Re-mortgaging can be as hard as getting a mortgage in the first place
First-time buyers in Stafford who took advantage of £2 million of council funding to help them get on the property ladder are now settling into their new homes.
Stafford Borough Council was one of the first local authorities in the country to invest in the Lloyds TSB Local Lend a Hand scheme to help would-be purchasers, when it launched the initiative last November.
Under the scheme buyers have to raise a deposit of just 5 per cent to obtain a mortgage of up to £135,000 from the bank, with the council's funding providing additional security.
Emily Astles, 25, is among one of the first people in Stafford to purchase a new home through the scheme.
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She said: “I had been looking to buy my first home for about a year, when my parents read about the scheme in their local paper and recommended I investigate it. I had already seen the house I wanted to buy in the centre of Stafford, and the lady selling the house also mentioned Local Lend a Hand to me. I immediately made an appointment with Lloyds TSB to find out more and they couldn’t have been more helpful."
She added: “I moved into my new home this month, and am so happy I heard about this scheme. Not only did it significantly reduce the amount of deposit I needed, it also gave me access to a lower interest rate, making my monthly mortgage repayments more affordable. Thanks to the Lend a Hand scheme I now own my first home, which wouldn’t have been possible if I didn’t have this support.”
At 25, Emily is bucking the trend among the nation's would-be first-time buyers, who predict they will be 35 before they can make their first purchase, according to a survey for Post Office Mortgages.
Nearly half (47 per cent) said the deposit was the biggest obstacle as it would take them 10 years or more to save up.
Speaking on the Lend a Hand scheme, Councillor Ken Williamson, Cabinet Member for Resources at Stafford Borough Council, said: “Our aim was to help people who may not have enough money for a deposit - or do not have the bank of mum and dad to help them out - get on the property ladder. I am sure everyone remembers how they felt to be given the keys to their first home, so I am really pleased to hear that we have helped make that happen.”
Those interested in the Stafford scheme should visit their local branch of Lloyds TSB for more information.
It’s not only first-time buyers who can struggle to make themselves eligible for mortgages. Homeowners coming to the end of their deals can also find it tough to qualify for the latest and cheapest deals when it comes to remortgaging.
Moneysupermarket has taken a look at some of the best deals currently available and how homeowners can give themselves the best possible chance of securing one.
Fixing in your rate
Interest rates have been held down again at 0.5 per cent, marking three and a half years of no change. But even the UK's leading economists don't know how long low interest rates will last - and with Santander announcing a 0.5 per cent hike to its Standard Variable Rate (SVR) to 4.74 per cent from October 3, now is not the time to rest on your laurels. So what's out there for homeowners looking to fix in their mortgage rate?
So long as you have 35 per cent equity in your home, First Direct has just launched a three-year fixed rate priced at just 2.74 per cent with a £1,499 fee. Not only is this the market-leading deal of its kind today, it's also the cheapest in the UK since 2007. If you prefer to fix in for a shorter two years, the same lender offers a rate of 2.64 per cent for a £1,999 fee at the same loan to value.
Post credit crunch, mortgage lenders can be extremely conservative when it comes to valuing your property - which they need to do to ascertain how much they will lend. So, even if the estate agent values your home at a figure that would give you a generous 30 per cent equity for example, for remortgaging purposes a bank or building society may calculate that you only have 10 per cent equity.
But there are still some cracking new deals out for higher loan to values. HSBC for example, has just launched the cheapest seven-year fixed rate mortgage in history, priced at 4.89 per cent in exchange for a relatively small booking fee of £599 and a 10 per cent down payment.
This is a deal that will probably best suit more settled homeowners as, if you want to redeem the mortgage before the seven years is up, you will need to cough up 1 per cent of the amount repaid for each year of the fixed rate period that still applies. In any case, applications must be received by October 14, so you'll need to get your skates on.
Taking a chance with a variable rate
The differentials between fixed and variable rates are now almost non-existent but there will be other reasons that a variable mortgage may suit you more than a fix. Providing you have 40 per cent equity in your home, HSBC is offering a lifetime tracker deal priced at 2.14 per cent over base rate for the term of the loan, for a £999 fee.
While the cost of your mortgage is directly linked to base rate (which is only likely to go up in the short to medium term) the mortgage comes with no early repayment charges - which means you can pack up and leave for a better deal at any time. However, bear in mind that lenders price their mortgages in advance of rate rises so the deals available at that point are highly unlikely to be as competitive as what's on offer today.
Qualifying for the best deals
This is all well and good but the best mortgage deals - whether on the current market or even in history - will be totally irrelevant if you can't qualify for them. And this is no easy feat.
Even five years on from the start of the credit crunch, banks and building societies continue to cherry-pick their customers with extreme care. They are under no obligation to lend to you or even tell you the reasons why you have been turned down. But at least getting ahead of the game before making your application will stand you in the best stead possible. So what can you do?
Take extreme care over your application
Lenders are perfectly at ease with throwing out your application at the first hurdle, so don't give them more reason than they need. Make sure you are entirely accurate on your mortgage application form and don't leave any boxes blank. This means filling in all phone numbers, including a work and home landline number, as not only can you be more easily contactable, you will appear as a more solid candidate for borrowing.
If you are not registered on the electoral role at your current address, get this done in advance of making your application by contacting your local authority.
Get on top of your credit score
Your credit score is absolutely paramount when applying for a mortgage - and the better the deal, the cleaner it will need to be. Ordering a copy of your credit report will enable you to see exactly what the lender does when making its assessment.
It's your legal right to get a copy of your basic statutory report so the fee is just administrational at £2 - but if you are looking for something more detailed that you can regularly access, sign up to an online service with one of the credit reference agencies such as Experian or Equifax. You can compare providers, packages and prices at MoneySupermarket's credit report channel.
If you spot a mistake on your credit file get it corrected as soon as possible with a Notice of Correction. This is free of charge and lenders are legally obliged to consider your comments.
Hold off your application if you are new to your job
Lenders will generally want to see that you have been in your job for at least three months but others might require six months of pay slips. If you are relatively new in your role or have recently switched from self-employment, holding off a few months before making your remortgage application could pay dividends.
Don't overestimate what you can borrow
Going in guns-blazing with hefty borrowing requirements could backfire as the lender might then even be put off a second application for a revised smaller amount. As already mentioned, bear in mind that lenders' valuation may differ widely from an estate agent's who is touting for your business - so err on the side of caution.
Seek out free advice
Certainly if your circumstances have changed since your last mortgage application, it's worthwhile getting some independent advice on your remortgage. You don't have to pay for this - just call MoneySupermarket's mortgage broker partner, London & Country on 0844 209 8725.
Please note: Any rates or deals mentioned in this article were available at the time of writing.