Do you plan to apply for a mortgage in 2024? Taking proactive steps to prepare your application now could make securing a mortgage less stressful and may even help you access a competitive deal.
Over the last two years, mortgage holders have faced some challenges, so it’s even more important to prepare your application than it may have been in the past. When applying for a mortgage, you may face these three potential issues:
- Rising interest rates: To tackle high inflation, the Bank of England has increased its base interest rate, which has affected mortgage repayments. If you’re taking out a new deal, it’s important to be aware of how your repayments could change as a result. Searching for a deal that suits your needs and offers a competitive interest rate could also save you money.
- Stringent mortgage affordability tests: In response to rising interest rates, some lenders have changed their criteria. They may carry out more stringent affordability tests, which could affect the amount you can borrow through a mortgage. As a result, understanding which lenders are right for you could make securing a mortgage quicker and smoother.
- Short shelf life of mortgage deals: According to Moneyfacts, in November 2023, the average shelf life of a mortgage deal was just 20 days. While up from a record low of 12 days in July 2023, it may still mean mortgage borrowers feel pressure to act quickly or face having a deal that could be right for them removed from the market.
Whether you’re a first-time buyer or will be remortgaging in 2024, here are five practical steps you might take before it’s time to apply.
1. Check your credit report
If you’ll be taking out a mortgage in 2024, don’t delay reviewing your credit report. It can take several months for changes to show up, so it’s a task that could be useful to tackle right away.
Lenders will carry out a credit check to assess how likely you are to default on mortgage repayments. The information in your report could affect how much you may borrow, the interest rate you’ll pay, or even whether your application is accepted.
You can review your credit report for free and it won’t affect your credit score.
A good place to start is to check that all the information contained in the report is accurate. You can contact the credit reference agency to correct mistakes, such as if your address is wrong or you’re financially linked to an ex-partner.
It might also be valuable to see what steps you could take to improve your credit score. Simple tasks like registering on the electoral roll or closing unused accounts could provide a boost. There may be other measures you could take too, such as reducing debt.
2. Calculate your loan-to-value ratio
The loan-to-value (LTV) ratio compares the value of your home to outstanding mortgage debt. Typically, the lower your LTV, the more competitive the interest rate a lender will offer.
If you’re a first-time buyer, understanding your LTV means reviewing your deposit. If you’ll be using a 10% deposit, your LTV would be 90%.
If you already own a property and will be taking out a new mortgage or moving, understanding the value of your home may be useful. As well as your repayments reducing outstanding debt, how the value of your home has changed could affect the LTV. For example, if the value of your home has increased, your LTV may be lower than you expect.
Knowing your LTV could place you in a position to access a lower interest rate. You may find that slightly increasing your deposit or making a one-off mortgage repayment could move you into a lower LTV band and save you money overall.
3. Understand how much you could borrow through a mortgage
If you plan to purchase a new property in 2024, understanding how much you could borrow is essential when you’re searching the property market. It could help you narrow down your search and avoid disappointment.
While a mortgage in principle isn’t a guarantee, it can provide you with a useful guideline when assessing how much a provider will allow you to borrow. A mortgage broker could help you decide which lender suits your needs when applying for a mortgage in principle.
Even if you want to remain in your current home, you might want to increase the amount you borrow through a mortgage. Perhaps you want to borrow more to fund home improvement projects or other lifestyle goals?
Keep in mind that borrowing more through your mortgage may increase your repayments and the total cost of borrowing. Depending on your goals, other methods of borrowing, like a personal loan, could be more suitable. So, it’s important to weigh up the different options.
4. Get your paperwork in order early
When reviewing your application, lenders will often request paperwork. Having everything you might need to hand could make the process smoother.
Typically, you’ll need to provide proof of:
- Identification, such as your passport or driver’s licence
- Income, usually payslips from the last three months
- Expenses, such as bank statements.
If you’re self-employed, you may need to provide additional evidence, including certified accounts from the last two to three years, or upcoming contracts.
Being prepared may be particularly important if you’re buying a new house, as it could help avoid potential delays.
5. Watch your spending in the months before you apply for a mortgage
Lenders will usually look at your bank statements to review your spending. They do this as part of affordability checks. So, it’s worth watching your spending in the months before you apply for a mortgage to boost your chances of success.
That doesn’t mean you have to cut back your discretionary spending entirely. However, making sure you stay out of your overdraft and that payments are not rejected may be useful.
In addition, lenders may look for red flag payments, such as deposits to gambling websites or payday loans. If possible, you should avoid these.
Contact us to talk about your mortgage
If you’ll be applying for a mortgage in 2024, we could help. Please contact us to discuss your needs and how we could offer support throughout the application process.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
