From a poor credit score to a weekly pay packet

THOUSANDS of households have been stung by brutal mortgage rates as interest rates remain high. 

But for many people, including those who don’t work a standard 9-5, even securing a mortgage poses a major challenge.

Craig Fish, a director at Lodestone Mortgage, says: “High street lenders work to tick boxes, and if your age, the way you’re paid, your business or your credit file doesn’t fit neatly into those boxes, a computer can turn you down before a person has even looked at your case.”

But even if you’re older, self-employed, paid weekly or have a dodgy credit file don’t lose hope.

Mortgage brokers, who act as a go-between borrowers and lenders, can often help people access a wider range of mortgage deals than banks can. 

Here we speak to the experts to find out what you need to know. 

If you’re close to retirement and need a mortgage

Figures show that more older people face paying off a mortgage in later life.

In April to July this year there were 37,300 new mortgages lent to older borrowers, according to UK Finance – a rise of 13% on the same time the year before.

The number of people getting divorced and starting a new life for themselves is also on the up, and this often means buying a new home. 

Despite the growing trend, it can be hard to secure a mortgage when you are nearing or in retirement. 

But many mortgage lenders will now lend until you are 75, and some until 80 or beyond.

For those not yet retired, consider a shorter term mortgage or bigger deposit, as these would help you keep the mortgage payments confined to your working life.

Craig says: “Lenders mainly want to see how the mortgage gets paid once the wages stop.

‘Every lender has two age limits: one for when you apply, and one for when the mortgage has to be paid off.”

If you are applying for a loan have your latest pension statements and State Pension forecast ready. You can check your State Pension Forecast for free via the government’s website. 

Lenders will use these documents to assess whether you can afford the mortgage once you retire. For those who want to and are able to, carrying on working in later life or getting a part-time job can also show you have additional income coming in. 

If you get a mortgage in later life, in some cases you may be able to overpay your mortgage repayment to get it paid off sooner or before you retire.

Lenders have different rules about overpayments, so check before you sign up.

One option for people who have already retired is a retirement interest-only mortgage, which does not have an age limit.

You pay interest each month and the loan is typically repaid when the home is sold. 

However, this type of mortgage is not right for everyone and you could be at risk of negative equity – where the size of the loan is more than the house value – so get professional advice before signing up. 

Another option is to downsize to a smaller property and free up cash to pay off the balance on any outstanding loan. 

Although this may come with tax costs so take professional advice before making the move.

If you’re paid weekly and need a mortgage

In recent years, the rise of casual and zero-hours contract work has led to more people being paid weekly.

Being paid weekly will not stop you getting a mortgage, but you will have to provide more paperwork. 

If your hours change weekly or you rely on overtime, lenders will look at an average of your income over a longer period and may only count part of any extra money towards your total income. 

Nicholas Mendes, mortgage technical manager at John Charchol, says: “Lenders will ask for several weeks of recent payslips, often covering the last three months, and will work out your yearly income from them.

“Ensure your payslips match the money going into your bank account, as lenders check your statements too. Missing payslips are a common cause of delays.”

Lenders might also want to see your latest P60 form, which shows your annual pay and how much tax you paid. 

Avoid changing jobs in the months before you apply for a mortgage, as some lenders will not lend while you are on probation.

You won’t need to show that you have a large stash of cash savings on hand to cover payments if you are out of work, but it can help. 

Nicholas says: “Lenders mainly focus on proof of income, the size of the deposit and whether the mortgage is affordable. That said, a healthy savings balance can help, as it shows the lender you can cope with a quieter month or an unexpected bill, and lenders will look at your bank statements to see how you manage money.

“Your deposit itself will need to be clearly shown, either in your own savings or as a gift from the family backed by a signed letter.”

If you’re self-employed and need a mortgage

There’s an army of more than 4m self-employed sole traders, freelancers and business owners in the UK who can find it more challenging than they should to get a mortgage. 

In particular, it can be really tough for people who are newly self-employed to be approved. 

This is because lenders want evidence of how much money you’ve had coming in and whether this income is likely to continue once you’ve got a mortgage. 

