These are challenging times and can be quite daunting. The coronavirus pandemic has brought radical changes to our normal lifestyle, concern for loved ones and added stresses to life in general.
Here at FOCUS we want to maintain a positive message of hope and endurance. We are putting together a series of articles to help you stay financially resilient in the current climate, as well as some extra education surrounding the financial industry.
In this post, we look at the topic of buying your first home. This guides you through the steps to get yourself mortgage ready, so that when social restrictions are lifted you have everything you need to get out there and purchase your dream home.
This is key for stress-free house buying. There is a saying in the world of property purchase that the most stressful things in life are births, marriages, divorces and buying a home. However this doesn’t have to be the case if you organise your approach, starting with getting your finances and documents in order. During the mortgage application process you will be asked to provide documents such as bank statements, pay slips, P60’s and ID. Making sure your personal documents are easily accessible beforehand is going to save you a huge amount of headache in the long run.
2) Know your budget
Mortgage advisers will always go through a tool called a ‘budget planner’ with you. But a budget is so much more important than knowing what your monthly direct debits are. A good household budget not only lets you know where your money is going every month, but using one also allows you to understand your monthly spending habits. In trying times where financial difficulty can be a real concern, a monthly budget gives you the overview of your spending you need to help you make any necessary reductions in your spending.
The best way to start a household budget is go through the monthly transactions on your bank accounts. You can then break down transactions into different categories. Mortgage advisers tend to split transactions into categories based on necessity. So for instance, your rent or mortgage, council tax and utilities would be the most essential, with things like spending money, magazine subscriptions and one off spends at the other end of the scale. How many levels you have and where you place the importance of each spending area is entirely up to you. This exercise will not only let you know exactly where your money is going, but also gives you a realistic look at what you can afford and are willing to spend when it comes to a new mortgage payment.
There are apps and tools available to help with this – The Money Advice Service provide a free Budget Planner.
3) Understand your spending habits
Once you have completed a budget, you will have a much better understanding of your spending habits, whether this be splashing out on treats, ordering takeaways, or playing the lottery every week. Knowing where you can trim your finances, as well as recognising less than useful habits is incredibly valuable when trying to get mortgage ready.
Regular spending is considered essentially that by mortgage lenders, but there are a few things to be aware of when assessing your finances for a mortgage.
- Gambling – whilst the occasional bet is unlikely to affect your ability to get a mortgage, if you are regularly gambling this may be questioned by lenders, especially if what you gamble takes up a significant proportion of your free cash every month. Gambling opportunities have changed significantly over the years and online poker and bingo subscriptions now fall into this category.
- Regularly overspending, i.e. spending more than you bring in every month, may cause you to rely on credit cards, overdrafts and other forms of credit. Of course, having and using a credit card does not end your chances of getting a mortgage, and in fact can help with your credit scoring if the card and repayments are well managed. However, a pattern of regular over-spending and relying on credit, especially credit with interest, may harm your chances with some lenders.
Knowing your habits is essential, not only to maintaining your financial health, but also in an environment where you might need to cut your spending, or even help you cut your finances to remain healthy or use the extra to over pay your mortgage or other debts.
4) Ace your credit rating
There is a wealth of blogs, information sites and advice from the Government on how to find out and improve your credit score. Many credit score companies and websites offer a free service so that you can view your score and get advice on improving it. But there are little things you can do to ensure that when it comes time to apply for a mortgage your credit score is at its best.
- Make sure you are registered to vote at the correct address – this is something we often forget to do when we move. As your electoral roll data is linked to your credit score, making sure you are registered to vote at the right address aids the health of your score.
- Checking how many credit searches you have had – over time it’s likely you will have applied for credit, such as credit cards, personal loans or even vehicle finance, or used a service that requires a footprint search on your credit record. But a high number of hard searches on your credit report that leave a record (compared to a soft search which does not affect your score) can lead your credit score to fall, and can also be seen as a bad credit habit if you are regularly needing to apply for credit.
- Checking for missed or late payments – another reason for keeping an eye on your credit score is to ensure you have not missed or had any late payments in the past. Sometimes your credit score can even alert you to issues you were not aware of, for instance a default for a late payment you may have forgotten to make, even to a County Court Judgement being placed on an unpaid parking fine. Whilst these scenarios are very uncommon, it’s worth keeping an eye on your credit report to maintain financial health.
5) Know what you owe
Knowing how much credit you have, and what you are paying every month can be invaluable when looking to buy a new home. Whether this is so you can look to overpay on existing debts to clear them before you apply for a new mortgage or knowing how long it will take you to repay your debts will help with future financial planning. It will also help you identify credit or loan agreements that have an fixed period of interest that may change at the end of the initial term.
6) Get an idea of your what you can borrow and start looking
Whilst the coronavirus pandemic means that the mortgage market is effectively at a standstill right now, many financial advisers, solicitors and mortgage advisers are still operating business as usual – albeit remotely. Speaking to a qualified mortgage adviser to get an idea of what you can borrow so that you can start looking at properties online is still possible. Whilst the current Government advice prevents you from physically viewing these properties you may still be able to make general enquiries about any properties you like the look of and understand what you can afford to buy. This means when the life returns to normal and the property market is ready to open up, you are ready to go!
Taking these steps to learn about your financial habits and well-being can be incredibly useful, regardless if you’re planning on applying for a mortgage or not. Hopefully these steps will be useful way to spend some of your time whilst at home and stand you in good stead for the future.
Stay safe and well.
The FOCUS Team
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.