Your dreams of buying your perfect home can often be curtailed by a lender’s tight purse strings. If you are struggling to borrow as much money as you would like read on for tips on how you can make yourself more attractive to lenders and increase your chances of getting a bigger loan.
When a lender is assessing how much cash to lend you they look at a number of things including affordability (how much they think you can afford to repay), existing debts, your credit rating and your income.
In order to maximise the amount you can borrow you need to minimise anything that might be a red flag for a lender and make sure your finances are in the best possible shape.
Follow the tips in this guide to get your finances in shape and looking their best.
When assessing your mortgage application lenders look at how much money you owe already. In general, the more debt you have, the less you’ll be able to borrow. If you have savings use them to pay off existing debts. Not only will this be cost effective (as interest rates charged on borrowing are generally more than you earn from a savings account) but it will make you more attractive to lenders. Just remember to keep some savings aside for an emergency.
Mortgage lenders also look at how much access to credit you already have. If you have lots of credit cards or a big overdraft facility, they’ll be less keen to lend. If you’ve got a credit facility you don’t need, close the account or ask for the limit to be reduced.
The better your credit rating, the more keen lenders will be to lend to you. There are a number of ways to improve your credit record including being on the electoral roll, paying utility bills on time and having a landline telephone. Find out more with our guide to improving your credit rating.
If you’re self-employed lenders will want to see evidence of your accounts and income for at least the past two years. The more money you make the better, so although you might want to (legally) keep your income to a minimum for tax purposes, remember the more you earn the greater the amount you can borrow. Fine out more with our guide to getting a mortgage if you’re self-employed.
Mortgage lenders look at your income when deciding how much to lend you – the more you earn the better. So, bite the bullet and ask your boss for a pay-rise. You can find top tips on how to get a pay rise here.
Different lenders have different attitudes to how much they’ll lend, so it’s important to shop around. A broker with access to the whole mortgage market can advise you on which lenders are best to approach in your particular circumstances. You can find a list of brokers here.
As well as looking at your income, lenders also assess “affordability” and analyse how you spend your money. They look at childcare costs, bills, living expenses and lifestyle choices such as holidays. So if you want to borrow more, reduce your outgoings wherever possible. Use this budget planner to get a clear idea of where your money goes, so you can make cut backs.p
A typical mortgage term is about 25 years but you can lower your monthly repayments by opting for a longer term – most lenders will consider up to 35 years. This can boost your borrowing power as it makes payments more affordable, but bear in mind the longer the mortgage term, the more interest you’ll pay overall.
If the tips above haven’t increased your potential home loan enough there are more substantial measures you can take to dramatically boost your borrowing power. Joining forces with other people can significantly increase your mortgage and there are a number of ways you can do it:
Asking a parent to guarantee your mortgage can boost your borrowing power. However, it will mean the lender checks out your parent’s financial situation too and they could be held liable for the debt if you default on repayments. You can find out more about guarantor mortgages in our guide to buying with your parents.
Buying with a partner can boost your borrowing power as both your salaries will be taken into account. If you’re single, buying jointly with a friend or having your parents named on the mortgage can boost your borrowing power.
Some lenders offer family offset mortgages which allow parents (and other family members) to help their children on to the property ladder. With this type of deal the family member puts the cash into a linked savings account and it acts as a deposit, therefore lowering the monthly mortgage payments as interest is only charged on the remaining balance. Crucially, although the family member retains ownership of the money, they won’t have instant access to it, so should only hand over cash they don’t need in the near future. These can help boost the amount you can borrow as your families savings might massively increase your deposit. Find out more in our guide to buying with your parents.