House prices have dropped 20% in the past year, making property more affordable in theory.
Yet getting a mortgage, especially for first time buyers, is perhaps harder than ever. So SARAH MANNERS got some top tips on beating the mortgage borrowing blues from Louise Cumming of Wales’ moneysupermarket.com
WE need a complete change in attitude towards saving and debt, says Louise Cumming of moneysupermarket.com
Louise, head of mortgages for the Flintshire-based financial price comparison website, says that unlike our parents’ and grandparents’ generations, we have got used to easy credit, and not having to save up and wait for things that we really want.
She says that the only way to beat the credit crunch is to get back to some old-fashioned values of restraint, planning and a bit of prudence.
And that even if you have a bad credit rating, there are three simple steps you can take to make yourself more attractive to mortgage providers.
Louise’s Beat the Mortgage Blues Top Tip No.1 – offer at least a 10% deposit
“Even a 5% deposit is not going to be enough nowadays,” says Louise.
“The simplest way for young first time buyers to do this is to follow the example of our case study and live at home with their family and save a regular amount.
“However much people might complain about paying board and lodgings to their family, it’s not going to be anywhere near as much as paying rent in the commercial sector.
“Making regular deposits into a savings account is also a really good idea, as some savings accounts will pay slightly more interest if you make regular payments.
“Also saving regularly – and paying board to your mum regularly – is good discipline towards making payments towards your mortgage every month.”
Louise admits that returning to the family home is not always easy for young people who have enjoyed their first taste of independence while away at college, and, for mum and dad who are used to having some space, peace and quiet again.
“Relationships will need to be renegotiated,” says Louise.
“Mum and dad will have to realise that they can’t say things like: ‘What time do you call this?’ when their child gets home at 3am, or, ‘You’re not going out dressed like that!’
“It’s all a question of education. Starting to teach the value of saving sooner rather than later is vital.”
And if renting is unavoidable, Louise says it is still possible to save a substantial amount every month towards a mortgage deposit.
“Be frugal on the amount of rent you are prepared to pay,” says Louise.
“Don’t go for the penthouse. Go for something more modest, recognising that it is only a temporary stage in your life. Save now and you really will benefit later.”
Louise’s Beat the Mortgage Blues Top Tip No.2 – maintain a good credit rating
“They’re simple, but crucial rules regarding credit cards,” says Louise.
“Make sure you pay towards your credit card debt every month – at least the minimum payment.
“And if possible, pay off what your have borrowed in full, each month.
“Even if you are very prudent, it is actually a very good idea to have a credit card and use it every now and then – paying it off in full, of course – because someone without a credit card, even if they have no other debts or financial problems, will not have as good a credit rating as someone with a credit card.
“Also younger people must recognise that it is often hard to get credit, simply because they’re young!
“Most lenders use a system to score credit ratings.
“These systems do have something of the black arts about them. But one thing you can say for sure is that if you are young, your age will count against you.
“But there’s not a lot you can do about that – except enjoy the fact that you’re still young!”
Details of all credit card missed payments are held on your personal files for six years and may count against you when your credit rating is accessed.
But Louise says the answer is not to worry about this, but concentrate on changing your personal fortune by “drawing a line in the sand, taking control of your debts and working hard to pay them off as soon as possible”.
“OK, you can have those debts written off in extreme cases,” says Louise, “but it is actually much better for your credit rating if you try to pay them off as fast as possible.
“It will take discipline and planning, but it can be done.”
Louise’s Beat the Mortgage Blues Top Tip No.3 – concentrate on affordability
“Going back only 18 months ago, people were being offered loans of anything up to eight or 10 times their salary,” says Louise.
“That was completely crazy. Now we all have to be much more realistic.
“The most you are likely to get is 3.5 times your salary.
“This means that if you earn £20,000 a year, the most you will be offered as a mortgage loan will be between £60,000 and £70,000.
“However this will be problematic for young single people, as while house prices have dropped, they’ve not dropped to the extent that many properties fall within that price range.
“Again, it may be old-fashioned, but it might be better for young people to wait until they are married or with a long-term partner before they try to get a mortgage, because you can get an awful lot more for 3.5 times £40,000 (£140,000) than you can 3.5 times £20,000.”
Finally, Louise also advises that buying a house with shared equity through a social housing scheme is an “excellent option”.
“I think it’s a great idea,” says Louise, “as many social housing shared equity properties tend to be new-build properties which need nothing doing to them and with very low maintenance costs.
“And then there’s the flexibility of being able to buy more of your property when you are in a position to do so.”
But, warns Louise, there are drawbacks.
“Firstly, there simply isn’t enough social housing schemes to meet the need at the moment,” says Louise, “so you’ve got to be quick off the mark when you find something you like.
“And also, some mortgage lenders are reluctant to provide loans for them, simply because if it comes to repossession there’s increased legal implications – and therefore costs – for the mortgage provider to bear.”
