New lending rules means the banks have more excuses than ever to turn down home-loan customers. We explain how to avoid being caught out.
The housing market is booming and mortgage lending has reached its highest level since the start of the financial crisis.
But despite this, it can still be difficult to get a home loan.
One consequence of the credit crunch was that banks and building societies suddenly became much more picky about who they lent to.
Things are not quite as bad today as they were in 2008, say, but overall the approach is still very cautious.
To make matters worse for potential homebuyers, earlier this year new rules, known as the Mortgage Market Review (MMR), were introduced, which force lenders to put each application under even greater scrutiny.
So what could stand in the way of you getting a mortgage?
1. You've got expensive tastes
In the past, a lender would look at your income and the deposit you'd saved up when assessing your suitability for a mortgage, as well as your debts and fixed outgoings such as rent, utilities and council tax. Now, your everyday spending is also likely come under the microscope. Chris Duder, associate at mortgage broker Anderson Harris, says: "It is not just committed expenditure that banks now check: they are also being more stringent on discretionary spending. Wine subscriptions, buying a lot of steak or rounds at the pub and gambling are big problems. Because they check back so far in your bank statements, it is wise to cut out a lot of discretionary spending at least six months before you apply for a mortgage."
2. You've got children
Lenders will also look closely at the costs associated with raising children. Even if your son or daughter is just a few months old, the bank will be aware that you might soon have to start paying for nursery care or a childminder. If you privately educate your children, this can also impact how much you can borrow. "School fees can be a massive expenditure, and while some lenders didn't regard them as a commitment in the past, since the MMR they have changed their position," Duder adds.
3. You're not on the electoral roll
When a bank checks your credit report, it will also look at whether you are registered to vote at your current address - this helps tackle fraud and it could make the difference between being accepted for a mortgage or not. Find out how to get on the electoral roll here.
4. You've taken out a payday loan
Short-term credit such as payday loans can be very expensive, and can be a sign that mainstream lenders have turned you down.
David Hollingworth at broker London & Country says: "Lenders take a dim view of payday loans. Some, like Principality and Kensington, will not accept applications where they have been used recently.
"Habitual use of payday loans does not give the picture of stable monthly budgeting that lenders are looking for."
5. You've never had a credit card or loan
Conversely, if you have never had any form of credit you could also lose out, Hollingworth says. "Having credit is not a bad thing as long as it is conducted well. In fact having no credit can work against the borrower as the lender has little information to base their decision on."
6. Your parents have given you your deposit
The bigger the deposit you can put down, the more you should be able to borrow. But Duder at Anderson Harris says that some banks are now examining where deposit cash has come from. "For example, the lender asked one client for dated proof of gift payments from his family, to double check in case there could be a tax problem later on," he says. If a family member dies within seven years of making a cash gift, inheritance tax (IHT) may be charged at up to 40%.
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