Mortgages

Mortgages are a form of loan taken our for the purpose of purchasing a property.

Typical characteristics

A typical mortgage is:

• advanced up to a maximum percentage of the property value (so, if it’s a £100,000 property and the lender only advances up to 80% then the maximum mortgage you’ll obtain is £80,000);
• secured against title to the property – in other words, if you don’t keep up the repayments your lender may force you to sell the house so as to recover their loan plus charges;
• calculated based upon your income and ability to pay – so in the above example you would not be able to borrow £80,000 even if it was 80% unless you had income sufficient to meet the monthly repayments;
• repaid over a number of years, depending upon your requirements and your age/earnings.

Qualifications and risk

Although not necessarily always the case, you may have some trouble obtaining a mortgage if:

• you are unable to raise a deposit equivalent to perhaps 5-20% of the purchase price depending upon the lenders’ policies at the time you apply;
• are looking at a property that is defined as high-risk (e.g. in an ex-mining area known for subsidence);
• do not have a good professional building survey report to support your loan application;
• are not in recognisable employment and receiving a regular and predictable income.

Mortgages were at one time almost exclusively provided by banks and building societies but many financial services companies now offer them.

How to clean up your credit profile when applying for a mortgage

In order to maximize your ability to get the best interest rate possible, you need to know how to clean up your credit profile when applying for a mortgage. Improving your credit rating can make a tremendous difference in your ability to get a good interest rate and good terms on a mortgage. Your credit profile is the picture of your credit risk used by lenders to determine your likelihood of repaying a loan. There are some simple things that you can do, even in the waning moments before buying a home, to clean up your credit profile.

First, check your credit file for anomalies. There are actually three main credit agencies that are commonly used by lenders and other entities who want to know your credit rating. The items in your credit, such as your loan balances, repayment history, late payments, and other factors are reported on and updated by creditors you have been involved with. Some creditors are more prompt than others at updating records. Additionally, there are mistakes that do occur. Perhaps a false late payment was reported. Maybe there are loan balances still showing on your credit profile that you no longer have. It is important for anyone wanting to get the best mortgage rate to be sure to check your credit to make sure you are getting the rate you deserve.

Another important and often overlooked factor that contributes to your credit score is your placement on the electoral roll. To some people, properly registering to vote is more of a political and civic responsibility. However, lenders want to be sure, just as you do, that your credit profile is accurate and up to date. This means that it shows your current address and provides proof that your profile is current. The three credit agencies purchase the updated lists of the electoral role at the end of each year to create the current snapshot for your profile. Some lenders will decline a mortgage application simply because the applicant is not listed on the current electoral role. Their feeling is that your credit profile may not be current if you are not on the role.

The most important thing to keep in mind is that the credit reporting process is not without flaws. Although it serves as a fairly reliable method for creditors to assess your credit risk, there is potential for errors in reporting. Ultimately, you want to get the full benefit of the work you have performed in establishing good credit. A good general rule is to take a look at your credit report at least once a year and make sure that all of the information is accurate and current.

Remember these key points to understand how to clean up your credit profile when applying for a mortgage:

• Check your file for anomalies
• Make sure all of your information is accurate and updated
• Make sure you are on the electoral role as lender’s consider this factor