Imagine the scene – you’re trawling property websites looking for your next home to buy and you spot the one. The perfect one. You picture a great spot for your sofa here and see your cat purring happily by the fireplace. And as for those integrated uplights – to die for!
Anyone who’s ever moved, or has thought about it, can no doubt relate. The emotional can cloud the practical – and before you know it, you’ve mentally moved into your new home. But it’s wise not to fall hook, line and sinker in love just yet, at least not until you’ve weighed up your finances – and that starts with checking out your credit score.
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The housing surge
After initial Coronavirus restrictions were eased in the spring of 2020, it seems the UK had a case of itchy feet, with the housing market taking off at full throttle. And things don’t look like they’re going to slow down anytime soon.
The housing market at a glance
- December 2021 saw demand for houses at the highest levels on record, with an average of 24 buyers for every property on the market
- 50% of properties sold at the asking price in December 2021 – up from 28% of properties in December 2020
The pandemic has understandably also made people question the way they live and reassess what’s important to them – having a knock-on effect on priorities when looking for a new home. A study carried out by Rightmove found that after lockdown, there was an increase in both buyers and renters looking for larger properties, in a more rural location and with better access to a garden. Throw in the fact that living near to your place of work may be less important these days, then it’s no surprise that many of us are wanting to up sticks and find that new dream home.
The current credit conundrum
But despite the booming property figures, we shouldn’t be too quick to forget the major financial strains we’ve endured as a nation over the past year – from job losses, businesses having to completely rethink how they operate to entire industries being brought to a standstill. When the pandemic hit, the UK entered its first recession in 11 years and Gross Domestic Product (GDP) for 2020 fell by 9.9% – the largest annual fall in 300 years. Not least affected were small and medium-sized businesses (SMEs), which make up a hefty 99% of all businesses in the UK. In fact, a study carried out by Simply Business suggests that the pandemic could cost small business owners tens of thousands of pounds each, with many of them unsure if their business will ever return to pre-pandemic trading levels. So, in the midst of these unstable times, it makes sense to be cautious and take a little time to work out whether you really can afford that new home over the longer term before you take the plunge.
Why being a responsible borrower starts with your credit score
Buying a house is a big financial commitment, so it’s time to do some homework. Put your credit-scoring head on and set aside all those ‘good feels’ for now – it’ll get you ahead of the game. As your mortgage is likely to be the biggest loan you get, you need to understand what your mortgage provider will expect of you. This all starts with your credit history.
First off, check your credit score to see where you’re at (before your lender does). Knowing how healthy your credit score is will give you an indication of how likely a mortgage provider will lend to you and at what rate. Then, if you find any areas that are bringing your score down – like not being on the electoral register or having old, uncancelled credit cards – take steps to improve it before lenders check it out themselves.
And remember, even though the act of moving house itself won’t affect your credit score, any mortgage you apply for will be recorded on your credit report and can subsequently affect your score. So, get up to speed on your score beforehand and increase your chances of getting that mortgage first time round (avoiding multiple applications) and a better rate to boot.
Three credit-healthy steps to get you closer to your new home
- Understand how your credit history affects getting a mortgage
- Take time and check your score before applying for a mortgage, so you know where you stand
- Get credit ready – take steps to improve your credit score
Bottom line
With so much change in the air right now, like many others in the UK you may well have decided that it’s time for a move. But before you decide on your budget, take a few simple steps to get credit ready. Knowing your credit score and the things you can do to get it up to scratch before applying for a mortgage, may very well take the headache out of your mortgage search, get you a better rate and ultimately have you snuggling up with your pet on that new sofa sooner than you think.