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Six Ways To Increase The Amount You Can Borrow On A Mortgage
Those hoping to buy a new home or looking to re-mortgage may be alarmed to hear that under new borrowing rules they may soon be unable to raise a mortgage for more than three times their annual salaries.
The Financial Services Authority (FSA) is already pressurising lenders to implement these much tougher lending limits and it is preparing a report, which will be due out later this year, on the subject. In response to the credit crunch and falling property prices, all UK lenders have already withdrawn 100 per cent mortgages, but the lending rules finally issued by the FSA are expected to ban anything over 90 per cent, except in anything but the most exceptional circumstances.
Currently, building societies and banks will lend up to four times income - with a couple being able to borrow up to four times their joint salaries - that's provided they have an excellent credit record and at least 10 per cent equity in their home.
So what can homeowners do to boost their borrowing power. The following six tips should help both those looking to get on the property ladder and those looking to re-mortgage to maximise their borrowing potential, even if banks do tighten their lending criteria.
Check your credit rating - The recession has forced lenders to tighten their mortgage lending criteria. At present lenders are only lending to those people who are the best credit risks. To maximise the chances of you qualifying for a mortgage, check your credit file. A copy of your credit history will costs just 2 pounds from Equifax and Experian. When you get it ensure the record is both up-to-date and accurate - any errors could damage your ability to qualify for any borrowing. Speak to the credit agency about any mistakes you find and they will be able to tell you what you have to do to get the record corrected. They can then remove the erroneous and damaging information and add an "explanatory note" to any previous problems.
Reduce any debts - Lenders are increasingly using affordability criteria when they work out how much you can borrow. Affordability takes into account your existing debt, your regular outgoings as well as your income. By reducing your overdraft and the balances on credit cards etc, the lender will presume that you are more capable of coping with a bigger mortgage and, consequently, they may be prepared to lend your more.
Put down the biggest deposit you can muster - The bigger the deposit, the less the lender is taking. This will also encourage them to consider a high ratio of lending to income. So get saving!
Consider buying with someone else - If the lender is taking two persons salaries into account, and the person you are buying with earns more than you do, it should be possible get a bigger mortgage than if you were purchasing by yourself. But some mortgage lenders are more generous than others - so get an independent mortgage broker to do some research first.
A guarantor could help - If you are a first time buyer you will benefit from having a guarantor to underwrite your mortgage. Lenders may well be prepared to lend a higher amount if they know a parent with a good credit record, will guarantee to repay the loan in the event of difficulties. But be aware that there are not many guarantor mortgages remaining in the market, but it is always worth talking to a lender about it.
If all else fails, use your other forms of credit - You can use credit cards, bridging loans, and personal loans to make up any shortfall in your mortgage lending. But beware - interest rates will be much higher, and if your proposed lender feels you are overstretching, they are unlikely to make you an offer. So make a budget to be certain you can afford these debts. And also make an allowance for interest rates to rise. There is no likelihood of interest rates rising in the immediate future, but as now when rates are as low as they can go, the next change must be upwards.
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