Could temporary homestays ruin my mortgage application?
I plan to buy my first home this year, have saved a deposit and just started showing properties.
I’m currently renting, but will be moving soon because the landlord will only renew the lease for a set term of one year, which I don’t want to commit to given my plans to buy.
A family member has offered to let me stay with her rent-free for a few months until I buy out. If I took it upon myself, I would be able to save a little more, but the move would also require a long and expensive train ride to work.
However, I would very much appreciate not having to worry about timing the purchase towards the end of the lease.
On the ladder: Our reader is currently renting his first home and is keen to buy it – but will be living with his family in the meantime and is concerned this could impact his credit score
Although my total spending won’t change much, what I spend money on will be very different and I’m wondering if this will impact my mortgage application.
I’ve been paying rent for the past 15 years, and suddenly I won’t be paying anything — even though I’ll obviously be contributing to bills and food.
On the other hand, my moving expenses will temporarily quadruple – but this will drop dramatically again once I move into my new home.
Is this something that would bother a mortgage lender? My name will also not be on any of the household bills, could this cause issues with the credit check and proof of address?
Should I get a mortgage in principle before or after I move out of my rented home?
Ed Magnus of This Is Money replies: Mortgage applications can be daunting, especially when you’re new to the experience and may not be sure what boxes you need to check to be successful.
After doing all the hard work by saving up for a deposit, being denied a mortgage due to a ‘computer says no’ style algorithmic error due to a temporary change in address or circumstances would be like a kick in the teeth – to put it mildly.
The truth is that first-time buyers are rejected by mortgage lenders for all kinds of reasons.
Issues with credit history and not being included in the electoral roll are reasons why an application may be rejected.
A poor credit score or bad history raises alarm bells for lenders because they want to be sure that you will be a reliable borrower.
When you apply for a mortgage, the lender will usually want to see proof of identity and address. For example, a scanned passport and a utility bill.
They’ll also want to see your most recent bank statements, as well as your most recent payslips if you’re employed or your last two or three years of tax returns if you’re self-employed.
Lenders will want to ensure that the information described in these documents matches. If the addresses are different, this could cause an issue – although living with family is not uncommon among first-time buyers and is a situation that can be explained fairly easily.
To help provide our reader with more advice, we spoke to Karen NoeMortgage Expert at Quilter and Nicholas MendezTechnical Director of Mortgage at brokerage firm John Charcol.
Will their travel expenses be an issue?
Karen Noe says lenders will take future changes in circumstances into account
Nicholas Mendes answers: No, lenders take into account your future circumstances.
Because your travel will be cheaper once you move into the property, the lender will accept reduced travel costs as part of the affordability assessment.
Karen Noe answers: Lenders take spending into account, some will use ONS data to look at averages while others ask for specific amounts such as council tax costs, insurance and travel costs.
When your travel costs are reduced when commuting as a result of your proximity to work, the lender will take this into account when assessing affordability, and will tend to look at the purchase address in relation to your work address to make sure this is possible.
In addition, applications will require the last three years of your address record, so you will have the opportunity to provide full feedback within your application regarding your circumstances, why your travel costs will increase, and that this move will mean you are closer to working again and will therefore reduce costs in the future.
Lenders are generally happy with this level of clarification but may occasionally request additional information or proof.
How about not mentioning his name on any household bills?
Nicholas Mendez warns that not keeping your address records up to date could affect your credit history and hinder your application
Nicholas Mendes answers: When you move to a new address, even temporarily, it is important to make sure your bank records, electoral register and driving licence are up to date.
Failure to update key records could affect your credit history and hinder your application.
Lenders will usually ask for your address history for the last three years as part of their evaluation.
Karen Noe adds: Once you have moved to your new address, even if it is temporary, it is important to ensure that your address is updated as soon as possible with your employer and bank, as well as in any financing agreements and electoral register, among other things.
Regarding a credit check, if your address is updated immediately, you will be able to use a bank statement for proof of address.
Not all household bills appear in credit files because it depends on the provider, and there are other ways to help build or maintain your credit score, such as properly managed credit cards.
When should they get their approval in principle?
Karen Noe answers: If you get an agreement in principle between now and then, you will need to update your lender and the lender will then re-run the credit check due to it being a material change in your circumstances.
So I suggest waiting until you move, unless you are looking to make an offer on a property in the near future.
If you apply for a mortgage in principle before moving out, it’s important to update your broker or lender once you’ve done so.
Verification: A poor credit score or bad history raises alarm bells for lenders because they want to make sure you will be a reliable borrower.
Nicholas Mendes adds: I would recommend any potential buyer to get an agreement in principle straight away.
Knowing what they can borrow can help ensure they are looking for the right properties that fit their budget, but also alert them to any issues that limit their ability to secure the property they want.
How important is their credit score?
Nicholas Mendes answers: Your credit score and history are incredibly important factors when applying for a mortgage, because it indicates to lenders how likely they are to repay borrowed money.
Mortgage lenders typically look at reports from any of the three major credit reporting bureaus: Equifax, Experian, and TransUnion.
How can they improve it?
Nicolas Mendes adds: If your credit score is not up to scratch, you should aim to improve it over time.
You can do this by registering on the electoral roll, making payments on time, reducing your existing debts and checking your credit report for errors and suspecting any inaccurate information.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. This helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial independence.
(Tags for translation) Daily Mail