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Mortgages and the credit crunch

Apr 14, 2008
The current credit crunch which we are all experiencing is affecting the way in which mortgages are being given out. This article will aim to show why your good credit score last year may not be holding up as well this year, meaning you aren't geting as good a market value.

To understand the situation you first have to be aware of what exactly is out there that is affecting your ability to get particular mortgage products with particular lenders. This issue is broken down into two parts. The first part is the credit crunch itself and the second part is how lenders score borrowers for mortgages.

The credit crunch has had a global effect on the mortgage markets and the UK's mortgage markets are feeling the pinch in a big way. The lenders are finding it increasingly difficult to obtain the money they used to and so you will find it increasingly difficult to borrow from them. The reason why the lenders are having a hard time raising funds is down to poor lending in the US with the companies supplying the lenders the funds no longer willing to take the risks on bad investments.

Mortgage lenders can still get money but currently they can only get it if they commit to vetting borrowers a lot more strictly than they have been in the past. This has resulted in the second reason why you may find it harder to get a loan and that is credit scoring.

Credit scoring is a computerised system that lenders use to establish someones ability to borrow money. The higher a score the better the quality of borrower and the more likely the lenders is to grant a mortgage. The lower the score the less likely they are to grant a loan or if they do they will tend to grant that loan at a higher rate. This is known as sub prime lending.

There are a lot of different ways in which your score is calculated, most of which you will not be told about as you may be seen to be able to manipulate the answers to your advantage. Having said that, there are tricks to making sure that your credit profile looks as healthy as possible. First of all, it is advantageous to have a stable address history. If your contact address has changed several times in the last 6 years, it can make you look financially unattractive.

Being on the electoral roll is also a plus. The fact that you have voted from the same location for several years gives lenders confidence that you have stayed put and therefore stable for a significant length of time. This will give you more points.

Though you may have a mobile phone, having a land line is another way to work the system to your advantage.It is also best to have a secure employment history so that the lender can see that you are not changing jobs every couple of weeks or months. Remember this is where the repayments on the loan are coming from and they like to know they will be repaid on a regular basis.

Finally the big one, make sure you do not miss payments on loans and credit cards. It is important to have credit as having no credit gives the credit scoring system nothing to work with so gives you no benefits at all. Having a nice amount of healthy credit ie paid every month is great for the system it eats up good credit and suggest to the lender that you are a potentially good borrower.

So to sum up make sure you do everything to make your score as high as it can be and present your mortgage in the best light to the lender and you should be able to survive the credit crunch were others may not. And remember mortgage advice is key mortgage brokers know how this system works as they do it every day so don't underestimate the value of a mortgage advisor however much they cost.
About the Author
Mortgage Route offers assistance help and mortgage advice from fully trained mortgage brokers coupled with free mortgage calculators and sourcing tools.
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