Higher mortgage rates are taking a heavy toll on home buyers, with increasing numbers feeling priced out of the property market, according to a major UK building socirty.
The Bank of England may have held the base rate at 5.25% today, but according to Leeds Building Society, 426,000 fewer first-time buyers will make it on to the housing ladder over the next five years, which can lead to a sluggish market as first-time buyers are critical for others in a chain to buy and sell their properties.
The base rate is used by the central bank to charge other banks and lenders when they borrow money – and so it influences what borrowers pay for their homes loans. It was increased to 5.25% in August, its 14th consecutive rise, though it remained at this level in September after lower than expected inflation figures. Since then, interest rates on fixed deals have been dropping steadily. In August, the top two and five-year fixes were 5.77% and 5.22% respectively but earlier this week, these were down to 5.14% and 4.64%, according to Money Saving Expert.
Leeds Building Society is blaming a perfect storm of high house prices, high deposits, and high mortgage repayments for scaring off first-time buyers, and mortgage approvals for house purchases are down by more than a third year-on-year, according to the latest Bank of England data.
Additional data suggests that those first-time buyers who have decided to push ahead and buy despite higher mortgage rates are being cautious not to overstretch themselves financially, although lenders are restricted by mortgage affordability guidelines designed to prevent people from financially overstretching themselves.
These guidelines were supposedly relaxed last year when the Bank of England dropped its requirement for lenders to carry out affordability stress testing, but budding buyers might not know that there are certain common things that could stop you from getting a mortgage.
Not being on the electoral register, using buy-now-pay-later and having an occasional flutter of the Lottery can all impact lenders’ decisions, according to The Sun, but what else do you need to look out for? We’ve outlined six everyday things that could affect mortgage applications:
Using buy now, pay later
Services such as Klarna or Paypal‘s Pay in 3 might be convenient, but lenders may see this as an indication that you can’t afford to pay for things in one go, so are overstretching yourself. The same goes for catalogue payments. Nicholas Mendes, mortgage technical manager at broker John Charcol, which has an office in Newcastle, said: “Lenders will usually look at your credit history before offering an agreement in principle and again when they’re underwriting your full mortgage application. If any new findings are uncovered in your second credit check, the lender may reject you.”
Playing bingo or the Lottery
If you a regular Lottery or bingo player, this could be a red flag to mortgage lenders, who may class it as gambling. Playing once in a while for fun, or with friends will cause no concerns, but a regular habit with larger sums or regular payments to gambling sites or online casinos could be seen as risky spending behaviour
Multiple store cards
Store cards in themselves are not an issue, but if you’re struggling to clear the balance every month it could be a warning sign to the lender. A store card works like a credit card, but you can only use it in the shop or retailer that you applied for the card from and interest rates for these are usually higher than for a credit card.
You’ll need to gather a lot of paperwork to apply for a mortgage, so there are plenty of chances for errors to slip in. Nicholas Mendes said: “If it’s a severe issue, your application could be declined. As well as harmless mistakes, a lender will be looking out for any chance of foul play. If the lender suspects that you’ve lied on your application, or they have any reason to believe the application is fraudulent, it will be declined.”
Money from friends and family
Mortgage lenders want to know where the money for your deposit has come from, and it it’s from family of friends, it will need to be officially declared as a gift. While lenders almost always accept personal savings or gifts from parents, if they later finds out that your deposit is a loan from parents or comes from gambling, overseas savings, friends, employers, or untraceable cash funds, your mortgage could be declined, according to Nicholas Mendes.
Changes in earnings
Lenders look at your outgoings alongside your income, so big changes to your income could impact your application. If your employment has changed, even to a job with the same salary, it could suggest that your income is less certain and this is especially tru if you have lots of recent employment changes.
If cash is the main way you get paid, be aware it could have consequences for your mortgage application as lenders might not see cash in hand as a steady income. Some lenders might decline your application, even though many workers still get paid this way, such as dog walkers, cleaners or tutors.
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