What is your credit file? Know the basics!

What is your credit file? Know the basics!

 Your Credit Report – The Basics

 

WHAT IS A CREDIT FILE?

Your credit file is a document which contains a collection of data about you. It includes basic identifying information, such as your name and any previous names you’ve been known by, your date of birth and your address history.

It also contains information about any financial accounts you may have, such as your current account, loans, credit cards, mobile phone contracts and more – and how you conduct those accounts. Your credit report will show whether you’ve paid a debt on time each month, and also negative data such as missed/late payments on an account, accounts you have defaulted on, any County Court Judgments registered against you, along with bankruptcies and repossessions.

It will also contain the names of anyone with whom you are financially associated. If you have a joint account, joint loan or joint mortgage with someone, their name will be linked to your credit file.

All this information combined is what determines your credit rating.

You have 3 credit files, one with each of the major credit reference agencies – Experian, Equifax and Credit Karma (TransUnion).

Sometimes all 3 credit files will be identical, however sometimes one will contain information that the others don’t. This is because some lenders don’t report their data to all 3 agencies.

WHO HAS A CREDIT FILE?

Everyone in the UK over the age of 18 has a credit file.

WHY DO YOU HAVE A CREDIT FILE?

When you apply for any type of financial product, such as a loan, credit card, car finance or mortgage, the lender/financial institution will check your credit file to see whether you are likely to make the repayments on time each month, based on your past performance.

Simply put, they check to see whether you are a good or bad risk.

If your credit file contains minimal information or negative data you may be refused the credit facility.

HOW LONG IS DATA HELD?

Your credit file contains information on your accounts, and how you conducted them, for 6 years. A payment due 1st April 2020, and whether it was paid on time or not, will show on your file until May 2026.

A default or CCJ will stay on your file for 6 years from the date the default or CCJ is registered, regardless of when the account was first opened or whether you subsequently repaid the outstanding amount.

The same goes for any bankruptcy or repossession.

CREDIT SCORE vs CREDIT FILE

You only have 3 credit files, and other than ensuring the data is correct, there is nothing you can do to change those files.

Your credit score on the other hand is as varied as the weather. You only have to check your credit score with the 3 credit reference agencies to see the difference. You could be 999/1000 with Experian but score a 483/700 with Credit Karma and a different figure with Equifax altogether.

Each and every lender or institution has their own credit scoring system too, an algorithm they have designed based on the factors they feel are important, to set the threshold of who they will and won’t lend to.

What matters is the credit scoring system of the lender or institution you want to lend you money or provide you with a service.

 

The Buying Process

The Buying Process

The Buying Process

 

STEP BY STEP PROCESS TO BUYING YOUR HOME

Buying your first home is one of the biggest financial commitments you will make in your life. Whilst it is a very exciting time, it can be daunting with the volume of information available and it’s hard to know where to start. It’s no wonder it’s ranked at one of the most stressful experiences you can go through. We have outlined the main steps of the buying process below, to help break it down.

At Willowgate Finance we will help you through every step of the way, always providing valuable and useful information that will make the whole experience far less overwhelming.

Step 1 – Establish your maximum borrowing amount and get an idea on costings

This is usually the first question we get asked – “How much can I borrow?” The answer depends on a number of factors, such as income, outgoings including any credit commitments and how much of a deposit you have available. Each lender also has their own unique affordability calculator and the results can vary widely between them.

You can contact us for a FREE, no obligation, chat to go through your details and establish your potential maximum borrowing amount, so you know the price range of the houses you should be looking at. This is the first step of the buying process.

The appointment can be face to face at our office in Market Deeping or Pinchbeck in Spalding, or at a time and place to suit you locally. We also offer phone and video call appointments nationally.

