Five ways to avoid mortgage mishaps

Experian CreditExpert has advice for borrowers who have been turned down for a home loan.

The company’s research found applications for mortgages increased by 8.77 per cent in Q3 2013 compared with the same period last year.

This continued increase in the number of people taking out mortgages was fuelled in part by the government’s Help to Buy scheme but despite this increase, institutions are still turning down many applicants.

James Jones, head of consumer affairs, Experian, said: “Help to Buy has put homeownership on the immediate agenda for would-be first-time buyers who had expected to spend several more years saving for a deposit. That means they may not have been managing their finances, particularly their credit accounts, as carefully as they might.

“But a small deposit means lenders putting even greater stock in your credit score as a guide to how likely you are to meet your repayments, especially as small deposits mean high LTVs, stretching their affordability for young buyers in particular. Consequently, we are hearing from plenty of people with deposits who are being turned down for mortgages due in part to their credit score.”

Experian CreditExpert therefore has the following advice for would-be buyers who are turned down:

1. Don’t apply again until you know why you’ve been turned down. The lender should always be your first port of call as only they know the true reason. Be aware that every time you apply for credit a search footprint is registered on your credit report for 12 months. A large number of credit applications can, in conjunction with other information, suggest that you are panicking and desperate for finance. Your credit rating could suffer as a result.
2. Check your credit record to help you find out why and see if you can improve your credit rating for next time. 73 per cent of people who have been turned down for credit fail to do this. If it’s due to mis-management in the past – such as missed payments – checking your report will also let you see when these will drop off your report, letting you plan ahead.
3. Check everything is accurate and up to date. And query anything that isn’t. That includes addresses, whether you’re on the electoral roll, financial ties to people that may no longer exist, and accounts that you may have thought were closed.
4. Start to build a new credit record. If your score is low, start to remedy this. Set up direct debits to make all payments on time and think about using a credit builder card to buy your weekly groceries and then pay it off in full at the end of the month. That way you’re only spending money you would have ordinarily, aren’t incurring any interest – and are showing you can manage your credit.
5. And don’t panic. Remember: things will improve if you take action. Even if you’ve made late payments in the past, your credit history will eventually recover – they generally stretch back only six years. Lenders also tend to focus on your most recent credit history, so the most important thing is to start demonstrating that you’ve turned a new leaf.