How To Get A Mortgage
Are you trying to get a mortgage, but not sure if banks will lend to you? Are you a first-time buyer struggling to find the deposit?
Property expert Alex Goldstein finds out how to get a mortgage in this tough lending climate from financial advisor and mortgage specialist Mauro Arcidiacono of Cathedral Financial Planning. He shares some excellent advice on how to put yourself in the best position possible for banks to lend to you, and explains what the new mortgage rules mean for borrowers. He also shares his tips to help first-time buyers find that all-important deposit.
How To Get A Mortgage
Full transcript below:
Alex: Fantastic to have Mauro from Cathedral Finance here with me and we really are going to delve into a lot of detail about dare I say the banks at the moment and lending and in particular the first-time buyers out there. Mauro it may sound a bit of an obvious question but why on earth are the banks so reluctant to lend I think to everyone and anyone out there at the moment or is that a bit of a unfair statement?
Mauro: I believe it is a bit of an unfair statement actually to the banks. The banks in the past have been accused of lending irresponsibly to those with little or no deposit and less than stellar credit profiles. That’s got the banks into trouble, it’s also got borrowers into trouble. Since new mortgage rules have come out around 2014 banks have been asked to lend responsibly by the regulator. These new rules-imposed banks to lend no more than 4.4 times gross income.
Alex: Ok, that’s useful to know but why would they just put, it seems, and it comes across to a general member of the public like myself that there are just so many hoops to jump through and obstacles. How and I know we’ll come to first-time buyers but if you are just looking for a mortgage what do you need to do and set up possibly in advance trying to sort of get around those issues?
Mauro: Absolutely, that’s a very good question for first-time buyers. It’s very daunting and I’m sure that you and I have the greatest of respect and sympathy for first-time buyers trying to save this mammoth deposit that they need to buy there first home. You know lenders want to lend to first-time buyers, they just want to make sure that the first-time buyers are going to be a good egg to lend to. In that respect first-time buyers can position themselves in terms of making sure that their credit profile is a good one, has strength, by doing that I’m finding that when I do speak to first-time buyers that they’re fresh out of university or fresh out of college and so they may feel that they have the perfect credit score but in reality they haven’t proved that they can borrow money sensibly.
Alex: Is that about getting your first couple of credit cards but not necessarily using them, sort of thing?
Mauro: Absolutely so I tend to recommend to first-time buyers to take out a credit card and just to put their shopping or put their petrol on there and just to pay it off each month. That shows lenders that you are able to manage credit responsibly.
Alex: And when it comes to first-time buyers, I know you briefly touched on it, is it all about deposit? I mean back in the day it used to be if you’ve got a 25% deposit then you know what you’re going to get the very best rates out there but again house prices especially in and around our areas we know its expensive, do you need to save up that level of deposit, how can one get around it, especially if you’re a first-time buyer?
Mauro: There are a number of options available to first-time buyers and in terms of you don’t need to have the substantial deposits that lenders would like to see. Of course, lenders will reward you if you have a substantial deposit and substantial deposit you’re talking about say 25% of the purchase price, but lenders will look at those with a minimum of 5%. There aren’t many lenders out there that will lend at 95%, but now in terms of open credit what banks are willing to lend you’ll find that probably there are about a dozen lenders who will lend at these high 95%.
Alex: So, is there a sting in the tail because obviously if they’re doing 95% loan to value say to a first-time buyer, is that first-time buyer paying a huge amount more on their interest payments?
Mauro: Yes, you know a bank, a lender will reward borrowers with more deposit with a better rate. The rates do tend to change every 5%, so the minimum deposit that you need to put down is 5%, rates around the 95% borrowing tend to be around the 4% mark. If borrowers were to put down a further 10% then you’ll see an instant lowering of rates so the more you’ve got to put down the better the rate you’re going to get.
Alex: Ok, and I mean everyone sort of talks about the bank of Mum and Dad and trying to sort of get funding that way whether it’s for your deposit, I mean the Stamp Duty rule changes have slightly gone in peoples favours, there is a bit more of a discount when it comes to stamp duty but if your parents are fortunate enough and they can lend you something then obviously that’s a option. Again, first-time buyers, how can you get around that? Yes, if you’ve got that from bank of mum and Dad, but if you do not have that option, are there any other paths you can go down?
Mauro: There are a few other options for first-time buyers to consider. There is what is called a help-to-buy scheme, where you go into partnership with the Government. With respect to help-to-buy schemes, these are designed to help those struggling to save a deposit for their first home or move up the property ladder. The help-to-buy schemes are restricted to new build homes only, the buyer is required to raise 5% of the property value as a deposit. The Government will stump up a further 20% through a local agency and with the combined borrowing, 5% from your own savings and 20% from the Government savings, this will allow you access to much cheaper preferential rates. In terms of other schemes available to first-time buyers if they’ve not got the 5%, housing associations allow you to part-buy and part-rent your home, so you’re able to buy a share of your chosen property, typically between 25% and 75% on which you’ll have to take a shared ownership mortgage. What are the benefits of a shared ownership scheme? Shared ownership scheme allows you to gain a foothold on the property ladder in an affordable way.
Alex: Mauro, some great insight there. You’re actually, most people won’t know this, you’re actually a very qualified chap because you’re able to offer all sorts of bits and pieces, not just about first-time buyers and mortgages, just briefly touch on what you can offer.
Mauro: I’m a qualified independent financial adviser. I work for myself and I’m a sole practitioner. I’m qualified to give advice in investments and pensions and protection. I’m able to offer tailored financial solutions in a simple way.
Alex: All sounds great. If anyone wanted to talk through first-time buyer mortgages, pensions or investments, what’s the best wat to reach you?
Mauro: The best way to reach me is either via my website which is cathederalfp.co.uk on my mobile 07999196984 and I’d be happy to help, happy to give a free initial consultation and until I’m able to understand how I can help you as an individual there is no charge.
Alex: Fantastic. Well Mauro thank you very much indeed for giving us great insight into the world of lending, really appreciate it.