Securing a Mortgage Loan

Securing a Mortgage Loan

by Rebecca Hall on 4 Apr, 2012

Mortgage loans (more commonly referred to simply as ‘mortgages’) are much harder to secure in the wake of the financial crisis which many people primarily attribute to too-readily available credit for homebuyers.

Most mortgage lenders now require a deposit of at least 10% of the property value, with 15% even more common. Some lenders go as far as asking for 25% depending on the property and your financial situation.

Getting a mortgage has always depended on proof of your income, credit rating and getting a substantial deposit together, but now that the sub-prime mortgage market has taken a massive tumble, your personal finance record has never been more important in securing a mortgage loan.

Generally speaking, the larger the deposit you can get together, and the better your credit record, the lower the interest rates available to you, as well as more favourable payment terms. This is because you are deemed to be less of a risk to the lenders.

This puts people with worse credit records, and lesser access to the cash required for a larger deposit in a disadvantageous position, possibly blocking them from obtaining a mortgage at all.

The dilemma here is that if you can secure a mortgage, albeit on less favourable terms than would have been possible pre-2007, are you better off than saving up? The short answer is: nobody knows.

Waiting until you can get the cash together for a larger deposit may not help as property prices are likely to rise again having crashed over the last couple of years. Equally, they may never recover to the same levels they were at previously – after all, those prices were a result of a monumental bubble in the property market. It could be that you would be better off taking the less favourable terms and refinancing once your personal finance improves.

Naturally, with so many factors and complications that all change depending on your situation and the kind of property you’re going for, blanket advice is next to useless. If you’re looking to buy property, the best advice is the same as with almost anything: shop around, talk to independent advisers and see what’s out there.

About the Author

Rebecca Hall

Rebecca Hall worked as an independent mortgage adviser for 10 years before turning to financial journalism full time. She has strong links to the CAB advising families on mortgage refinancing.