As the government pledges to increase its support of homebuyers through the introduction of a 95% loan to value mortgage scheme, as well as the extension to the help to buy scheme and a stamp duty holiday, some tenants may be wishing they could take advantage of the opportunities being presented yet may fear they are not in a good financial position to make the move - but that might not necessarily be the case.
If you are tenant who’d like to buy, the first step is to check your finances to make sure you understand the costs that might be involved and then to provide reassurance to a mortgage lender that you’ll be able to repay any mortgage loan they offer – with your credit score being a top priority. Here’s the questions Reeds Rains suggests you ask yourself and ideas to help you find the answers.
Can I afford to buy?
Think about what regular payments you are already making i.e. your rent, insurances, council tax, electricity and/or gas and your day to day living expenses such as food and travel. Add to this the costs of buying and owning your own home (a quick search on google could give you some average costs i.e. solicitor fees, removal costs, furnishing and redecoration costs) and then, of course, the deposit which can be around 5-10% of the value of the property or higher. Our handy budget planner may help too.
Can I demonstrate to a lender that I’ll be able to pay back their mortgage loan?
Like anyone applying for a loan, it’s important to show the lender that you can afford to make repayments on it in the longer term. Whilst you are paying for your rental property (and all the associated costs) you’ll need to show that you can also absorb the extra cost associated with being a homeowner and that you manage your finances well. As part of this, it’s important to have a good credit score.
What is a credit score?
It’s important to understand that lenders gauge the risk you present to them as a borrower on your credit score. This takes into account how you manage your finances, based on current and past records in relation to i.e. credit loans such as credit cards and hire purchase agreements. The lender is looking for a high credit score which indicates you are at less risk of defaulting on your mortgage payments. You can obtain a credit score free from credit reference agencies like Equifax and Experian.
Can I improve my credit score?
Yes. Review any existing credit agreements that you may have and close any you no longer require i.e. unused credit cards. Make sure too that you review your direct debits, cancelling any that may now be defunct or invalid. You may also want to set up new direct debits to ensure any future bills are paid on time and to avoid missing them. It’s also worth avoiding taking cash out via your credit cards. Aside from your finances, it’s also worth registering to vote as this is something that is also taken in account. More details are available on the government website
Can my rental payments affect my credit score?
Yes. If you’ve paid your rental payments in full and on time you are showing that you manage your finances responsibly and that could be a taken into account in your credit score. The Rental Exchange initiative is an initiative that landlords or tenants can sign up to which ensures your rental payments are recorded and taken into account by Experian. It’s free and could be very important if you are trying to secure a mortgage.
Where can I go to for help about buying?
As well as finding out how much properties may cost in the area you want to buy, to help in budgeting, Reeds Rains suggest you contact Embrace Financial Services (EFS), who work in partnership with us, to find out if you might be eligible for a mortgage. They will also be able to tell you about deals that might be suitable for you from across the market, not just one lender.
For more details about the Rental Exchange access the Experian website at https://www.experian.co.uk/business/consumer-information/consumer-credit-management/rental-exchange/
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Embrace Financial Services usually charges a fee for mortgage advice. The amount of the fee will depend upon your circumstances and will be discussed and agreed with you at the earliest opportunity.