Five financial choices that could dent your mortgage chances
Applying for a mortgage can stressful. Although there is plenty of information on what the process involves, you might not know some of the pitfalls to avoid if you want to get your finances in top shape before making an application.
Karina Hutchins, head of broker Home by OpenMoney has shared her tips to ensure that your mortgage application looks as favourable as possible to lenders, including some things to avoid that lenders see as ‘risky’.
1. Car finance
It’s very easy to be fooled by car finance, as many don’t see this as debt – when in fact, it is. It can really impact your affordability and is something that lenders look at and take into consideration. The way it’s recorded on a credit report can be damaging, as providers include the balloon payment within the debt figure. Although you may never need to pay this debt, lenders will see it as debt and take this into account when making a decision on their figures.
2. Buy Now Pay Later schemes
Similarly to car finance, many people choose to use Buy Now Pay Later schemes on a frequent basis and again don’t consider this as debt. A study by OpenMoney found that almost one in five Brits wouldn’t class these schemes as debt.
Advice differs per lender, but there have been cases where first time buyers’ applications have been rejected due to the use of these schemes which show up on bank statements. It can give the impression that you are ‘living beyond your means’, which can be a worry for any lender.
3. Childcare costs
Childcare costs can be extortionate and can affect your income versus your outgoings – something which lenders look closely at. It’s important to always make the most of any Government schemes or workplace incentives to give you discounts on childcare. Think about ways to reduce childcare costs such as working from home if possible.
4. Only using a debit card
Surprisingly, for many lenders it is better to have debt on a credit card and meet the minimum payment requirements each month than live in your overdraft.
Being in your overdraft could mean your application is declined if it’s more than your salary and you’re constantly ‘in the red’. However, if you have the same amount on a credit card and you’re meeting the minimum payments, most lenders are okay with this. For larger payments, it’s worth bearing this in mind, and putting them on your credit card instead.
5. Switching to and from bank accounts
Don’t switch between banks three to six months before applying for a mortgage. Although banks often entice us with incentives and cash bonuses, think through this logistically prior to changing. Lenders often want three months worth of consecutive bank statements, which could prove a nightmare if you haven’t long been with your bank.