A look at some issues that might create problems for mortgage lenders – and how to avoid them.
So you’re planning to buy your first property. What could stand in your way? It’s best to be armed with as much knowledge and understanding as possible before you start, because there are quite a number of things that might not be obvious to those who have never bought property before, but which can raise significant red flags for mortgage lenders.
Even if you have been through the conveyancing process in the past, there are several points to note when applying for a new mortgage. As Aaron Strutt of Trinity Financial points out, mortgage companies are not likely to be interested in the beautiful features that attract you to a property, instead prioritising their own (less romantic) agendas. He explains: “Banks and building societies often see properties in a different way to buyers. It is not usual to speak to someone who thinks a house or flat has great potential or unusual features only for us to have to explain to them that many of the lenders will have issues with the property.” As a broker, he is able to predict what their concerns might be. “Lenders may ask additional questions or even decline an application for a mortgage if a property is particularly close to commercial premises or has deck access. Sometimes more unusual features like a granny annexe, lots of land or listed status can cause issues. Flats with short leases, properties recently converted from a house into flats or new build properties may mean borrowers need to put in a larger deposit.”
It’s worth sending the broker a link to a property before they submit a mortgage application. Some lenders have pre-application approval teams to confirm whether homes are suitable security or not, and a broker may well be able to tell you from the start if lenders are likely to take a dim view of the home of your dreams.
Also: don’t make any assumptions on how much you’ll be able to borrow without taking expert advice. Affordability is a growing concern in the current climate, and lenders are tightening up on their criteria. Strutt says: “The cost of living increases have filtered through to the mortgage market, and price hikes have reduced the amount people can borrow. Lenders tend to rely on figures from the Office for National Statistics as well as income multiples to determine how much someone can borrow – and in many cases, people cannot raise as much as they could this time last year.” Lenders will take all kinds of elements into account – it is worth remembering they will reduce the amount you can borrow if you have credit cards or loans, cars on finance or children in childcare.
The moral is: discuss your intentions with a mortgage broker before making an offer, and be wary of properties that might be difficult to obtain finance on. It’s always important to read the survey report carefully and to ask your solicitor to flag up anything potentially alarming in it too. And remember that the majority of transactions proceed smoothly and without incident. Happy hunting!