Some advice for those thinking about The Mortgage Minefield

The first hurdle to overcome is the lender's credit score. This can be tightened and loosened at will as a lender decides exactly when to increase or decrease their lending levels.

A good three-year address history is a must and it helps dramatically to be registered on the voters roll at your current address.

The amount you can borrow is no longer simply linked to a multiple of your income, but on an affordability basis linked to the credit score. Monthly outgoings are taken into account, so a small credit card you could pay off, but choose just to pay the minimum, will affect your borrowing.

The number of dependents you have also has a bearing, as will any outgoings many take for granted such as childcare. This means that although they may be on the same incomes, a couple with no children or credit card debts may be able to borrow substantially more than a couple with two children and outstanding credit card balances.

In terms of documentation, lenders will want to see your last three months' payslips and last P60 as well as potentially your last three months' bank statements.  These must be sequential with no single statement missing. Be warned that many lenders do not like internet bank statements, even though they encourage their own customers to switch to online statements.

If purchasing, proof of the deposit monies will also be required. If this is a lump sum that has suddenly appeared in your account then they will want to know the origins of this.

For those who are self-employed or have more erratic income, lenders are generally asking for much more documentation. Apart from the last two years' accounts and possibly the last 12 months' bank statements, lenders have also been asking for form SA302, which shows the tax calculation made by the Revenue. This is something that many do not necessarily receive as a matter of course and it will need to be specially requested, slowing down an application.

The frustrating part is that there seems to be no uniformity to what lenders will ask for and when! Decent independent mortgage brokers will know which lenders are moving quicker than others and what they are likely to ask for at any given  time.

Fiixed rates at their highest for six months

The cost of fixed rate mortgages has hit a six month high as a result of lenders passing on the rising cost of funding to borrowers, the latest research from Moneyfacts has revealed.

 

Average two and five year fixed rates have increased to their highest level since August last year, at 4.49% and 5.45% respectively, while three year rates are at their highest since last September at 5.05%. However, the increases have come at the same time that the cost to lenders of raising funding on the swap rate market has soared. Having stood at 1.35% at the end of November, the two-year swap rate has increased by 47% in the subsequent months to currently stand at 1.98%.

 

Michelle Slade, spokesperson for Moneyfacts, said that with no signs of swap rates starting to fall, the likelihood is that mortgage rates will rise further. "The majority of lenders have increased rates since the start of the year, with some mortgage deals seeing rate rises of more than 0.50%," added Ms Slade. "Borrowers who have delayed the decision to commit to a new deal will now find themselves having to pay higher monthly payments."

 

According to Moneyfacts, a 0.50% increase in the rate of a £150,000 mortgage adds £42 per month to a borrower's repayments.

Houseprices up this year?

Homeowners were treated to a surprise rise in house prices last month as values bounced back after steep falls in some parts of the country. Mortgage giant Halifax said the average cost of a home in Britain rose to £164,173 in January, a climb of 0.8 per cent. Property experts say a shortage of good homes coming up for sale, low interest rates and higher rents could boost property prices by five per cent this year. Halifax said the rise came after steep falls amid December’s snow disruption, when prices suffered a 1.3 per cent plunge.

 

You may also have seen an article in last Thursday's "Standard" highlighting how prices in some Boroughs in London are already close to their previous peak. Merton averaged 5% below the peak, Sutton 9% below and Croydon 13% below. Indeed, all of the factors mentioned above are exaserbated in Greater London which is also less reliant on the public sector for employment.

Mortgage Numbers on the Rise

The number of mortgage products available from lenders has more than doubled in the last two years, but other factors continue to block buyers' routes to the housing market.

 

Research conducted by Moneyfacts shows that the number of residential mortgage products fell has increased from an all time low of 1,097 two years ago to 2,447, with borrowers holding a 20% deposit seeing the number of deals increase by threefold over the period. The number of mortgages in the 80% loan-to-value range has jumped from 97 to 390. The tier with the largest number of products is 75% LTV, however - a result of lenders making their best deals available at this tier. Two years ago, the number of residential mortgages available to a buyer with a 25% deposit was 422; today that number is 851.

 

Despite the rise in mortgage numbers, access to them remains restricted for many. Latest figures from the Bank of England show that the number of mortgage approvals has fallen recently, while the cost of fixed rate mortgages continues to rise. "Although lenders' windows may be full of best buy deals, it doesn't mean they want to lend. Borrower affordability remains the key factor in lending decisions and lenders remain strict over which borrowers they will accept," said Michelle Slade, spokesperson for Moneyfacts Group. "Borrowers who have benefited from record low interest rates for the last two years may be in for a shock when it comes to finding a new deal."