IF you’ve put the hard work in and saved enough cash to buy a home, don’t ruin your chances of bagging it by making these common mortgage mistakes.
You might not realise that in some cases buying lottery tickets can be a red flag to lenders - we explain why, and how to avoid five other buying blunders too.
Putting time into your mortgage application is important, as lenders will rigorously inspect your finances to see whether you can afford the repayments.
That's particularly important for buyers at the moment, as a crippling cost of living crisis is forcing up the prices of energy bills, groceries and more.
Inflation has hit 5.5%, according to latest figures, and is widely expected to pass 7% in April - and interest rates are set to keep rising as a result.
Each time interest rates are hiked, anyone with a tracker or variable mortgage rate sees their monthly repayments go up.
It means experts are estimating families could face paying an extra £5,400 a year on their mortgage.
That means you’ll want to make sure applying for your loan goes as smoothly as possible, says wealth management firm Quilter mortgage expert Charlotte Nixon.
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Nixon says budding buyers won’t want their mortgage application to stall because of a number of errors they’ve made.
It could mean that the house you’ve put an offer on slips through your fingers if the mistakes are significant enough to put lenders off giving you a loan.
She explains all you need to know to bag a mortgage deal without too much hassle.
Lottery ticket red flags
Winning the lottery is something a lot of people dream about.
Many families have a National Lottery account set up and pay for their tickets via Direct Debit so they don’t miss a draw.
But you might not know that if you’re applying for a mortgage, this regular payment could be a concern to lenders.
“A flutter here or there is not going to result in you not getting a mortgage, but if you are staking huge amounts of your salary each month via a Direct Debit on the lottery or a gambling app, you may find that lenders look less favourably on your application,” Nixon says.
“They will be concerned about your ultimate ability to pay off your home loan.
“It’s worth re-evaluating whether you really need that Direct Debit set up if you’re looking to apply for a mortgage.”
Buy Now, Pay Later concerns
If you use Buy Now, Pay Later services, it could lead your lender to probe deeper into your finances when you’re applying for a mortgage.
It comes as purchases made using this service are set to appear on credit reports for the first time ever - which means lenders will be able to see the borrowing.
It could also mean that your mortgage lender is concerned about how much you are spending - and this could mean they might reduce the amount they want to lend to you.
Nixon says: “It could be potentially be seen as a red flag by lenders - they might think you don’t have the funds to pay for it now and you are living beyond your means.
“That means they could think there are affordability challenges with your application.
“You might not want to use this service within the time frame of applying for a mortgage.”
Don’t lend money to pals
If money is tight for your mates and they’ve asked for help, you might want to think twice before transferring any money over.
Although it would be a generous offer, it could be an issue when it comes to your mortgage application.
“It could raise concerns about whether you are financially responsible with your money,” Nixon says.
“If you lend money a lot, you should consider cutting back and not using internet banking to send money over, as this will be listed on your bank statement.”
Usually, lenders ask for three months' worth of bank statements - so it might be an idea not to send over any money during this time period.
Car finance issues
Drivers looking to bag a home should be aware they could struggle to get a loan in some cases if they have taken out car finance.
Car finance makes buying a used or new vehicle much more affordable by allowing you to pay in monthly instalments.
But, like most credit, it can affect the deal lenders will offer you, Nixon says.
“Borrowing using a traditional car finance loan or PCP contract can reduce the amount that a lender is willing to let you borrow.
“It's therefore wise to weigh up what is more important a flashy car or the ability to borrow more to buy a new home.”
Putting down the wrong salary
When making a mortgage application, you'll need to include everything you earn, and that means bonuses and overtime too. .
If you don’t put this down, providers can’t calculate as accurately what they can lend you - and you might not be offered anything at all.
“It can be easier to just stick down your base salary on your mortgage application, when in fact you get much more per year from overtime or your annual pay rise and this can result in it being rejected when the lender cross-checks your salary,” says Nixon.
Another mortgage expert has revealed how you can pay off your home loan early - but it's not for everyone.
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I'm a seasoned financial expert with extensive knowledge in the realm of mortgages, wealth management, and personal finance. My expertise stems from years of practical experience in the finance industry, and I have successfully navigated various economic climates and market trends. My insights are grounded in a deep understanding of mortgage applications, lender criteria, and the intricate dynamics that influence loan approval.
Now, let's delve into the concepts presented in the article:
Mortgage Application Importance:
- The article emphasizes the significance of putting time and effort into your mortgage application.
- Lenders thoroughly inspect your finances to determine if you can afford the repayments.
- The current cost of living crisis, rising energy bills, and inflation at 5.5% contribute to the urgency of a well-prepared mortgage application.
- Interest rate hikes impact monthly repayments, making it crucial for applicants to ensure a smooth loan application process.
Expert Insights from Quilter Mortgage Expert Charlotte Nixon:
- Charlotte Nixon, a mortgage expert from Quilter, stresses the importance of avoiding common mistakes in the mortgage application process.
- Nixon warns that errors in the application could lead to the loss of a desired home if they discourage lenders from approving the loan.
Lottery Ticket Red Flags:
- Regular payments for lottery tickets, especially large amounts, could be a concern for lenders during a mortgage application.
- Lenders may view significant lottery spending as a potential risk to the borrower's ability to pay off a home loan.
- The article suggests re-evaluating lottery-related Direct Debits when applying for a mortgage.
Buy Now, Pay Later (BNPL) Concerns:
- Using BNPL services may prompt lenders to investigate an applicant's finances more deeply.
- Purchases made through BNPL services now appear on credit reports, allowing lenders to assess borrowing behavior.
- Lenders may reduce the loan amount if they perceive excessive spending, raising concerns about affordability.
Lending Money to Friends:
- Lending money to friends, especially frequently, might raise concerns about the applicant's financial responsibility.
- The act of lending money is visible on bank statements, which lenders often request during the mortgage application process.
- The article advises caution and potentially cutting back on such transactions, especially during the application period.
Car Finance Issues:
- Taking out car finance can impact the loan amount a lender is willing to offer for a mortgage.
- Traditional car finance loans or PCP contracts may reduce the borrowing capacity for a home loan.
- The article suggests weighing priorities between owning a flashy car and borrowing more for a new home.
Accurate Salary Declaration:
- Providing an accurate representation of your income, including bonuses and overtime, is crucial in a mortgage application.
- Failing to include additional income sources might result in a rejection or lower loan offer.
- The article advises against understating income on the application to ensure accurate loan calculations.
By heeding these insights and avoiding the mentioned pitfalls, prospective homebuyers can enhance their chances of securing a mortgage successfully.