As a long term commitment, it makes a lot of sense to try and negotiate a better mortgage rate.
Even a reducing your rate by a faction of one per cent could save you hundreds, if not thousands of pounds over the lifetime of the mortgage.
But let’s face it, finding the right mortgage is complex. There’s an abundance of lenders. However, each has a different set of hoops to jump through.
Whether you’re taking out a new mortgage or coming to the end of your current deal and trying to remortgage, there are still several steps you can take to negotiate a better mortgage rate.
Clean up your credit file
All lenders will look at your credit file. This report includes quite a lot of detail about you. It covers the basics like your address, date of birth and whether you’re on the electoral roll.
The report then lays out in fine details when you’ve borrowed money, your repayments and if you’ve ever missed a payment. Also, it will state if you’ve had trouble managing debt and have a County Court Judgment or bankruptcy, for example.
While each lender will judge you differently, it’s important to check that it’s accurate.
All the major credit referencing agencies (such as Experian or Equifax) offer a free copy of your credit history for 30 days (remember to cancel before they charge you!). Some offer the report for a one-off payment of £2.
With your credit file, it’s worth reading through it carefully. If you see mistakes, call your lender and contest the inaccuracies. They are under no obligation to change any data, so be prepared to fight.
Improve your credit score
There are many things you can do today to improve your credit score. Most of which take a few minutes. Here are our top tips:
- Join the open electoral roll
- Stay with your current bank
- Live at one address for at least 2 year
- Pay Your Bills on Time
- Don’t Close Unused Credit Cards
- Don’t Apply for Too Much New Credit
Manage debt responsibly
Trust is still an important quality, especially if you’re asking a bank for a large loan. Many believe a myth that’s bad to borrow money.
Banks still, largely work on trust. They want you to prove that you can manage a small amount of debt responsibly before they’ll consider loaning enough for a house. Luckily, you start to build trust with your bank today.
If your bank is willing to offer you a 0% credit card, then you should apply. It’s worth taking out at least one, 0% credit card. Use them for your daily shopping. Do not abuse them.
Pay off the balance at the end of each month. Do not miss a payment or underpay. Doing so will enable you to build up a stronger credit history and lower your lending risk.
Lower your overall debt
While this may sound contradictory to the last point, stick with us. There’s a massive difference between a mortgage, using a 0% credit card for purchases you have the money for and making ends meet using debt.
If you can, start today and begin to pay off any long-term debt. You could start by paying off double the minimum payment each month. However, if you have debt spread across multiple credit cards and loans, then it might be worth seeing if you simplify to a single loan.
A single loan could help you to reduce your overall rate, meaning you’ll be debt-free sooner. Just don’t undo your good work by abusing credit cards or overspending.
Regardless of how much debt you have, set a date to be debt-free. You now have a goal! To reach any goal, you need a plan. Your plan should include a monthly personal budget, debt repayment goal and a small treat for every milestone.
The best way to get out of debt is to start today. Start small and compound. Don’t forget to reward yourself along the way.
Check what banks are NOT lending for
Some banks won’t lend on certain types of properties. You might want a quirky cottage complete with a thatched roof which needs a full renovation.
However, the bank is likely to be more conservative. So your application will either be a straight no or a lower than needed mortgage amount will be offered.
Also, they could be less willing to lend on new city centre builds. Some say properties occupied in the last three years, some say any properties occupied in the last year.
Sadly, each lender works on their own requirements, which can cause confusion. Read the small print and ask your mortgage advisor the somewhat seemly dumb questions.
Remember if you’re unsure at the end of the meeting, then you haven’t asked all the questions you need to or you have picked a bad advisor and you need to find another one.
Increase your deposit
One of the best ways to negotiate a better mortgage rate is to increase the size of your deposit. You might be able to get a mortgage with less than 20% of the house price. However, the rate is likely to be higher than if you had 30%.
If this sounds like bad news, don’t worry. There are many ways you can boost your deposit savings using what you’re already good at.
Here are our top 5 ideas:
- Buying and selling on eBay or Facebook Marketplace
- Selling crafts on Esty
- Start a blog
- Weekend job
We would avoid ideas that are either highly risky (gambling, forex), expensive or require you to learn a new skill to start.
Yes, saving is hard work, but there are so many ways to make a little money on the side. Even an extra £10 per day will boost your saving after a few months.
Reduce your monthly spending
This might sound a bit odd but has to do with affordability.
If your lender estimates that you can just about pay your mortgage each month and you have a small deposit, then they’ll try and sell you any product.
By reducing your monthly spending, you’ll have more money left at the end of the month. This means you can afford a higher monthly mortgage payment.
The bank might be willing to reduce your rate and term if you could pay more each month. This means it’s easier to pay off your mortgage and cheaper.
If you’re hoping to negotiate a better mortgage rate, you’ll need to follow all of our steps.
Download your credit file and go over it with a fine tooth-comb. Be prepared to fight for changes to it, if any of the data is inaccurate.
It’s worth getting on top of your debt today. Put a plan in place to get rid of bad debt within the next years. Remember, start small and compound.
Join the Open Register of the Electoral Roll. Lenders check this to confirm you’re registered at your current address. Doing this increases your credit score with lenders and will speed up your mortgage applications too.
Get creative with ideas to add to your deposit savings. Stick to what you know and turn your hobby into a micro business. The higher your deposit, the better the rate you’ll be offered.
Finally, reduce your monthly outgoings. Firstly you can boost your deposit fund, and secondly, you can prove to the bank you can afford higher payments at a lower overall rate.
It’s not easy to negotiate a better mortgage rate, but there are a few ways you can help your chances.