Mortgage news for first-time buyers continues to be very discouraging. One of the latest examples of just how difficult things have become is TSB's launch of a first-time buyer mortgage deal... for 24 hours only.
The volume of applications for low-deposit mortgages is so high at this point that lenders are implementing narrow time windows to stem the flow of applications.
- Learn to secure the best mortgage rates as part of your house purchase
- Get the latest information on house prices 2020, whether you're buying or selling
Until now, however, the rate of mortgage approvals hasn't been reflecting the deepening mortgage crisis for first-time buyers. A report by Trading Economics shows that mortgage approval rates bounced back massively in July, to over 66,000. However, this is still below the pre-pandemic February approval levels of 73,700.
Moreover, the site's prediction for end of September mortgage approval rates suggests a 36 per cent fall from July levels, and the situation isn't likely to improve in the coming months, either.
These figures suggest that an increase in mortgage rejections and house sales falling through is inevitable between now and the end of the year. Mortgage rejections are tough on both buyers and sellers, with buyers needing to be especially cautious, because a mortgage rejection will have a negative impact on your credit score.
TIC Finance have some tips both for buyers are sellers on how to recover from a lost deal. TIC Finance financial advisor Paran Singh comments, 'While we may be enjoying a busy period of house sales, encountering complications within the sale chain can be immensely stressful and disruptive for all involved. It’s important to work with the people around you to ensure everybody can reach a satisfactory conclusion as quickly as possible.'
Sellers: how to ensure the house sale goes through
Patience, good communication, and attention to detail is crucial when selecting prospective buyers. While your estate agent should already be doing as much as they can to sift through the pool of buyers, under the current circumstances it pays to be extra thorough and ensuring you are not wasting your time on someone who is either not serious or won't get a mortgage.
1. Don’t rush
Feeling increased time pressure could result in unnecessary monetary losses. It’s much more beneficial to hold out for a buyer a little longer before dropping the price below the value.
2. Ask for proof of finances early
Before accepting an offer, make sure to ask for proof of finances, for example, bank statements or an agreement in principle to avoid sales falling off.
3. Ensure regular communication
Keeping in touch with buyers and their solicitors will help you spot the signs of a fall-through early and will help you plan your onward move.
4. Communicate with your chain
As well as regular updates with your buyer, keeping in close contact with the other parties in your onward chain will help to manage their expectations and keep the process as stable as possible while you find a new buyer.
5. Ask for a non-refundable deposit from future buyers
This could be a small deposit of a couple of hundred pounds to act as a holding fee, giving you added security and ensuring your buyer is serious about completing the purchase.
Common reasons for mortgage rejection
Every lender has their own private credit assessment based on their own criteria, so being rejected by one doesn’t necessarily mean you’ll be rejected by everyone. However, there are common reasons that are often given for a mortgage rejection.
1. The lender doesn’t predict profitability
Paying off debt too early can actually negatively affect your credit score as lenders can see this as a sign that their expected profit won’t be as high when lending to you. Spacing out your payments evenly can help keep your credit score balanced.
2. The income you have submitted isn’t acceptable
Some lenders have different requirements if you’re self-employed or include commission as part of your income, so make sure the lender you’re applying to is accepting of your methods of income.
3. Down valuation
Your lender will do their own valuation of the property and might value it lower than the amount you’re applying for, leading to rejection. Aside from doing your research to make sure the offer is suitable for the property, check the valuation report if you have been rejected to see what problems the lender found to see if they can be more easily resolved.
4. Your lender doesn’t see you as a suitable candidate
Sometimes, mortgage rejections aren’t necessarily a reflection of your financial situation but more to do with the lender’s objectives. In this case, doing further research into the best lender for your specific demographic could help reduce the chances of rejection.
Buyers: how not to get rejected for a mortgage
Getting rejected for a mortgage is more than just stressful and unpleasant – it can negatively affect your future chances of getting one. So, to make sure your don't miss out on your dream home, you need to be aware of the following points.
1. Make sure your credit score is as good as can be
Lenders will scrutinise every part of your application, and any weakness in it can become grounds for a rejection. Obtain a credit rating report, and if it's not great, wait a few months (ideally six) for it to improve.
2. Be prepared for extra questions
The mortgage interview with lender is a different game post-pandemic, so be prepared to have your finances scrutinised quite harshly. Don't take it personally and have answers ready to reassure your lender.
3. Get as many supporting documents as you can
Including from your employer if you can (if you were furloughed during the pandemic, this step is now mandatory with many lenders. Lenders are nervous about people losing jobs, so give them the reassurance that yours is secure for the foreseeable future.
4. If you get rejected...
Mortgage rejections can be disappointing for all involved but one rejection doesn’t spell the end of your home owning dreams. Stay in touch with your seller throughout the process, consider speaking with a mortgage broker for more advice on your application or offering a small non-refundable deposit to hold the property if you are confident you can get a mortgage from the right lender.
We've teamed up with online mortgage broker Habito: not only will they help you find a suitable mortgage, but they'll also help you with your application. Use their free mortgage comparison tool below.