Mortgage prospects aren’t too good for borrowers with even a small amount of adverse credit, such as being late with credit card payments, either.
‘Before the credit crunch someone who had only come out of bankruptcy the day before could get a mortgage as long as they had a 15 per cent deposit,’ says Boulger. ‘Many lenders have reduced the amount they will lend for any given income, despite interest rates falling, and they will often require a higher credit score before offering a mortgage.’
Plus lenders are now more likely to want to see bank statements for three months instead of one month. The advice is to do all you can to improve your credit rating before you make a mortgage application such as ensuring you pay credit card, loan repayments, rent and any existing mortgage repayments on time. Check out your credit file using www.creditexpert.co.uk.
First-time buyers and people who are looking to remortgage will also have to budget for the hike in arrangement fees. For instance, Lloyds has introduced a two-year deal fixed at 4.89 per cent for borrowers with a 40 per cent deposit saved up, but the sting in the tail is the £1,995 fee you’ll have to stump up for.
Most arrangement fees tend to be £499, £599 or £999 but there are some nil fees and others with fees around £2,000, says Ray Boulger. ‘As a general rule, a mortgage with a big flat fee or no fee but a higher rate will be better for a small mortgage. The smaller the mortgage the more important the fees, not only the arrangment fees but any valuation and legal fees, as they will represent a bigger percentage of the small mortgage. For example, a £999 fee is two per cent of a £50,000 loan but only 0.2 per cent of a £500,000 mortgage.
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