How to get a mortgage if you are struggling

There are many reasons why you might struggle to have a mortgage approved. Find out what problems can come up with an application, so you can take action before it becomes a problem.

How to get a mortgage if you are struggling
How to improve your credit score

Your credit report is a record of your financial history, including utilities and credit card payments, and any missed payments. This makes up the basis of your credit score, but there are many other factors that could affect your overall score.

Lenders use this to decide how much of a risk you are and therefore if you should be approved for a mortgage.

Any mistakes on your credit report should be corrected before approaching a lender for a mortgage.

There are a number of factors that could count against you, such as: missed or late credit repayments; County Court Judgements against you for non-payment of bills; or even a lack of financial history.

Even if your score is excellent there’s no guarantee that you’ll be given a mortgage. Each lender will have its own criteria for approving and declining applications.

Lower income?

Lenders will look at how affordable your mortgage payments will be before granting you a loan, so you may struggle to find a mortgage with a low income. They will examine your overall budget and the size of the mortgage you want, to check if your income could comfortably cover the repayments, your bills and your living costs. They will also look at whether you will be able to make repayments if your personal circumstances were to change or interest rates were to rise. But all is not lost if your income looks stretched. There are various schemes you can look into, including Help to Buy, shared ownership, Right to Buy and others.

Small deposit?

You will need to have saved a deposit of at least 5% of the price of your new home. The higher the deposit, the better your chance of getting a mortgage and the lower the interest rate will be. It’s wise to start saving as early in the process as you can.

Government schemes such as Help to Buy help those who have at least a 5% deposit to buy their own home.

Self-employed?

If you are self-employed you might find it harder to get a mortgage. You will have to prove your income by showing the lender your business accounts, signed off by a chartered accountant, and your tax returns over a two or three year period. Lenders may also ask for your business projections to reassure themselves that your earnings will continue to be at the same level or higher.

Living in the UK for less than three years?

It’s difficult to find anyone who will give you a mortgage if you have been living in the UK for less than three years. Lenders will want a record of your earnings, bank account and home address for at least two years and will check your visa and employment contract.

If this applies to you, speak to an independent mortgage adviser who w ill know if any lenders will consider your application.

If you’re unsuccessful, look into applying for a mortgage from a lender based in the country you were living in before you moved to the UK.

Tips if you're struggling to get a mortgage

First-time buyers are being stung by higher rates, lending restrictions remain tight and new Financial Services Authority proposals risk cutting off some credit-worthy buyers altogether, leaving thousands of people looking for a mortgage wondering which way to turn. 

Recent years have been a bit of a mixed bag for homeowners and buyers. Banks and building societies have become much more cautious about who they will lend to, making it much harder for people to remortgage or purchase a property.

First-time buyers are being particularly badly hit as they are stung with higher mortgage rates because they lack a large enough deposit to qualify for the top deals.

On the flip side, the low base rate environment means those with variable rate mortgages have been enjoying cheaper monthly mortgage repayments.

However, there are things that people who are struggling to get a mortgage can do to improve their chances. Here are our top tips to ensure you get the mortgage deal you want.

Getting on the first rung of the property ladder

The key to buying your first home is to save, save, save. It's not an easy or short-term fix but the best thing you can do to speed up your first home purchase is to save every penny you can.

The bigger the deposit, the better chance you'll have of being accepted and the cheaper the rate you'll qualify for too.

Boost your credit score

Get hold of a copy of your credit file and see where you could make improvements. When you come to applying for your first mortgage, the lender won't just look at your deposit, they'll scrutinise your credit history and existing debts.

If you can clear that credit card or finish that loan early then it's good for your credit score and it will also make banks and building societies more willing to lend to you.

It is also crucial to be registered on the electoral roll, which is easy to do through your local authority. You will be asked for back up information to support your mortgage application so it makes sense to pull together documents like payslips, bank statements and P60s in readiness.

See if you can get a guarantor

Would one of your parents be willing to stand guarantor? If your salary doesn't support the mortgage you want but you have a decent deposit, then some banks allow a relative to guarantee your mortgage, meaning you can qualify.

However, it's important to be aware that even if a parent is willing to be a guarantor, you may still not be able to get a mortgage: their income will have to be enough to support your entire mortgage as well as their own (if of course, they have one).

Also, don't forget, if you default they will be chased for payment. Remember too that standing as a guarantor will show on their own credit file and could prevent them qualifying for other lending.

Be brutal

If you're ready to buy then you're in a great position - make it work to your advantage. Buyers are few and far between, and many people are selling only because they have to.

On top of that, new buyers have no chain, so you're really a dream purchaser as the whole process can move much more quickly.

Find out as much as you can about the property and the vendors. If it has been on the market for some time, or the current owners need to sell quickly they may be prepared to accept an offer that is lower than the asking price.

Take advantage of the best deals

When you're spending potentially hundreds of thousands of pounds on a property, a few percentage points make a big difference in the cost of your mortgage.

There are some amazing deals out there, if you have a big enough deposit. For example, first direct has a two-year tracker that's currently at just 2.19%.

Although some deals have a low headline rate but then sting buyers with a high arrangement fee, there's just £99 in fees to pay. However, you'll need a 35% deposit to qualify.

There's a lifetime tracker from HSBC that also has a pay rate of just 2.19% and charges a fee of just £99. It tracks the Bank of England's base rate plus 1.69% and there is no early repayment charge which means you can remortgage at any time without penalty.

This deal isn't widely available, though, as you need a 40% deposit to qualify, which will exclude many people.

Fix for peace of mind

Although the base rate is low at the moment, it is certain to go up eventually. If you want to fix to avoid being stung by future rates then you will pay a little more, but you'll get peace of mind that your home is affordable.

For example, Principality Building Society is offering a two-year fix with a rate of just 2.74% if you have a 25% deposit. However, the arrangement fees are a whopping £1,499, so factor this in when you're working out the best deal for you.

You might be better off with HSBC's five-year fix at 3.94% with arrangement fees of just £99, but you'll need a weighty 40% deposit to get this deal.

First-time buyers are more likely to have between 5% and 15% deposit, and there are some deals out there.

There's a three-year fix at 3.94% available from Norwich & Peterborough, with just a 15% deposit. However, the fee is £995.

If you're able to take a gamble on a tracker then Yorkshire Building Society has a current rate of 3.49% available to people with a 15% deposit. The fee is a much more manageable £495.

Want to remortgage but have very little equity?

Existing homeowners who have very little equity in their properties, or who have been plunged into negative equity by the troubled housing market should see if they can afford to pay a little extra each month in order to reduce their mortgage more quickly.

Much of your mortgage payment goes on interest, so paying even £50 extra a month can really help chip away at the actual debt. It can cut years off the life of your debt, increasing your equity at the same time.

Most lenders allow you to overpay by 10% a year.

Consider using your savings to reduce your mortgage

It's very sensible to have three to six months' salary stashed away ready for a rainy day. However, if you have savings beyond that then it's worth considering using them to reduce your mortgage.

Make the most of your home

Are you doing all you can to boost the value of your property and therefore the amount of equity you own? Paint it, tidy the garden and de-clutter it, this can make a big difference to the amount your property is worth.

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