OK, each lender has their own criteria or set of rules when it comes to their lending policy. These include and is not limited to the following: age of the client, term of the mortgage, employment type such as contracted worker, self employed, foreign nationals or temporary workers; income; affordability; existing commitments such as credit cards and loans; property type and not forgetting credit history.

This list is typical of the requirements that need to be satisfied before even applying for a mortgage and unfortunately are not always clear unless you use a broker or Independent Financial Adviser (IFA) to assist you.

The first thing to say is that a broker or IFA will only be able to advise a client on the best options if the client is honest from the outset and credit scoring aside, the lender will usually require proof of income in most cases and this will be in the form of 3 months bank statements and/or 3 months wage slips in any case. The only exception being Self Certification mortgages (or Self Cert) where proof of income is NOT required. We will discuss these types of mortgages in more detail another time!!

It should be clear by now that as each lender has differing criteria, should your personal circumstances not meet with one particular lenders criteria, it may not exclude you from satisfying the criteria of another lender. Some lenders are looking for a particular type of business whereas others don’t want a particular type of business, but there is usually something for everyone – it’s just a case of matching the clients requirements with a suitable lender and product and this is when searching the internet can become confusing!!

So what are the common problems?

Well in recent months here at Reeves Financial Solutions, we have found that the main reasons for a mortgage being declined have been the property type such as prefabricated buildings or properties above commercial premises – a lot of lenders won’t touch them and the second is affordability. Each lender has their own way of working out affordability and is normally based on net income(s) minus existing commitments with a multiplier and that is where some clients fail – it is simply deemed that they could not afford that mortgage. Some Lenders still use income multipliers such as 3.5 X salary, but this is just an indicator, more of a guide – so, yes it could appear that your income is sufficient to borrow the desired amount of mortgage, but in reality after the affordability is calculated, this may not be the case.

As you can see, obtaining a mortgage is more than just finding the best rate with the lowest fees, it’s a bit more detailed than that; however for most people there are no issues. That said getting a professional to check things through could save you some frustrations as well as time and money!!

In relation to first time buyers, this would have to be the most frequently asked mortgage related question we receive on a weekly basis.The answer is not as straight forward as it would seem, so lets break it down a bit further.

If I were to be asked what is the minimum deposit required, well typically its 10% with a few lenders offering a product at 90% Loan to Value (LTV). There tends to be some conditions attached to these products; essentially these can include being an existing customer or only being able to go to the lender directly to arrange the borrowing. I have today noticed an even smaller number offering a 95% LTV proposition.

The important thing to remember here is that the rates offered are not going to be as attractive as having a larger deposit (See my post relating to the HSBC discounted rates) as the risk to the lender is higher. Secondly the criteria required is going to be more strict so you might not meet the lenders requirements for that product in any case.

Moving on, it’s fair to say that should you be able to stump up a 25% deposit, then you are going to have to access to much more of the market and therefore better deals, giving you more choice. A 40% deposit will give you access to the whole market and well it doesn’t get any better than that regarding your options!! Higher deposits not only mean better rates, but it actually means borrowing less and with these two factors it equates to lower monthly costs, common sense I know, but a point often missed!!

As you can see the answer to the question proposed is the old adage – bigger the better!!

To finish, let me dispel a myth surrounding mortgage brokers and Independent Financial Advisers. This myth is that we cannot source deals only available by going directly to the lender. This is not true, we can source the deals, we can even check that a client meets the lender’s criteria (an essential step in recommending a mortgage product), however the lender(s) won’t deal with the broker with these products, you have to deal with them ‘directly’ over the phone or go into a branch. As a side point, there are loads of people that use the internet to source mortgage deals and this is fine until something goes wrong or you find out that for some reason you fail to meet the lender’s requirements. A broker will always check the best rate available to a client that meets the lenders criteria. If a client doesn’t meet the criteria, then that product was never available to them, it really is a case of matching the two things – rates and eligibility.

I will discuss criteria and eligibility in more depth in a future post – this is a big reason why some clients are declined mortgages and not because of bad credit!!