Insights for homebuyers

First-time Buyers Guide...to getting Mortgage Ready

Mortgages 3 min read 23/01/2024

Looking to get yourself on the property ladder? Aside from finding the right property, there’s also the matter of getting yourself ‘mortgage ready’ before you can get started and become a first time homeowner.

One very important aspect of your mortgage application is your credit history, as credit issues could limit your mortgage options.

Here we take a closer look at how your credit history could affect your potential to getting a first-time buyer mortgage, and how to avoid the pitfalls.

 

Checking your credit history

It can be helpful to check your credit score before applying for a mortgage so that you can prepare and seek advice if it isn’t as high as you’d hoped. Poor credit history was the main reason for a rejected mortgage application in 2012 (41%), up from 19% in March 2020. Unsurprisingly then, 28% of prospective first-time buyers say credit history is a big concern for them, with 39% looking to actively improve their credit score.

If you’re struggling to get a mortgage because of poor credit, one of the following is usually responsible:

  • You’ve not always paid bills on time in the past, or you’ve not paid them at all
  • You’ve never borrowed and therefore can’t prove to lenders that you are reliable
  • You’ve had a County Court Judgement (CCJ) against you
Couple on the sofa in new home

But don’t despair, there are still options available! Being declined for a mortgage, even though it can be a deflating experience, is not game over as options have broadened over the past decade. Specialist lenders may consider borrowers with CCJs and other credit issues, and their experienced underwriters can dig into the detail of more complicated applications. It may mean paying a higher interest rate initially but making all mortgage payments on time will improve your credit rating making it easier to get a better rate when you apply for a future loan.

A low credit score can be a worry, but there are things you can do to help this:

  • Registering on the electoral roll is a quick and easy way to improve your credit rating, as it helps lenders to conduct checks, while helping them to prevent fraud.
  • Having credit, like a mobile phone bill or store card and paying it on time shows lenders you can manage finances, for example a credit card that’s been open for a reasonably long period of time that you’ve kept up to date with payments. If you’ve had the same credit card for years, this could be the oldest credit facility on your report and closing it down could reduce your score.
  • Only using credit within reasonable levels, for example less than 50% of your card’s spend limit, and ideally at 25%.
  • Keeping applications for credit to a minimum. This will minimise the number of ‘hard checks’ on your file, as every time you apply for credit, the company you apply to will do a hard check to check your suitability. The more credit applications you make, the more hard checks will appear on your credit report, which will impact your credit score.
  • Avoid credit issues arising by making sure that your accounts are paid up to date, and you’ve repaid and satisfied any defaults.
  • If you are still associated with an ex-partner, their credit score can affect yours. If you want your case to be assessed on your credit score alone, financial disassociation is the best way to report unfair or incorrect financial connections. Contact a credit reference agency to discuss the process.
  • Registering with one of the credit check providers is also usually a good idea. They offer lots of tips on how to manage credit files and ways to improve, for example, Clearscore.

 

Consider marital status

And unfortunately, even if your credit history is squeaky clean but your partners isn’t, then your mortgage application could be declined because of their credit rating. As frustrating as it can be, there are times when lenders may consider the financial situation of a couple as a whole rather than individually. This is particularly common when people share their finances, for example if they take out a joint bank account or apply for a mortgage together.

 

Family talking to a mortgage broker

How to get a mortgage for a first time buyer?

The home buying process can be confusing and complicated, and it may feel daunting at times. You could get advice from a mortgage broker. They can give a whole of market view and provide options specific to your individual circumstances.

Read our 10 reasons to use a broker article.

Subject to status. Your mortgage is secured on your property.  Your property may be repossessed if you do not keep up repayments.