Top 5 Mortgage Tips that Make Me Cringe

May 15, 2023

5 worst mortgage tips that make me cringe and/or throw office stationary around in a mortgage rage. Strap in!

 

  1. Pay off your debt. Yea, maybe. But also, maybe not… I must speak to a client a week where, if they paid off some, or even all of their debt, it wouldn’t increase their potential mortgage borrowing. One. Single. Penny. This is because many lenders have a built in ‘tolerance’ for debt. Especially the more generous lenders on the market. So for example, if you are a first time buyer, struggling to buy in your desired area, and you use up £10k of your funds to pay off a loan….you guessed it! You have reduced what could be your deposit by £10k to pay off the debt, but your mortgage hasn’t increased. The net effect is that you have just reduced your achievable property price by £10k. Top tip eh. The real tip here is to get advice BEFORE you pay anything off to weigh up the pros and cons of doing so, not just paying off your debt because some crap mortgage broker, posted a one-size-fits-all tip to do so. As with most things in life, the answer is “it depends”!
  2. “Lenders will only use net income for self-employed”. This, in particular is b*llocks. If you are a self-employed contractor, such as a CIS contractor or a fixed term contractor (outside of IR35), heck, even LTD company directors can use company profit before corporation tax (so net of expenses but gross of taxes) with certain lenders. You can absolutely use gross income for self employed in the right circumstances.
  3. “You need at least one year’s accounts or SA302’s if self employed”. Again b*llocks, see point 2. If you are a self-employed contractor, some lenders use the gross income on the contracts aaaaaand again you have guessed it quicker than a mortgage Youtuber, you don’t need to have been self-employed for one year. With certain lenders, you can get a mortgage as soon as you are self-employed.
  4. “Don’t take a 5 year fix right now”. The previous “tips” make me throw staplers, but this one gets the bloody printer. I have heard mortgage brokers say things like “I recommend 2 year fixes. They are more expensive than longer fixed rates, that’s only because lenders know rates will come down” or words to that effect. Are those the same lenders that were running scared after the mini budget, panicked and tripled the rates in a month?! NO ONE can predict the future, most of all someone who’s professional qualifications amount to a certificate in practicing mortgages (by definition I am included in that statement). I can think of numerous reasons why someone might still take a 5 year fix, even if rates will come down in the future. Here’s one: Couple getting a mortgage, applicant two is studying for the next 5 years, but will likely exit into a well-paid job. For those 5 years in the middle, things are incredibly tight financially, so any risk of rates rising by even a small measure above a certain point means the mortgage would become unaffordable, yet they can afford the 5 year fix available now. The 5 year fix comes with cons, but so does every mortgage product. In that example it is easy to see how for some clients, the pros of it outweigh the cons. As always “it depends”; the right mortgage product is different for everyone. If your mortgage broker claims they won’t, or worse, will only recommend a certain type of mortgage product, they aren’t a mortgage broker, they are an idiot.
  5. Increase your credit score. Of course a higher credit score is never going to harm a mortgage application. But lenders simply don’t use the score on your report! (with the exception of one very niche adverse lender I can think of, off the top of my head). Think of it like this, if a lender directly used the credit score on your report, you wouldn’t need to run a credit check with a lender, to know if you would be accepted. Lenders could instead just have a minimum credit score and if your score on your credit report is below that number, you wouldn’t apply, because your score isn’t high enough…Right?! Here’s what really happens (at least what I guess happens after arranging mortgages for 15 years). Lenders use the data (which shows your history of how you have managed your debts). They use it in two ways. Firstly, does the data on your report meet their baseline criteria. For example, if you had a missed mortgage payment two months ago and their criteria doesn’t allow any in the last 12 months, you won’t pass the checks. Simples. Secondly, they run the data on your report through their own credit scoring process, which applies positive points to things they think are good and deduct points for things they think are bad. This process creates the lender’s own internal score. This is done entirely in the background inside a computer system, that no one gets to see. That’s why the only way to know if you will pass a lenders mortgage credit check is to firstly, check your credit report meets their baseline criteria run the check (AKA “decision in principle” or “DIP”). If it doesn’t, don’t bother (unless you have agreed something outside of policy). Secondly, run the lenders credit check (DIP), where all you can do it see if it passes. Anyway, the upshot of this is not to worry about increasing your credit score at all, you very well may be eligible for a mortgage now even if your credit score isn’t in the 900’s. Speak to a broker who can quickly check huge chunks of the market, rather than going to each one individually. “

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Steven Morris – Advising Director

CeMAP CeRER

 

Steve loves a complex mortgage. Most recently he has used his technical geekery to work his way up through Which? Mortgage Advisers, progressing to Senior Adviser and then Onboarding Manager. There, he was responsible for hiring, training and managing new advisers.

He also ran the monthly new starter inductions and wrote and maintained the telephony advice standards of the company. Outside of work Steve can be found coaching and being run ragged by his local under 10’s rugby team, Bristol Harlequins RFC.

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