If you are self-employed and want a mortgage a good place to start is talking to your accountant.

Craig says: “The biggest trap for the self-employed is an accountant who does too good a job. 

“Every pound you legitimately keep away from the taxman is a pound a lender can’t count, because most lenders work from your taxable profit, not your turnover.”

How lenders work out your income varies; some will use your latest year’s figures, while others will take an average sum from your accounts or tax returns in the last two years. 

If your self-employed income looks set to rise in the current tax year and will be better than last year, it can pay to wait to apply for a mortgage until your latest tax return has been filed.

Many lenders want to see two years of accounts or tax returns, but some will accept one year.

If you have any work coming up or evidence of a consistent work history, it might be helpful to share this with your lender. 

Nicholas says: “The documents lenders ask for are usually your tax calculations and tax year overview from HMRC, which you can download from your online tax account, along with business and personal bank statements.”

Most lenders want business and personal accounts kept separate. Lenders will spot if payments to HMRC from your self-employed work have not been paid on time. 

The planned move to quarterly digital reporting to HM Revenue & Customs for many self-employed people should not make it harder to get a mortgage. 

Lenders will still base what they lend on your final tax figures for the year, rather than the quarterly updates, so the documents they ask for will be very similar. 

But there could be some teething problems as people adjust, so keeping your records up to date and submitting your final tax return on time is more important than ever. 

Nicholas adds: “If anything, better digital records can make it easier to show a lender exactly what you earn.”

If you have poor credit history and need a mortgage

Your credit history is a record of how you have dealt with borrowing and repaying money over time.

You might have a poor credit history if you have used payday loans or not paid off your credit card bills on time.

If you’ve applied for loads of credit cards recently and been turned down for all of them, you will be deemed to have a poor credit history. 

You may also get caught out if you don’t have a credit card or aren’t named on any household bills. 

But don’t be disheartened. A credit score is like a moveable object and can change as your money habits improve.

Once your score improves, you stand a better chance of securing a mortgage. Each lender has its own way of scoring applications, so a score on a credit checking app or website is only a guide. 

Even if you are not currently looking to buy a home, sorting out your credit history as quickly as possible now will help you secure a mortgage more easily when you do. 

Craig says: “A bad credit history isn’t a life sentence. Getting your credit history in order early makes a big difference. A missed payment you sort out today could be the difference between a yes and a no in a few years’ time.”  

Lenders will look at what happened, how long ago it was and whether you have put your finances in order since. 

Craig adds: “A missed phone bill two years ago is a different story from a county court judgement last month.

“The worst thing you can do is fire off mortgage applications to multiple lenders, because every full application leaves a mark on your credit file.”

Start by checking your credit report with all three main credit reference agencies, Experian, Equifax and TransUnion. Mistakes on credit files are common so get errors rectified. 

Ensure you are on the electoral roll as this helps your credit score, which is a number that reflects your chances of being approved for a mortgage. 

Be upfront about past problems as lenders will spot them. Be wary of payday loans, as even if they are repaid on time, lenders aren’t keen on them. 

Nicholas says: “Pay all bills on time, keep credit balances low, and avoid applying for new credit in the six months before you apply for a mortgage.”

Specialist mortgage loans cost more, but once your credit record improves, you can often move to a cheaper mainstream deal.

What are the current mortgage deals on the market?

Borrowers are being hit hard by higher mortgage costs as the Bank of England has upped interest rates to 4%.

Around 2.3m households will be coming off cheaper fixed-rate mortgage deals next year and facing a bill shock. 

The average two-year fixed rate deal has an interest rate of xxx%, while the average five-year fix is xxx%, according to Moneyfacts.

Several major lenders like HSBC and NatWest cut mortgage rates recently, and borrowers with larger deposits can get rates below 5%. 

Based on the average UK house price of £273,000, with a 10% deposit of £27,300, a buyer would borrow £245,700. On a five-year fix at 5.31%, repayments over 25 years would be about £11,481 a month. 

With a 25% deposit of £68,250, a buyer would borrow £204,750. On a five-year fix at 5.13%, repayments over 25 years would be around £1,213 a month, which is £268 a month less.