Figures from the British Bankers’ Association yesterday showed 31,175 mortgages were approved last month — down six per cent on the same time last year and about half the level of a “normal” year.
“This latest data also makes a mockery of all the Government’s announcements and initiatives to help struggling buyers,” says Aaron Strutt, of broker Trinity Financial Group. “It is no surprise that neither the banks, nor potential borrowers are interested in overpaying a developer for a new flat, just because there is a ‘top-up’ loan available on supposedly favourable terms.”
What can buyers do about it?
Depends who you are. First-time buyers will need to take a capital repayment mortgage, so use an “affordability calculator” (available on most lenders’ websites) to work out how much you can pay each month. “Lenders have made improvements recently, so you may not need to raise as much of a deposit and you think,” says Strutt.
But for both first-time buyers and entrepreneurs, the problem isn’t just a lack of capital. “Most lenders ask self-employed borrowers for two years-worth of accounts and with so many new start-up firms and companies’ profits being hit, many self-employed borrowers are struggling to get a mortgage,” says Strutt. “Lenders average self-employed accounts, so a poor trading year may well reduce the amount you can borrow.”
If that’s the case, a guarantor mortgage may be an option. These take into account another individual’s income - usually parents - as well as the buyer’s income, as long as the parents can still cover their own mortgage. To avoid tax complications the parents are not listed as owners. But they are liable for repayments and arrears. It’s also possible for them to guarantee just the extra portion of the mortgage above the amount covered by your income, and agree to cover repayments should you default or arrange an offset mortgage. This will use your parents’ savings to set off against your mortgage, reducing interest payments while allowing your parents access to the cash if necessary.
Whatever you are buying, clearing up your credit rating is crucial. Close any unused bank or mobile accounts and store cards, install a landline telephone, go on the electoral roll and always pay bills on time. Free trials from providers such as Experian and Equifax will let you check your rating - and clear up any mistakes - without paying a penny. “Some banks have blanket bans on borrowers with missed payments going back quite some time,” Strutt warns.