Mortgages and the credit crunch
The current credit crunch which we are all experiencing is affecting the way in which mortgages are being given out. This article will aim to show why your good credit score last year may not be holding up as well this year, meaning you aren’t geting as good a market value.
Let us first look at what exactly is happening in the world of lending and borrowing. This should help with understanding the current situation. There are two main factors at play, the credit crunch itself and the way in which lenders are rating the potential borrowers. These factors will affect your ability to get certain mortgage services from certain money lenders.
The credit crunch is a situation that the mortgage markets around the world but particularly UK mortgage find themselves in. It is all about lenders not being able to raise the funds that they in turn lend to you. Lenders typically borrow money from the money markets in order to lend out to you the borrower. Due to the poor lending in the US the organisations that lend this money do not want to lend any more as the risk are currently to high.
That is not to say that mortgage lenders cannot lend money. It simply means that the criteria for the borrowers is much more rigorous as the lenders do not want to risk lending out more money which they won’t get back. Hence the second difficulty for borrowers. This strict vetting system is called credit scoring.
Credit scoring is a computerised system that lenders use to establish someones ability to borrow money. The higher a score the better the quality of borrower and the more likely the lenders is to grant a mortgage. The lower the score the less likely they are to grant a loan or if they do they will tend to grant that loan at a higher rate. This is known as sub prime lending.
Your credit score is established by a lot of factors and most of these factors are kept very secret by the lenders as they do not want you to manipulate it. But there are easy ways in which you can ensure that your credit score is as high as it can be. You need to ensure that your address history for the last 3 years at least is as stable as possible. Credit scores are affected by multiple addresses, so if you moved 6 times in the last three years this will reduce the overall score.
Being on the electoral roll is also a plus. The fact that you have voted from the same location for several years gives lenders confidence that you have stayed put and therefore stable for a significant length of time. This will give you more points.
Though you may have a mobile phone, having a land line is another way to work the system to your advantage.It is also best to have a secure employment history so that the lender can see that you are not changing jobs every couple of weeks or months. Remember this is where the repayments on the loan are coming from and they like to know they will be repaid on a regular basis.
Finally the big one, make sure you do not miss payments on loans and credit cards. It is important to have credit as having no credit gives the credit scoring system nothing to work with so gives you no benefits at all. Having a nice amount of healthy credit ie paid every month is great for the system it eats up good credit and suggest to the lender that you are a potentially good borrower.
So to sum up make sure you do everything to make your score as high as it can be and present your mortgage in the best light to the lender and you should be able to survive the credit crunch were others may not. And remember mortgage advice is key mortgage brokers know how this system works as they do it every day so don’t underestimate the value of a mortgage advisor however much they cost.
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