In this article, George Square Financial Management’s mortgage experts provide an update on the current market, looking specifically at how payment holidays can affect lending and providing an overview of the help to buy and mortgage guarantee schemes.
Credit file more important than ever
Your credit score can impact whether you get a mortgage, credit card, insurance, even a mobile phone contract. It’s therefore vital that you keep track of it, particularly if you are looking to buy, sell or renovate and have taken out a coronavirus payment holiday.
The first six months of a payment holiday shouldn’t have been reported as missed payments on your credit file. But even if the payment holiday is not on your credit file, lenders can still find out about it in other ways; for instance, they can see your mortgage balance isn’t going down – and can use that information to help their decision when you next apply for credit.
Further help after a six-month payment holiday will go on your credit file. Lenders should report any further ‘forbearance’ (such as financial support like extra payment deferrals) after you’ve had six months of payment holidays to credit reference agencies. Your lender should let you know if the support its offering you would affect your credit report.
Higher LTV mortgages coming back to the market for those with adverse credit
Last year, numerous lenders chose to pull high loan-to-value (LTV) mortgages from the market on the back of the COVID-19 crisis, with many concerned about borrowers falling into negative equity.
However, with restrictions slowly lifting, many lenders are beginning to relaunch their high LTV products and are bringing back adverse credit criteria to better cater for customers with imperfect credit profiles. With the increase in house prices and the tapering of stamp duty, this could make a real difference in helping buyers get the residential mortgage they need.
Help to Buy scheme
The help to buy scheme means first time buyers can get an equity loan towards the cost of buying a new-build home. To be eligible for the scheme, you must be 18 or over, a first-time buyer, and able to afford the fees and interest payments. You can apply on your own or with other people, but all applicants must meet the eligibility criteria.
The property you buy with your equity loan must be a new build, sold by a Help to Buy registered homebuilder and must not have been lived in by anyone else before you buy it.
First time buyers pay a minimum deposit of at least 5% of the purchase price. You can then borrow 20% (40% in London) of the purchase price. This amount is interest-free for five years. The maximum purchase price for a Help to Buy property depends on what region of England you live in.
While this scheme provides a great opportunity for new buyers to get on the ladder, it is limited to first time buyers only. Those who have previously owned a home will need to look at other schemes, such as the Mortgage Guarantee Scheme.
Mortgage Guarantee Scheme
Launched on 1 April 2021, the Mortgage Guarantee Scheme involves the government ‘guaranteeing’ 95% mortgages for buyers with 5% deposits. The aim of the scheme is to increase the availability of 95% loan-to-value mortgage products, enabling more households to access mortgages without the need for restrictively large deposits.
Major banks including Barclays, HSBC, Lloyds Bank, NatWest and Santander have committed to launching 95% deals. Under the terms of the scheme, participating lenders need to offer a five-year fixed-rate mortgage as part of their range. The government says this will give borrowers the security of predictable repayments for a longer period.
Unlike the Help to Buy Scheme, the Mortgage Guarantee Scheme is not just exclusive to first time buyers. However, the scheme has proven to be stricter when it comes to those with adverse credit and what credit score is deemed acceptable.
Whether your mortgage is approved might depend on the age of your credit issues (the longer they’ve been on your file, the better), the severity of the issue and the reason for your bad credit. For instance, some providers may be more likely to overlook bad credit as a result of an unexpected life event, as opposed to poor financial management.
If you are struggling to secure a mortgage or have been refused a mortgage, our team is here to help – we can usually find a solution to help you secure your property. Find out more about our specialist lending service here.
Get in touch
Whether you’re a first time buyer, professional landlord, moving home or simply looking for a better deal on your existing mortgage, the George Square mortgages team offers independent mortgage advice that is 100% impartial. Our experienced mortgage advisers have access to the ‘whole of the mortgage market’ meaning we can source the most suitable deal for you without being restricted to certain mortgage lenders.