Mortgage criteria….

by Mark Johnston

Mortgage criteria….

Recent figures have revealed that mortgage approvals climbed 21 per cent in July this year from the previous year.

Richard Sexton, director of e.surv, a chartered surveyor has said that “Confidence is seeping back in to the mortgage market.”

mortgagesThe fact is that for most people buying a property the biggest ongoing cost is the mortgage.

Therefore, it is vital that they secure a mortgage with a lender before starting the searching process. This way, when a borrower does find the right property, they will avoid being beaten to it by another buyer and will also be in a much stronger negotiating position.

However, for a borrower to procure a mortgage, they must meet certain preset criteria which can vary from lender to lender.

Research shows that different lenders use different methods and the amount you can borrow will depend on a lender’s affordability criteria.

One such criterion is the debt to income ratio, which quickly shows a lender a snapshot of the borrower’s current debt situation and how it would be impacted by the new debt.

Mortgage lenders will typically take potential borrowers credit history in to account as well as their incomings. They are particularly interested in how often they have defaulted on other payments, existing credit agreements, if they have any County Court Judgments or if they have been declared bankrupt.

In order to do this they will need to do a full credit check. As each check leaves a “footprint” on a consumers credit file, it is best not to do too many as it can hinder a consumers credit rating.

The better a potential borrowers credit rating and the bigger deposit, the more options they will have when looking for a good mortgage deal.

However, a credit score high enough to meet a lenders assessment criteria does not mean an automatic loan approval.

Mortgages also now tend to be assessed on affordability criteria rather than the old style income multiple, ie three times your salary. This involves a lender looking at your income and all of your essential outgoings and deciding whether you can afford repayments.

The fact is that nowadays the single biggest factor when it comes to what mortgage rate a consumer can get depends on the size of  the deposit they have,  how big a percentage of the property’s value they can put down.

Therefore to get the full choice of deals raising a decent deposit is still vital.

This all said, from 2014 Lenders will have to put a borrower’s ability to repay under greater scrutiny as a result of the rules from the Financial Conduct Authority (FCA).

The basic idea behind the regulations is to ensure that future borrowers are not advanced home loans that they cannot afford.

“Consumers will be faced with more detailed questions and the need to demonstrate that they can afford a loan, meaning the application process may take rather longer than it does today.” said Paul Broadhead, head of mortgage policy at the Building Societies Association (BSA)

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