11:37 09 April 2013
If you're prone to biting your fingernails, one thing you can be sure of when you're buying a home is that you won't have many left by the time you move in. Purchasing a property is extremely nerve-wracking and until you reach the finishing line - known as 'completion' - there are many hurdles to overcome.
One of the biggest is getting a mortgage. Banks and building societies are tightening their lending criteria, so waiting to see whether your application is accepted can be a tense time. And, worryingly, the number of people being accepted for a mortgage fell in February this year.
According to figures from the Bank of England, mortgage approvals for those buying a house totalled 51,653 in February, below the six-month average of 52,295. This is despite the overall value of mortgage lending increasing.
So, to ensure you're well prepared, here are five things that could scupper your mortgage application.
1. Your address
The chances of your mortgage application being accepted are higher if you have a good credit rating. But what happens if the lender can't actually find your credit record?
This happened to Catherine, who is moving flats in London. When she applied for a mortgage, she was confident she'd be accepted because she knew she had a good credit rating and a decent-sized deposit.
Her mortgage advisor said the best mortgage for her was through Platform - the intermediary lender of the Co-operative Bank. But once she'd applied, her advisor told her Platform could not find her credit record. All it found was her electoral register entry - there was no history to show she already had a mortgage and a credit card.
She was told that an increasing number of mortgage applications are being delayed lenders' systems can struggle to find addresses for blocks of flats.
A Platform spokesperson said: "As is the case with all financial providers there are instances where we have issues with address-matching, where the system is unable to locate the customer at the address they have provided as it does not exactly match what Experian, the credit reference agency we use, holds for them. In these instances we manually complete credit searches and advise whether we will progress with the application, or not."
The discrepancy could simply be the number of lines used on the address. Platform would have "Flat 1 32 New Street" on record, but Experian would have:
32 New Street".
Catherine was asked to request a copy of her report from Experian, but to save time she was told to submit copies of her mortgage and credit card statements. Despite this, she was told that unless she could provide a satisfactory credit report, her application would be turned down.
At this point, Catherine decided to apply for a mortgage with her existing lender - which was accepted straightaway.
2. Missed or late payments
Missing or making late payments on a mortgage, loan or credit card could ruin your chances of being accepted for credit several years later. But credit reports also include things like mobile phone contracts and exactly the same rules apply - as Rebecca recently discovered.
Despite having an excellent credit score of 979 (the maximum you can get is 999), when Rebecca applied for an 80% loan-to-value (LTV) mortgage with Accord for a flat in London, her application was rejected due to one late mobile phone payment back in 2008.
She said: "I have little recollection of this, although I vaguely recall taking out a contract with a new provider after returning from travelling and they failed to set up a direct debit. I don't even know what phone provider this relates to, let alone have any paperwork."
Rebecca's mortgage broker told her Accord looked at a five-year credit history and there was little point in her challenging it as Accord was unlikely to reassess the situation. Instead, she is taking out a mortgage with Virgin. But this means she will have to pay around £300 extra in upfront fees and around £2,000 in additional repayments over the five-year term.
Before you apply for a mortgage, get a copy of your credit rating to make sure your credit history is accurate - you can get hold of your report from one of the credit reference agencies, which you can compare at our credit reporting channel.
If there is anything incorrect, ask your credit reference agency to amend it. If you have missed payments due to illness or redundancy you can add a 200-word 'Notice of Correction' to explain.
3. Commercial property in the neighbourhood
If you're planning to buy a property above commercial premises, you may find it harder to get a mortgage.
Here's why. Let's say you buy a property with a coffee shop below that's open between 9am-5pm. Two years later the owners sell and it's turned into a licensed restaurant that stays open until 2am.
When you subsequently try to sell, your property's value has deteriorated as a result and you struggle to find a buyer. If you took out a large mortgage, you could even end up in negative equity (where the property's value is lower than the amount you still owe). It's this uncertainty that makes lenders reluctant to lend in the first place.
But this doesn't only apply if the property is above commercial premises. In fact, a lender may be more hesitant in accepting your application even if the commercial property is simply close by.
David Hollingworth of London & Country Mortgages said: "Commercial premises such as pubs and restaurants can certainly have an impact on the likelihood of a valuer to recommend the property for mortgage purposes. Living next door to a busy takeaway is clearly not going to be every person's cup of tea and it is this that results in property being rejected for mortgage purposes."
And it's not just commercial property that can have an impact. If there are electricity pylons nearby, for example, this too could result in your mortgage being declined.
David said: "Anything that may affect the saleability of a property is something that a lender will shy away from, as they do not want the added problem of not being able to sell the property in the event that it is repossessed."
4. Your application form
If you have a sudden change of heart about something on your application form - perhaps you want to borrow more money - this can cause problems. The lender may not only refuse to give you the extra money but it may also decide it's no longer happy to lend to you at all.
In addition, if you make any mistakes on your application - for example, if you put your salary in the wrong box - this can lead to a rejection. It's therefore worth getting a fee-free broker, such as London & Country, to check your application form and ensure there are no mistakes.
5. The survey
When you apply for a mortgage, the lender will carry out a valuation survey on the property you're buying to find out how much it is worth. Should the surveyor say the property is worth less than you and the seller thought, your application could be turned down.
The bank or building society might be happy to lend you £100,000 on a property worth £150,000, for example, but if the surveyor says the property is actually only worth £135,000, it may no longer be willing to give you the money.
Also watch out for the growing problem of Japanese knotweed, which is something that surveyors are becoming increasingly aware of. This too could affect your mortgage application.
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