The buying frenzy caused by the SDLT holiday looks likely to come to an end soon. In fact, it may start fading relatively soon given the time needed for completion. This may actually be good news for buyers, especially first-time buyers and the self-employed. You will, however, need to approach the mortgage approval process in the right way. Here are some tips.
Prepare as much as possible
If you haven’t yet filed your tax returns for 2020-2021 see if you can push the process forward. That will give a prospective lender the most up-to-date information on your financial standing.
If you need to renew your ID then definitely get this ball rolling as quickly as possible. Make sure that you have a copy of your current document and all the details of the application. That way if anything does go wrong (e.g. it’s lost/delayed), you’ll have the information needed to chase it up.
As always, do everything you can to make your credit score look good. At a minimum, check it for errors. This is particularly important now because the challenges of working under COVID19 may have made it more likely that companies would make mistakes. It certainly makes it more likely that records would not have been updated in a timely manner.
If you can do anything to raise your credit score then do so if you possibly can. If you’re thinking that a few extra points won’t make any difference then you may be right. Then again, however, you may not. Sometimes decisions come right down to the wire and that little extra can make a difference.
On similar logic, see if there’s anything you can do to raise your deposit. Be aware, however, that lenders often have rules around gifted deposits.
Consider focusing on properties in need of work
Making predictions is always dangerous. That said, it’s also dangerous to ignore general trends. Since July 2020, average house prices have been on a clear and steep upward trend. While coincidence does not equal causality, given the timing, it’s hard to see how this could be unconnected with the SDLT holiday.
This, therefore, raises the question of what will happen to house prices once the SDLT holiday ends. Further growth is certainly not impossible although the rate of growth may be slower. Flatlining is also possible. The last possibility, however, is that house prices decline. This could potentially leave more recent buyers in negative equity, albeit potentially only temporarily.
Big deposits are reassuring for lenders but they can be challenging for buyers to put together. It may therefore be more strategic to look for properties in need of some work. Then you can get a mortgage on the purchase price and update the property as funds allow. If you go down this route, however, make sure that you are very realistic about what is involved.
Use a mortgage broker
One of the keys to understanding the mortgage market is to understand that each lender has its own way of operating. For example, the Mortgage Market Review obligates lenders to check affordability. It is, however, down to each lender to work out how they are going to do that.
In the real world, minor details can make a major difference. For example, slight differences in the way your income is assessed could mean that a borderline candidate is a no to one lender but a yes to another.
Right now, lenders also have to navigate their way through assessing the impact of COVID19. This is another ticklish situation for them. They don’t want to turn away viable candidates. At the same time, however, they don’t want to get on the wrong side of the regulators. Mortgage brokers may be able to help you to present yourself in the best way to get a yes.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
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