In this meeting we will:

  • complete a detailed review to get to know your situation so that we can ensure our advice is tailored to your unique circumstances.
  • advise on how much you could potentially borrow.
  • explain the different mortgage types available, such as fixed rates versus tracker/discount rates and indicative costs.
  • go through the various mortgage schemes that are available, including the Help to Buy Equity Loan Scheme and Shared Ownership Scheme.
  • advise on the potential costs involved in purchasing your home; including conveyancing/solicitors, valuation/surveys, arrangement fees, stamp duty & deposits – and when these become due.
  • discuss the appropriate mortgage protection that is needed to ensure your home and lifestyle is fully protected.

You will now have a good idea of your borrowing potential and can now start looking for your new home.

Step 2 – Obtain an Agreement in Principle

An Agreement in Principle (AIP), which is also known as a Mortgage in Principle or Decision in Principle, is a letter or certificate from a lender stating that ‘in principle’, i.e. as long as all the information that has been provided on the application – such as your income/outgoings – is accurate and can be verified, they will be prepared to lend you a certain amount of money (usually the maximum amount they would offer – although you do not have to borrow the full amount). They will also perform a credit check at this point.

Some estate agents will require you to have an AIP before they even arrange a viewing on a property, and some won’t forward an offer to the seller unless you have one. In many cases they won’t confirm the sale is agreed, and take the property off the market, without site of an AIP and proof of deposit.

Having established your circumstances in our first appointment, we can help you obtain an AIP after searching the whole of the mortgage market to establish the most suitable lender and mortgage product for you.

Step 3 – Apply for a mortgage and instruct solicitors

Once you’ve found your perfect home and had your offer accepted, it’s time to submit the full mortgage application and all the supporting documents, such as bank statements and payslips, to the lender for assessment. We can get all the paperwork ready and submit the application for you. Our process includes:

  • checking that the mortgage we recommended at the AIP stage is still most suitable mortgage scheme as rates change often.
  • obtaining payment for the upfront fees i.e. mortgage valuation.
  • completing all the paperwork and collating all documents to submit fully packaged to the lender to ensure maximum chance of success.

It is also time to instruct a solicitor to handle the legal arrangements to purchase the property, which is separate from obtaining a mortgage. We can help you find one if you haven’t already.

Step 4 – Mortgage valuation & searches applied for

Once the lender receives the full mortgage application and documents, they will instruct a valuation on the property to make sure it is worth the purchase price agreed and a good security for them to lend money on.

A basic mortgage valuation is required in all circumstances. You may wish to obtain a more in depth report on the property for your own peace of mind, such as a Homebuyers Report or Building Survey.

At the same time, the legal conveyancing should be started by your solicitor. They will receive the draft contracts from the seller’s solicitor to allow them to start their work, applying for local searches and checking the property Title at the Land Registry.

Step 5 – Mortgage offer issued

Once the lender has assessed all the supporting documents and are satisfied you can afford the mortgage, and the valuation has come back as satisfactory, they should now issue you with a binding mortgage offer.

It’s time to have a little celebration at this point!

Step 6 – Exchange of contracts and set completion date

Once all the conveyancing work has been completed – searches returned, replies to enquiries received and contracts signed – you are now ready to Exchange Contracts. Your solicitor will require you to have sent them the deposit monies and the balance of their fees and other costs, such as Stamp Duty Land Tax, prior to Exchange of Contracts.

All insurances will need to be started from this date.

Step 7 – Move in

Completion! Your solicitor will advise you once this has happened, and you can get the keys to your new home!

Congratulations!

JARGON BUSTER

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Not all Buy to Let Mortgages are regulated by the Financial Conduct Authority.

You may have to pay an early repayment charge to your existing lender if you remortgage.

There may be a fee for arranging your mortgage, however the precise amount will depend on your circumstances. Typically the fee is £395.

Jargon Buster

Jargon Buster

Jargon Buster

ON THIS PAGE YOU’LL FIND SIMPLE DEFINITIONS FOR MORTGAGE AND INSURANCE INDUSTRY JARGON

Affordability Check
A calculation carried out by a lender to determine the actual amount you can borrow. Depends on personal circumstances such as income and expenditure. The actual amount that you could potentially borrow differs between lenders.

