There are heartening indications that the housing market is becoming a little more accessible for first time buyers (FTBs). Halifax, for instance, estimates in its June house price index that some 162,704 new buyers took that first step on the property ladder in the early half of this year. The reasons for this encouraging surge in sales to FTBs are complex, but experts say that there are three key drivers of the trend:
- The various government help-to-buy schemes are starting to make a measurable impact;
- The Stamp Duty surcharge on second homes is discouraging investors from the market, freeing up affordable homes for potential owner-occupiers; and
- The low Bank of England base rate and a fiercely competitive mortgage market are combining to make home loans a realistic possibility for increasing numbers of house-hunters.
Reading the latter point, it's easy to leap to the conclusion that banks and building societies are loosening their criteria for approving mortgages. This really isn't the case, though - borrowing might well be more affordable, but you will still need to jump through all sorts of financial hoops before your loan arranger is willing or able to offer you house financing. If you have, despite the often eye-watering house prices in the UK, managed to save for a deposit and are coping with day-to-day expenses without too much discomfort, you might - understandably enough - assume that obtaining a mortgage will simply be a procedural matter and that you won't encounter any obstacles. Sadly, this isn't quite accurate and there are some surprising factors that can delay or even derail your mortgage application. In this Nethouseprices guide, we look at some pitfalls for FTBs to avoid.
The statistics change on a monthly basis, but, by most estimates, some five million workers in the UK are classified as self-employed. These entrepreneurs and self-starters make a vast contribution to the economy and they are rightly valued by government. In a sense, it's inaccurate to say that the self-employed have a tougher time gaining mortgage funding than those otherwise employed. Certainly, one controversial product - the self-certification mortgage - is no longer available to them since it was found by regulators that this type of loan was being used inappropriately. Readers will recall that these mortgages didn't require the self-employed to provide proof of income. This change aside, the market is technically the same for everyone, whether you work for yourself or not.
You do, however, need to bear several points in mind:
Firstly, you will be asked to provide evidence of your income going back at least two years, so you should make sure that your records are suitably organised to prevent your application being delayed or even refused. If you have had a few uncharacteristically lean months within the past year or so, or don't have a full set of records, some lenders will accept details of agreed future work as proof that you will be able to afford to meet your mortgage repayments. Alternatively, it might be worth putting off your application for a short while to allow you to build up a more solid earnings history.
Secondly, mortgage experts point out that the self-employed might find that their accountants have been doing too good a job. Put simply, part of their job is to manage your finances in such a way that - within legal limits - your taxable income is as low as possible. This is, of course, great for containing your tax bill, but it can give lenders a distorted picture of your earnings. A further point underlined by advisers is that the self-employed often earn money through the PAYE scheme, which can make their business income seem lower.
Finally, lenders have different methods of assessing your eligibility for a mortgage. Some institutions, for instance, will only take account of your average earnings over the past two or three years, while others will be guided by your income during the best year. This essentially means that you could conceivably receive significantly different responses from different lenders when you submit your mortgage application.
For these reasons, we would recommend that the self-employed take advice from an impartial adviser before applying for a specific product.
2. Major life events
Like all commercial enterprises, mortgage lenders value certainty and stability. While there is - by definition - a risk involved in lending money, banks take steps to ensure that this risk is contained and will view your past behaviours as indicators of your future reliability. As we will discuss in the next installment of this guide, your credit reference is absolutely central to your chances of receiving a great mortgage deal. There is, though, much more to your candidature. You might, by way of example, have a superb credit rating but have made a recent career change so the loan officer can't use your longevity in a particular work role as a guide to your stability. Equally, as happy an event as having a baby might be, it will increase your outgoings and, if you have a very recent addition to your family, lenders might have concerns about mortgage affordability in the future. Banks are also known to be cautious about applicants who have frequently changed residence in the past, generally preferring people to have lived at their present address for around three years.
These issues won't necessarily prevent your application from being approved but it might be subject to increased scrutiny and therefore delays. The amount of money you can borrow and the applicable interest rate might also vary. It isn't reasonable or realistic to expect people to put their lives on hold in order to obtain a mortgage and this isn't what the experts are suggesting. What they do advise, however, is that if you have had a major change in your circumstances, you perhaps wait a few months before applying for house funding so that lenders can form a clearer and more accurate picture of your overall situation.
We hope you have found this guide useful and informative. In the next installment, we will look at further obstacles to mortgage financing. Visit us again soon for this, as well as the latest news on house prices in the UK, the private rental sector and the wider property market matters affecting you, your family and your investments.
You can also sign up to our newsletter and join Nethouseprice’s community of over 190,000 members who get regular property tips, relevant offers and news, click here http://nethouseprices.com/auth/user-register