Bad Credit News: Rising Cost of Living and What it Means for New Mortgages

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Over the past two years, the cost of living has risen exponentially. With rising petrol costs, gas, electric and water bills too, there are many individuals and families wondering how they would ever afford a home of their own. 

We are keeping on top of the news to make sure you’re constantly informed about your options when it comes to your first mortgage for your first family home, or potentially remortgaging your existing home.

How Will Your Borrowing Power Change?

Lenders take lots of factors into account when assessing your borrowing power, including your income, credit history, and living expenses. If your expenses increase due to the cost of living crisis, you might see a decrease in your borrowing power. This means that you might not be able to borrow as much as you would have prior to the cost of living crisis. 

However, lenders are still keen to attract new borrowers, so don’t assume that you won’t be able to secure a mortgage or re-mortgage. By modifying your household budget, generating more disposable income, and finding specialist lenders, it’s still possible to own your own home or release equity from an existing property. 

What Will Happen to Your Credit Score?

Being in debt isn’t necessarily a bad thing. In fact, the vast majority of adults in the UK have some form of debt. However, badly managed debt can be problematic. Staying on top of your repayments and contacting creditors if you’re unable to make payments is the key to avoiding black marks on your credit file, but don’t despair if your credit score has already dropped. 

As the cost of living crisis continues to bite, we can expect to see more and more people relying on unsecured debt, like credit cards, to cover the cost of essentials. An increase in unsecured debt is likely to have an impact on your borrowing power when it comes to getting a mortgage, so aim to keep this as low as possible. 

If you already have a poor credit history, working with a specialist mortgage broker for bad credit or mortgage lenders that don’t credit score can be advantageous. These lenders are often willing to accept applicants that regular high street banks would decline, so obtaining a mortgage with bad credit is certainly possible. and a experienced mortgage broker will know  which lenders to approach with your credit profile and your ability to service the debt to meet the lenders rules on affordability.

What Are CCJs and IVAs?

A county court judgment (CCJ) is issued by a civil court if someone takes you to court over an unpaid debt. It essentially means that the court recognises that the debt is owed and confirms how much is owed, how it should be paid, any deadlines that apply, and who the debt is owed to. 

An individual voluntary arrangement (IVA) is an agreement between a creditor and lender to pay back debts over a specific period of time. As an IVA is legally binding, it is approved by a court and both creditors and lenders must stick to the terms of the agreement. Generally, creditors will agree not to charge interest on existing debts while an IVA is in place, but you may be prevented from taking on new debts without express permission. 

Both CCJs and IVAs can have an impact on your ability to borrow money or secure a mortgage, particularly if you rely solely on high street banks. Despite this, there are many lenders who will provide you with the financial services and products you need. A mortgage company that specialises in bad credit mortgages is more likely to lend to an applicant with a CCJ or IVA, for example. 

Can You Get a Mortgage?

People often assume that they won’t be eligible for a mortgage due to a low income, existing debt, or a poor credit history, but this isn’t the case. Choosing the right mortgage and lender can increase the likelihood of your application being successful, despite any ongoing financial difficulties. 

By choosing a mortgage with a high loan-to-value (LTV) ratio, for example, you can purchase a property, even if the cost of living crisis is making it difficult to save for a deposit. However what you must understand is that mortgage lending is based on assumed “risk” and the bigger deposit that you are able to put down, the more flexible the lender will be on accepting Bad Credit and maybe more flexible on the affordability rules. You will also find that the pricing of the actual mortgage product will be more attractive if you can find that little extra deposit. Alternatively, a lender specialising in bad credit may be willing to remortgage your property, which could give you access to the funds you need to consolidate existing loans. 

How to Get a Bigger Mortgage on Low Income in the UK

The amount you can borrow as a mortgage is generally linked to your income, so, the more you earn, the more you can borrow. Despite this, lenders are being relatively flexible when it comes to income/borrowing ratios. As the cost of living in the UK increases and people have less disposable income, being able to secure a mortgage or remortgage with a larger income/borrowing ratio can be advantageous. 

Fortunately, there are lenders who specialise in low income mortgages and you might be surprised at how much you’re eligible to borrow. A standard mortgage might enable you to borrow 4 – 4.5x your salary, for example, whereas a specialist low income mortgage might give you the scope to borrow 5x or even 6x your income. However most lenders now base their decision on how much they will lend on affordability, so how you manage your current financial commitments will have an impact on how the lender views the application going forward.

With plans to let borrowers classify housing benefit as income for mortgage application purposes, low earners will potentially find it easier to secure a mortgage, regardless of the cost of living crisis. Whether you’re reliant solely on Universal Credit or your income is supplemented by benefits, being able to use these funds to calculate your income could certainly boost your borrowing power and enable you to get a bigger mortgage on a low income. 

Finding the Right Mortgage 

Choosing the right financial product can have a significant impact on your future, particularly when it comes to long-term borrowing like mortgages. While there are plenty of companies advertising low income mortgages and mortgages for bad credit, they don’t all offer the same borrowing potential, and they invariably charge different fees and interest rates.

Due to this, it can be advantageous to seek advice from reputable mortgage brokers, like A Mortgage 4 You. As specialists in bad credit mortgages, we’re on hand to help you find the right lender and mortgage for your needs, regardless of your financial situation.

To learn more or to start searching for a mortgage today, contact our team now on 0800 802 1003.

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