APR (Annual Percentage Rate)
APR is a standard calculation in the mortgage industry and allows mortgages from all lenders to be compared. It is the true cost of the mortgage over the full term set out as a yearly rate, including all fees, terms and interest.

The calculation assumes that you maintain the mortgage for the full term (for example 25 years).

Arrangement Fee
It is very likely you will be charged an arrangement fee by the mortgage lender when taking out a mortgage, however we will be able to talk you through the conditions that apply. In some cases this fee can be added to the mortgage loan amount.

Arrears
If you go into arrears it means that you have ‘defaulted’ at least once on your mortgage repayments. You will owe a sum of money ‘in arrears’ to your lender. If you find yourself in this situation you should contact your mortgage lender to seek help as soon as possible.

ASU – Accident, Sickness & Unemployment cover
An annually renewable policy providing short term cover if you are unable to work due to sickness, injury or redundancy. Similar to, but not to be confused with Income Protection as it does not pay out for as long or pay out as much.

Bank of England Base Rate
The rate set by the Bank of England, which is reflected in the interest rates charged by lenders.

Building Insurance
Insurance against the cost of rebuilding a property following structural damage, for example by flood, fire or storm.

Building Survey
An extensive survey, carried out by a qualified surveyor, to spot faults and potential problems in the property you are buying.

Buy To Let
A buy to let property is purchased with the sole intention of renting it out to a tenant as an investment. Some mortgage lenders offer special ‘buy to let’ mortgage deals for this purpose.

Buy To Let Mortgage
The main difference with a buy to let mortgage is that the lender takes into account the rent you will earn from the property as the primary source of income. Some may also take the landlord’s personal income into account.

Capital
The amount you have borrowed on the mortgage, on which interest will be charged.

Capped Rates
With a capped rate, you will pay a variable interest rate but your payments won’t go above a certain amount for a set period of time.

Cash Back Mortgages
Cash back mortgages generally pay out a cash lump sum to the mortgage loan borrower upon the completion of the mortgage.

CIC or Critical Illness Cover
Will pay the policy holder a lump sum on diagnosis of a range of specified illness (refer to specific policy terms and conditions for further details) – the illness may vary but generally include the major illnesses like cancer, heart attack and stroke.

Completion
When you become the legal owner of the property.

Completion Fees
Some lenders charge completion fees in additional to an application fee, although these fees are less common. Completion fees are usually charged on the day that the mortgage completes.

Consent to Let
A request to let out a property on which a residential mortgage is currently held.

Conveyancing
The legal work involved in selling and buying property.

Defaulting
If you cannot meet your minimum required monthly mortgage repayment and go into arrears on your mortgage, this is known as ‘defaulting’. If this happens you should speak to your mortgage lender about how to remedy the situation and there are also Government schemes designed to help people whose homes are at risk from repossession.

Deposit
This is the amount you are required to pay towards the cost of the property yourself. Typically the more deposit you are able to put down the lower the mortgage interest rate is likely to be, and typically there will be a wider range of mortgage deals to choose from.

Disbursements
The fees you pay to your conveyancer or solicitor. These cover items such as searches, Stamp Duty Land Tax and Land Registry fees.

Discounted Rate Mortgage
A discounted rate deal is one where the interest rate you are charged is a set amount less than your mortgage lender’s standard variable rate (SVR). For example, if the lender has an SVR of 5.5% and the discount is 1% then you will actually end up paying 4.5%.

DTA or Decreasing Term Assurance
A form of life assurance where the sum assured reduces over the term of the policy – often used to protect a repayment (capital and interest) mortgage.

Early Repayment Charge
The charge some lenders make if a mortgage is paid off early or before the end of the special rate term.

Equity
The total value of your property less the amount of the mortgage and any other secured loans you have.

Estate Agency Fees
These will differ by agent, some will charge upfront fees and some may charge fees at the completion of the sale. The cost is likely to be based on a percentage of the property sale price, so it is best to get a quote before proceeding. It is best that you speak directly with your chosen estate agent to find out what costs apply in your case.

Exchange of Contracts
The point where the property sale or purchase becomes legally binding.

