The Inside Edge
Here at The Big Property List we like to report on the latest goings on in the property and mortgage world and there has never been so much going on! It’s an unfortunate situation that many of our articles give or predict bad news within the housing market, but in time we hope to report on a better outlook. In this article we look into the lending decisions by mortgage lending companies and how you can prevent a negative mortgage decision.
Right now, two thirds of home loan applications are turned down. Ben Thompson, managing director of the Legal & General Mortgage Club said, “We know that for some of the best headline rates available on the high street, up to two-thirds of applicants are being turned down.”
Melanie Bien, directory of independent mortgage broker Private Finance also highlighted this trend suggesting that some mortgage lenders re ‘cherry-picking’ the better borrowers. She said “Some lenders, which often top the best buy tables, seem to regularly turn down applicants.
“HSBC, for example, keeps coming up as a lender which turns down perfectly good applicants,” Bien says. “We’ve had a lot of people coming to us who have struggled to get funding with HSBC yet they have been easy to place elsewhere, so there is nothing wrong with the applicant or the property. In HSBC’s case, it is very much cherry-picking of customers.”
As always, it’s the first-time buyers who are worst hit and especially those with a 10 per cent deposit or less. Whilst there are more products being released that are targeted at this market, very few are getting a positive decision from lenders. In May, only 23% of all mortgage approvals were for properties valued under £125,000 – typical first-time buyer properties. This is 24% down on the average for 2010.
“We accept around eight in 10 of all customers who apply for a mortgage with the bank and the growth of our mortgage business backs this up,” says Martin van der Heijden, head of lending at HSBC.
He dismisses claims that HSBC cherry-picks the best customers, but went on to say that the focus of most banks is on the loyalty and custom of existing customers rather than attracting new customers.
“Lenders have realised that holding the ongoing relationship with their customer is more important than just making another sale,” says Van der Heijden. “We’ve taken a lead in offering exclusive and preferential mortgage deals to existing customers which allows us to maintain competitive mortgage pricing sustainably. The more business customers do with us, the better the price or interest rate we can offer them.”
So, with that in mind, what chances do you have if you are not already a customer of the big name lenders? Many experts say that instead of focusing on applying for the best deals first-time buyers should apply for those products they can afford and which they are more likely to be accepted for. This may command a larger monthly payment, but it could be the best way to step onto the property ladder.
“Most borrowers will be left disappointed with the number of products available to them on the high street,” points out Ben Thompson. But it’s not just disappointment. Making unsuccessful applications could actually affect your credit score. That’s why it’s important to review the market and apply for a product that you are more likely to be accepted for.
“Lenders prefer to choose the borrowers with the highest deposits, incomes and credit scores,” Thompson points out. “A typical applicant applying for a best rate product, which our research shows most will do, runs the risk of a refusal and damage to their credit record.”
So, how can you find the best deal that is right for your situation? Many people are turning to mortgage brokers for mortgage advice and this is a very sensible option especially if you choose a broker who researches the whole of the market for the best deals.
A mortgage broker will know the best ways to get a mortgage offer given your situation, your deposit and what you can afford to pay each month.
There are also many things you can do yourself that will significantly increase your chance of receiving a mortgage offer on a good product.
“Borrowers can help themselves by pulling together as big a deposit as possible,” advises Melanie Bien. “Ensure your credit record is correct and have any mistakes changed before you apply for a mortgage.
“If you had credit problems in the past which have been rectified add a note explaining why you got into difficulty in the first instance and how you have come back from this, demonstrating that you are now a good risk.”
If you have no lending history on your credit report then it’s a good idea to create some. Taking out a low or no interest credit card and repaying it each month will show you can handle credit well and are therefore more appealing to any mortgage lender. Build up a good credit score and keep it that way.
The fact is the housing market is volatile right now so whilst you might be desperate to move, it might be a better idea to sit tight, build up a good credit score and wait until the market improves. It will happen and you could be in a really great position when it does!