17 September 2010

The adviser should know rules and criteria

A lot of people ask me “how do you know what to write each week, it must be difficult?” But actually, there’s so much going on, I could easily fill more than my 350 word column consistently. Despite all the recent negative press, the mortgage market is vibrant with activity!

The bottom line is that a mortgage is the biggest debt you’re likely to ever take on, so you need to do your homework and understand more than just what the national press decide to publish about the Bank of England base rate being held at 0.5% again, or how much profit the banks are currently making!

Advice is crucial and ideally from a company who can offer ‘whole of market’ mortgages, not just products from a limited panel of lenders, like some Estate Agency chains or a Bank/Building Society who only offer their own products.

Most lenders have a set of rules and criteria that need to be met even before requesting a decision in principal (stage at which you are credit searched for pre approval). For example, one lender has a debt utilisation rule at 70%. So, if you had a credit card with a £1k limit and you had a balance of £701, divide the latter by the previous and your utilisation amounts to 70.1%, which means you would be ineligible for this lender. Another stipulates you can have no more than 8 unsecured credit cards or loans at the point of application. We tend to see customers have a number of debts within this ruling, but keep open old debts with zero balances, which push them over the stipulations. Others won’t look at unencumbered properties for remortgages, or assist where the customer sold their house within the last year and are renting, so falling between a first time buyer and a residential home owner and so on.

All of these are little idiosyncrasies that should be known by anyone advising on a mortgage. These save time and probably unnecessary credit searches being carried out. Remember, the more credit searches you have against your name, the more likely your credit score will decrease, which may affect your ability to obtain finance. Whoever you talk to about your financial requirements, make sure you say at the outset that you do not want to be credit searched, unless you give them the authority to do so.

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