A survey of people who had failed to secure a mortgage last year suggests that many are failing to do the basic research needed to get proper control of their finances:
- 13% did not know how much money they have left over at the end of the month;
- 18% did not know what monthly repayments they could afford;
- 14% did not have a big enough deposit for the property they wanted;
- 12% were unable to secure the size of mortgage they needed.
James Jones, Head of Consumer Affairs at Experian, said: “For those taking out a mortgage, it is important that people work out what they can afford, and plan ahead for unforeseen costs that may make repaying debts harder over the years ahead, future-proofing their finances and ensuring they come out the other end with their credit rating intact.
We’ve created a simple guide to help people considering a mortgage which should help people get the deal that they want, and the loan they can afford.”
1. Know what you have to spend: Consider what funds you can draw together to form your deposit. The size of your deposit will often dictate how much you face in terms of interest rates and lender fees.
2. Do your research: Use mortgage calculators and comparison websites or speak to a mortgage adviser to find out where the best deals are and what type of mortgage will suit your circumstances. Work out what you can afford to borrow and repay, both now and if rates rise by 1%, 2% or more.
3. Scrutinise your spending: Scrutinising your last few months’ outgoings carefully will help you understand exactly where your money is going. Prepare now by building good habits like increasing the amount you save, clearing overdrafts and cutting back on discretionary spending to ensure you close out the month with even a small surplus.
4. Check your credit report: As soon as you make the decision to buy, check your credit report with all three credit reference agencies. Ensure everything is accurate and up to date and reflects your current circumstances – e.g. that all of your open credit accounts are recorded and that any old accounts have been marked as “settled”. If you spot anything you believe to be inaccurate, contact the relevant credit reference agency and ask them to investigate the entry with the lender.
5. Room for improvement: If your credit report has areas for improvement, make a plan to get it into shape well before making your mortgage application. There are a number of steps you can take, including: ensuring you’re registered on the Electoral Roll; paying down outstanding balances to less than 50% of your limit; paying off more than the minimum repayments on your accounts each month and making sure never to miss a repayment.
6. Don’t fall at the last hurdle: Right before you make your application, take time to do some last-minute checks. Check your credit report again to make sure nothing has changed and everything is accurate right before you apply. Check the exact way your address and other personal details appear on your credit report. Small inaccuracies could see your application turned down, so don’t overlook the details.
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Image by gotcredit.com