to-value mortgages are generally preferable and often come with lower interest rates. High LTV mortgages are considered higher risk and often come with higher interest rates. But what exactly is considered low and high for LTV?

As a general rule, anything below 80% LTV is considered low. Anything higher than 80% is considered high. For that reason, it’s a good idea to try and put down at least a 20% cash deposit. Of course, this can be difficult for first-time buyers. It’s not uncommon to have a higher LTV mortgage when you purchase your first property. As you build up equity in your property, you could then look to move on to lower loan-to-value deals later on.

For first time buyers, it can still be worth taking on the more expensive higher loan-t0-value borrowing just to take that first step onto the property ladder. After all, house prices might be going up faster than the value of your savings! If you start off with a high LTV mortgage, then you can always look to remortgage onto a cheaper facility later, once you have seen your LTV start to reduce as a result of either house price rises or your borrowing reducing (or most commonly, a combination of both).

Got more questions about LTV? Just give us a shout! Our friendly and experienced mortgage advisors would be happy to help you. Contact us via our website or call 01908 597655.

What Happens if a Mortgage Application Gets Rejected?

March 19, 2022 By Mortgage Light Leave a Comment

Buying a new home can be a really exciting process, but it can also be pretty nerve-wracking. One of the most important parts of the entire process is securing your mortgage. If your mortgage application gets rejected, however, this can be really disappointing and a major setback.

A rejected mortgage application need not be the end of the road, however. In this article, we are going to talk about the reasons why a mortgage application may be rejected and what you can do to move forward from it. [Read more…]

Difference Between Fixed and Tracker Mortgages

March 1, 2022 By Mortgage Light Leave a Comment

There are a number of different types of mortgages available. It’s important to try to make sure you choose the right one for you. After all, a mortgage is probably going to be one of the biggest and longest-running financial commitments you ever make. It’s well worth getting it right!

Chances are, you’ve heard of both fixed and tracker mortgages. But what exactly are they and how do they differ? In this article, we’ll discuss the difference between fixed and tracker mortgages to help you decide which, if either, is best suited to you. [Read more…]

How Does Bad Credit Affect a Mortgage?

February 8, 2022 By Mortgage Light Leave a Comment

When it comes to getting a mortgage, your credit history is a pretty important factor. It plays a big part in how a lender will assess your affordability. Looking into your credit history is one of the ways in which a lender will gain information on how reliable you have been at paying back debts and loans in the past. After all, a mortgage is likely to be the biggest loan you’ll ever have! A lender needs to be confident that you’ll be able to keep up with your repayments across the whole lifetime of the loan.

So, how does bad credit affect a mortgage application? Is it still possible to get a mortgage with a bad credit history? In this article, we explain all you need to know. [Read more…]

How to Save For a House Deposit

February 1, 2022 By Mortgage Light Leave a Comment

So, you’ve decided to begin planning your first step onto the property ladder. For many, the largest obstacle you will face is saving up enough cash for a house deposit. A house deposit is usually required by most mortgage lenders as your initial contribution towards the cost of your property purchase. For a first time buyer, saving for a house deposit can be particularly difficult – especially if you are currently paying out a large part of your income in rent for your existing accommodation.

Before you begin saving for your house deposit, it’s a good idea to have an idea of roughly how much you’ll need to save and the options available to you if you are struggling to reach this goal. Here is a guide and some tips on how to save for a house deposit. [Read more…]

How to Get a Mortgage as a Business Owner

January 11, 2022 By Mortgage Light Leave a Comment

Running your own business comes with a wealth of benefits and freedoms. However, when it comes to getting a mortgage as a business owner, you may need to jump through a few more hoops than someone who is a contracted employee.

Whilst perhaps more challenging, it’s certainly not impossible to secure a mortgage as a business owner. There are plenty of lenders out there who are familiar with business owners and willing to lend. In this article, we are going to explain a few things that you should know about how to get a mortgage as a business owner. [Read more…]

What is the Minimum Deposit on a Mortgage?

January 4, 2022 By Mortgage Light Leave a Comment

One of the first steps after deciding you’d like to purchase a house is to begin saving up for your house deposit. Your deposit is usually the most expensive part of getting a mortgage.

Typically, you need to put down a deposit of at least 5% of a property’s value. With the average UK house price sitting at around £265,000 as of August 2021, the minimum deposit amount that you would need for the average house in the UK is £13,250 – 5% of £265,000.

In this article, we are going to explain a little more about the minimum deposit on a mortgage, how to save for one and what to do if you don’t have one. [Read more…]

How to Get The Best Rate on a Mortgage

December 24, 2021 By Mortgage Light Leave a Comment

The UK finance market offers a broad range of mortgage products to borrowers. The interest rate charged on those products can vary quite widely for different borrowers. Generally, the interest rate charged by a lender is a reflection of their view of the risk the borrower poses and the scale of loss the lender might run into should that happen.

As a result of these different risk profiles, some of the preferential deals that may be available to one borrower may not be available to another – and vice versa. So, what are some of the factors that affect the interest rate that you may be offered on your mortgage and how can you get the best rate for your personal circumstances? [Read more…]