With signs of life returning to the property market, mortgages are back on the agenda again. According to the Council of Mortgage Lenders, at the end of last year mortgage lending was up 49% from the end of 2012.
However, while tens of thousands of people finally have the chance to move home, there are others who fall at the first hurdle - because they can't get a mortgage. So what can they do?
Why?There are a number of reasons why you might be turned down for a mortgage. If you have been refused a loan, it's worth talking to the lender you approached and asking where you fell short. They may not be willing to give much detail, but will tell you broadly what problems your application faced.
It may be that your income just isn't enough to support the purchase. If your income is too low then lenders will think you cannot afford the monthly repayments, so will turn you down automatically. If this is the case, you will have to reconsider the sort of property you want to buy. You may need a smaller property or a cheaper area in order to borrow less. Alternatively you could opt for a shared ownership scheme, where you buy a portion of the property and pay rent on the rest.
If you haven't saved this amount, you can turn to the help-to-buy scheme which will help if you have a 5% deposit. Alternatively you can consider a guarantor mortgage, where someone else guarantees to meet the payments if you are unable to.
You may be rejected if you are self-employed. Typically it can be harder to get a mortgage if you are in this position. However, if you have at least two years' tax statements or company accounts and ideally some reassurance that you can continue to earn similar sums in future, then specialist lenders will be happier to take you on. It may be a question of using a broker who has experience of securing mortgages for self-employed people.
Credit reportBut when the rejection comes completely out of the blue, it's often because of a problem with your credit score. The only way to be certain is to check your credit report from an organisation like Experian. Lenders all have different criteria, but they all use the same credit report, so whatever they object to will be in here.
There are a number of things that all lenders dislike. If you have been late paying important bills in the past it will raise concerns that you may not be able to pay your mortgage either. Nowadays rent payments and utility bills are included in reports, so if you have a poor payment record, it could be to blame.
The good news is that lenders pay more attention to your most recent behaviour. So if this is the problem, you need to focus on keeping up-to-date with your bills and building a solid record of recent payments, to increase your appeal.
Lenders are also concerned if you have a Country Court Judgment against you. You'll get one of these if you have a long-standing debt, and the person you owe money to goes to court to try to force you to pay. If you don't respond to the court, you will receive a CCJ - which means the court has decided in your absence that you need to pay the money.
If you can show that you don't owe the money, you can apply to the court to have them 'set aside' the judgment. Otherwise it will be on your credit record for six years.
Lenders will not like it if you're not on the electoral register, because they like to see evidence of where you are living, and security of tenure. This is simple to arrange, and doesn't cost you anything.
DebtThere are also a number of potential issues related to other kinds of borrowing. Some lenders will score you poorly if you have taken out a payday loan, because they feel this is a sign that you are sailing too close to the wind financially.
Others will be concerned if you are borrowed up to the max on things like your credit card and overdraft. They may feel that you don't have any leeway if something was to go awry. If this is the case, then it's worth paying down as many of these debts as you can, to give lenders the reassurance that you have your borrowing under control.
Conversely they may be worried if you have never borrowed before, because they don't have any record of you paying debt back when you are supposed to. If this is the case, it may be worth getting a 'credit builder' credit card, and paying the bill in full every month, to show you can pay debt responsibly.
In some instances you will have done nothing wrong, and the problem lies in a mistake on your report, or fraud. In these circumstances you can contact Experian and they will work with the organisation responsible to ensure that anything inaccurate is removed. Likewise if your report links you with someone you no longer have any financial connection to, you can have this link removed.
If there's something untoward on your report and there were mitigating circumstances, then you can add a note to explain the circumstances: lenders will take these notes into consideration.
In many cases, taking the right steps will mean that you will be able to get a mortgage. In some cases you will not be able to change enough in order to make you attractive to a mainstream lender, but there may well be some specialist mortgages available to you - although they will tend to have a higher rate of interest.
You may be kicking yourself for not securing a mortgage back in the days before 2007 when getting a mortgage was easier. However, even in the current environment, with the right approach, you should still be able take advantage of the improving property market.