Gone are the days when preparing for your first mortgage involved opening a savings account, putting money aside each month and desperately hoping house prices didn’t grow too much.
Today, with so many challenges facing potential first-time buyers, anyone who wants to become a homeowner is required to be even more proactive.
Whether it’s looking for the most suitable government scheme, building up an exemplary credit score or finding ways to maximise your deposit, there’s a lot of things to look into when starting your homebuying quest.
Fortunately, for anyone who has no idea where to start, there are online services and apps which offer budding first-time buyers access to vital information about themselves and lenders’ requirements to help ‘coach’ them into being a model mortgage applicant.
You may be forgiven for thinking getting ‘mortgage ready’ in preparation for buying your first home has become a bit like getting ‘beach ready’ before your summer holiday.
For these apps and online services all offer ways to get ‘financially fit’ by boosting your credit score thus getting you into shape in readiness for the biggest financial commitment of your life.
How to get ‘mortgage fit’
Digital mortgage broker, Mojo, is one firm offering first-time buyers access to an online service which helps them get onto the property ladder.
Its product, MortgageScore, is a free service which allows homebuyers to assess how likely they are to get a mortgage.
It’s powered by open banking – a revolutionary way for providers to access all your financial information (with your permission) to assess your incomings and outgoings. Credit rating agency, Credit Kudos, is providing the technology behind this part of the process.
Individuals get scored out of 1,000 and then, if they don’t hit the mark, instead of being sent packing they receive advice and coaching on what they need to do improve this score.
The score is calculated using a variety of factors including credit profile, employment history and spending habits. It also looks at how much deposit the user has saved so far as well as income – all the things lenders look at when assessing an application for a mortgage.
Crucially, it helps potential buyers understand their eligibility and how they will be perceived by mortgage lenders before they apply.
Richard Hayes, who is CEO and co-founder of Mojo Mortgages, thinks there are already many challenges facing first-time buyers from property inflation to high rents and the rising cost of living.
But the lack of any kind of transparency about how mortgage applications are assessed simply adds another hurdle.
“When first-time buyers are rejected for a mortgage, in many cases, they aren’t given a reason as to why,” he explained.
“There’s a serious lack of transparency in the market, and if young people knew lenders would assess their disposable income, they would probably take steps to boost it in order to be accepted for a mortgage.”
Digging deeper
Firms like Credit Karma are doing similar work, although not exclusively for first-time buyers. Its aim is also to educate people and guide them to become better borrowers by providing personalised information and actionable steps.
Via its website or app, people can see their credit score broken down into eight main ‘credit factors’ including payment history, time on the electoral roll and the age of any credit.
It assesses each area and offers advice on how to make improvements. For example, one area it looks at is ‘credit utilisation’ which refers how much of your credit limit you have used on your credit card.
It explains how people borrowing between 1% to 24% of their available credit will be considered favourably by lenders. But anything over 75% can start to harm your credit score.
Nichole Mustard, co-founder and chief revenue officer of Credit Karma claimed it provided a high level of transparency compared to its competitors in the credit report world.
“We’re helping members understand what they can do to improve their situation and get more out of their financial lives,” she said.
Homebuying help
FirstHomeCoach is another ‘digital coach’ which supports people buying their first home through the whole process not just saving for a deposit and taking out a mortgage. It does this by connecting them with products and services which are relevant to their situation.
It can advise on the best savings scheme, help them with the house hunting process or find a solicitor – the service acts a bit like a personal coach, guiding people through the process.
Whatever digital solution you use to help you improve your credit score and boost your savings, it’s a good idea to speak to a professional mortgage adviser if you have any questions or concerns.
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How I applied for a mortgage online…
The rise of the digital mortgage broker and lender also means borrowers can now use their mobile phone to take out their mortgage, if they wish.
Going digital to get a mortgage may not be everyone’s cup of tea – after all who wants to make the biggest purchase of their life over WiFi using chatbots?
Even for Jack Watson (pictured, right), a 22-year paramedic, who runs a business in the digital space, there were some initial qualms.
“In my spare time, I run a freelance website design and marketing business called Wattage Media,” he explained, “so I’m normally a big advocate of all things digital.
“However because a mortgage is such a big, financial commitment, I needed to be sure that I could trust an online broker.”
Homeownership had always been important to Jack. After learning to drive and owning a car his next main aim was to save enough for a deposit to get on the property ladder.
Regular savings
“Saving for a house was a bit of bigger task than saving for a car,” he said, “so I opened a Help to Buy ISA after hearing about them from a friend.”
“I set up a direct debit to put the maximum monthly amount into the ISA, and even moved the maximum amount I could from my existing ISA – it made sense to cash in on those government bonuses.
“Once this started ticking over, I actually got to my deposit amount much quicker than I thought I would.”
First off, Jack made an appointment with an estate agent’s mortgage broker to arrange his loan. “I just wanted a rough idea of my borrowing potential – luckily it was quite a bit more than I thought was possible,” he said.
Indeed, although he had been saving for a 10% deposit, he discovered he could take out a mortgage with a smaller 5% deposit. With this knowledge, things began to move quite quickly.
Although Jack had initial discussions with the estate agent’s broker, he decided – in the end – to proceed with Mojo Mortgages, which is an online broker.
This was partly because he found them easier to deal with than a traditional broker. “It can be a little embarrassing,” he laughed, “when you’re face-to-face with a traditional broker and they point out that Greggs and KFC keep making regular appearances on your bank statement! With Mojo, this is all done behind the scenes.”
There was another incentive for going online – the in-branch mortgage adviser at the estate agent charged £750 for advising Jack, whilst Mojo was free. Jack said they were upfront about their fees, explaining they received a fee from their lender
Balance
The initial fact find was done via the website, something Jack said made the process quicker and easier. However, Mojo then put him in touch with a broker and an application success manager so he was able to benefit from speaking to a human being to answer his questions.
Jack said: “I’m sure there is lots of automation and technical processes behind the scenes, but as the customer I didn’t once feel like technology was the one arranging my mortgage, in replacement of a real person.”
Jack had the direct phone number for his contacts at the broker and he also received weekly texts. He said Mojo actually chased his estate agent and solicitor on several occasions, unprompted.
Jack now owns a £196,000 two-bed apartment in Liverpool city centre, which he bought with a 5% deposit and the mortgage.
He added: “The mortgage plus monthly service charge on my new two-bed flat costs the same as I used to pay in monthly rent!”
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Very good information on digital online mortgages for First Time buyer