It’s fair to say that the world of lending is a little bit… wobbly right now. There’s uncertainty as to how interest rates will move, how record-breaking property prices will shift, and how all of those things might vary depending on where in the UK you live.
Right off the bat, we want to tell you that, much as we’d like to, we can’t say for certain what will happen next year. No one can. We also can’t tell you when to buy a property, or where, or even if it’s the right thing for your personal situation right now.
Buying at the “right” time, or “timing the market” as it’s known in the world of investing, is pretty much just luck, so it’s important that you decide whether or not to buy a home based on whether or not it’s right for you.
But whatever happens, we can help you to prepare as best you can if you’re planning a mortgage application in 2023.
We’ve got a few articles you can read that will give you some useful questions to ask yourself about why you’re buying, where you might buy, and what to look for in a potential future home. For the purposes of this article, we’re going to assume that you’re keen to buy, are considering mortgages, and want to maximise your chances of applying successfully.
Building your credit score
Your credit score is just a number that acts as an at-a-glance reflection of your borrowing habits. Having a poor one doesn’t mean you’ll never get a mortgage, just as having a great one doesn’t mean you’ll definitely have your pick of the market. Credit scores are a guide of your creditworthiness, based on the things that lenders like to look at. We’ve got loads of articles designed to help you understand your credit score, and plenty of tools to help you grow it.
What you need to know is that having a better credit score isn’t necessarily the difference between getting a mortgage or not. Instead, a better credit score (and underlying credit report) will probably help you get better deals.
That means you’re more likely to be offered lower interest rates by mortgage lenders, and probably for longer fixed terms. In other words, your mortgage repayments could be lower, and you may have longer until they start to go up. So if you’ve got plans to buy a home in the future, it’s worth starting to think about your credit score as soon as possible, so you can potentially save tens of thousands of pounds once you’re a homeowner!
Documentation, documentation, documentation
Buying a property, and calling it your home, is exciting. Applying for a mortgage… less so. In order to complete a mortgage application, you’ll need plenty of time to complete some pretty lengthy paperwork, and you’ll also need to be able to show things like proof of income, proof of employment, any ID, and a fistful of bank statements.
Make sure you know where to find things like contracts of employment, payslips, and bank statements. You don’t need to have them downloaded, uploaded, primed, printed and ready to go, but you should know how to download .pdf versions of anything important.
Pro tip: keep your payslips and bank statements together. If they’re digital, download them as they come in, then store them in a secure computer folder all together.
So, you know what the lenders will ask for when you apply for a mortgage, and you’ve got into the habit of saving your bank statements as they are generated each month. Great! Now it’s time to think about the story that those bank statements tell…
First of all, it’s vital that the income being paid into your bank account matches the income you claim to earn during your mortgage application. If it doesn’t, most lenders will want to know why…
Lenders want to know you can afford to pay back the mortgage they offer you. This means they want to see more money going into your bank account than going out of it, in case times get tough (a bit like they are now).
It’s worth (if you can) tightening your belt in the months leading up to a mortgage application to make your account’s monthly balance look as healthy as possible. That way the lenders won’t have to worry about affordability, and are more likely to make you an offer.
We’re just going to say it: gambling isn’t going to help your mortgage application. All sorts of factors affect how lenders view gambling transactions (size, frequency, recency, type of gambling) but the majority of lenders do not look favourably upon even an occasional flutter on your bank statements.
You want to be as appealing as possible to as many lenders as possible to get the best deals, so just stick to sportsman’s bets for now.
If you’re looking to cut back on spending to improve your chances of being offered a mortgage, then budgeting is a great tool. There are lots of budgeting methods out there, so have a look at this blog on where to start with budgeting as well as these top budgeting rules to kick things off.
There are two particular reasons that budgeting is so great, particularly in the run up to a mortgage application:
- It’ll help you cut back on spending so you can easily pass affordability checks
- You’ll know what you’re spending where, making it easy to complete application forms.
Most mortgage application forms have a really big, boring table at the end(ish) where you have to tell them how much you spend each month in various categories. These are things like groceries, utilities, recreation, vehicle maintenance… you get the idea.
By making a budget, and tracking your spending against that budget, you’ll have all those numbers ready to go for your mortgage application, so you don’t need to spend ages looking through bank statements with a calculator.
Go for broke(r)
There’s a lot of choice out there, when it comes to mortgages. Too much choice, if you ask us. What’s more, there are loads of mortgage offers that you can’t access, no matter how good your Google skills are. Basically, in the “Big Mortgage Shop,” there’s a room out back with all sorts of goodies that you’re not allowed into… but mortgage brokers are!
Mortgage brokers are like matchmakers for borrowers and lenders. They’re expert guides in the land of borrowing. They have access to all sorts of information that you don’t, they know the lenders well, and are clued up on lenders’ criteria. That means they can help you avoid applying for mortgages you were never going to get because, for example, the flat you want to buy is above a shop.
One of the best things about a good broker is that they’ll explain everything to you as you go along, so you can make informed decisions with confidence. They’ll also be able to give you an indication of whether or not your application is likely to be successful, so it makes sense to talk to one sooner rather than later!
For many, they’re worth their weight in gold, and sometimes you don’t even have to pay them - they’ll take their fee from the lender instead of you. It’s worth taking the time, asking around, and seeing if you can find a broker that your friends or family have used and would recommend.
It’s not just about the big, well-known brokers either. Smaller brokers can still do a great job, and the personal touch can make a huge difference during the stress of buying a property, but just be sure to do your research before choosing.
Also, it’s worth making sure that whoever you pick is a “whole of market” broker. “Whole of market” means they’re able to offer a wider range of mortgage products and aren’t tied to a specific lender or a list of lenders.
Get ahead of the game
Getting a mortgage is a big deal, but it doesn’t have to be a difficult and stressful process. If you follow our tips above, you’ll be in good shape to start the hunt for a mortgage AND a home to call your own.