‘Best things’ you can do to still be accepted for mortgage

With higher mortgage rates and real terms pay cuts, many first-time buyers are likely to be at a bigger disadvantage than ever when attempting to put a foot on the property ladder. But naturally, there are certain ways people can increase the likelihood of being accepted for a mortgage, and it’ll pay to know how.

Based on data from November 2022, average house prices now stand at more than nine times the average salary. According to asset manager Schroders, this is a ratio that hasn’t been seen since 1876.

Duncan Lamont, head of strategic research and author of the paper said that affordability has “deteriorated dramatically” for first-time buyers, as most mortgage providers apply constraints on the amount they will lend as a multiple of earnings.

He continued: “This has contributed to homeownership rates falling to 63 to 65 percent in the past five years, levels last seen in the early 1980s.”

Commenting on the market, Tim Leonard, mortgages expert at NerdWallet, said: “For first-time buyers, trying to get on the property ladder is likely to have become even more challenging than usual.

“Even though mortgage rates have been falling in recent months, they still remain much higher than this time last year. In turn, this means that many first-time buyers who found a mortgage that was affordable a year ago might struggle to do so now. The additional financial pressures created by the cost of living crisis won’t be helping either.”

However, he noted: “If your finances do stack up, and you can find a house that you can afford, there are plenty of mortgages available if you can provide a 10 percent deposit or more. But again, seeking mortgage advice is key, so that you make the right choice for your personal circumstances.”

Those who can’t afford to buy now could also wait to see if mortgage rates fall further or if things change again in the property market.

Mr Leonard said: “House prices have been falling in recent months and property sales are slowing too, so there’s the potential for this to work in first-time buyers’ favour. Buying at a lower price could mean you need a smaller mortgage and make borrowing more affordable, while sellers might be more open to negotiating on price if they are finding it harder to secure a sale.”

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Another option for first-time buyers who have family willing to help is to look into a guarantor mortgage. These are typically aimed at those with smaller deposits, lower earners or people who have poor or no credit history, but can potentially be used by first-time buyers.

Mr Leonard continued: “It does mean getting family, such as parents, to guarantee that they will cover the mortgage repayments should you not be able to. This usually involves them, as guarantors, having to offer their savings or home as security for the mortgage.

“Crucially, however, if payments are missed, and neither party can pay, the guarantor is at risk of losing their savings or home, so careful thought is needed before taking this type of mortgage out.”

Mr Leonard added: “The best thing people can do is look at their own circumstances, as everyone will be in a different position, and to get advice from an impartial expert.”

However, there are a number of even more simple and easy things people can do to set themselves up for better success in getting accepted for a mortgage, Mr Leonard has said, and here are four.

Check credit scores

To increase the chance of being approved for a mortgage, people need to keep on top of their credit scores. Having a high credit score indicates a good track record of repaying debts on time.

People can use many online tools and services to check their credit scores, such as Equifax and Experian.

Work out what can be afforded

Before people start looking for their first home, it’s important to crunch the numbers and work out how much they can spend on a house, as well as the areas where they can afford to buy.

Mr Leonard said: “A simple way of doing this is to use a mortgage calculator, where you’ll usually be asked about your income, expenditure and deposit size, among other things. Remember also that buying a house means you’ll need to cover the cost of surveying, legal fees, and then the move itself.”

Boost savings

A Lifetime ISA is designed to help first-time buyers save for a first home costing up to a maximum of £450,000. The ISA can be opened at any age between 18 and 40 and people can continue adding to it until they reach 50.

Mr Leonard said: “The main benefit of a Lifetime ISA is the 25 percent bonus the Government adds to the amount you save. As you’re allowed to put up to £4,000 into a Lifetime ISA each year, that’s a potential bonus of £1,000 to be added on top each year too.”

Compare different products before applying

A great way to find the best mortgage deal as a first-time buyer is to compare mortgages online. Different products will have different requirements and affordability criteria to meet, so thorough research will be needed. This is something that can be done online for free.

Mr Leonard said: “It could also end up saving you time in the long run, as you can avoid applying for mortgages that you don’t meet the requirements for.

“Checking that you meet the affordability criteria for a mortgage is important, as lenders will do the same by looking at your income and spending habits, to make sure you’ll be able to keep up with mortgage repayments in the future.”

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