External Inspection Valuation
This is a very simple valuation where the surveyor will estimate the value of the property by viewing it from the road.

Final Repayment Charge
This charge can be applied when your mortgage is repaid in full.

Fixed Rates
Gives you the security that your monthly payments are the same each month, for the duration of the fixed rate period. With this type of mortgage, you pay a fixed rate of interest for a set period typically over 2, 3 or 5 years, so you know exactly what you’ll be paying each month even if interest rates change.

Flexible Mortgages
You can vary the amount you pay each month and take payment holidays in some circumstances. It may help to reduce your mortgage with lump sum payments without incurring an early repayment charge.

Guarantor
A guarantor can guarantee the mortgage repayments for you if the lender determines you are at high risk of not making the payments.

Higher Lender Charge
Not all lenders charge these, but if you borrow a high percentage e.g. if you borrow more than 75% of the price of the property, you may have to pay this type of fee in addition to the arrangement fee.

Homebuy Schemes
These are government schemes designed to help existing tenants and key workers (nurses, teachers and social tenants) to get onto the property ladder.

Homebuyer Survey
A detailed valuation that contains a report on the condition of the property, highlighting potential defects.

Index Linked
Where the level of cover provided under a policy increases over time – this is often used to ‘inflation proof’ cover and often linked to the Retail Price Index.

Interest-Only Mortgage
With this type of mortgage you are only paying interest each month. This means that although your payments will be lower the amount you borrow will still be outstanding at the end of the mortgage term. You’ll need to make alternative arrangements to pay off the mortgage capital to avoid the property having to be sold, such as taking out an ISA.

Joint Life
Where a life insurance policy is covering two individuals.

Joint Life 1st Death
The sum assured is paid on the death of whichever of the two lives dies first. In this case, the two lives assured are normally also joint policy holders, and the sum assured would be paid direct to the policy holder.

Land Registry Fee
A fee paid to the Land Registry to register ownership of a property.

Lease
A legal contract which gives the ownership of a leasehold property to the buyer for a fixed period of time.

Lender
Provides the loan to buy the property.

Life Assured
The person on whose life or death the payment of the sum assured depends. The life assured is not always the same person as the policy holder.

LTA or Level Term Assurance
A form of life assurance where the sum assured under the policy remains constant over the policy term.

Mortgage
A loan to buy a property. The property acts as security for the loan and so can be repossessed and sold if the mortgage repayments are not made.

Mortgage Application Fees
Fees charged by the lender to organise the mortgage for you. These are not usually refunded if you then do not go ahead with the mortgage. Some lenders will only charge such fees for specific mortgage deals.

Mortgage Deed
The legal agreement which gives the lender a legal right to the property.

Mortgage Term
The length of time over which the mortgage will be repaid.

MPPI or Mortgage Payment Protection Insurance
Fundamentally the same thing as ASU (Accident, Sickness and Unemployment cover).

Offer of Advance
The formal offer of a mortgage from a lender.

Offset Mortgages
Your main current account, savings account or both are linked to your mortgage. Each month, the amount in these accounts is offset against your outstanding mortgage before working out the interest you owe. You are unlikely to earn interest on your savings which are offset against your mortgage.

On Risk
The point at which your policy starts.

Policy Holder
The policy holder is the owner of the policy and responsible for paying the premiums. The sum assured will be paid to the policy holder unless other arrangements are made.

Portability
Your mortgage broker or lender will be able to tell you if your mortgage is portable or not. A portable mortgage may enable you to transfer borrowing from one property to another, sometimes to avoid additional fees or keep a specific discounted/fixed rate.

Provider
The company providing the cover i.e. life assurance or buildings and contents.

Redemption
Paying off a mortgage.

Remortgage
If you are looking to change your mortgage to a different deal, but you’re not looking to move home then you are ‘remortgaging’.

Renewable Premiums
Where the premium is subject to review and potential increase over the term of the policy.

Renewable Term Assurance
A term assurance or life assurance policy that contains an option, which can be exercised at the end of term, to renew the policy for the same sum assured without further medical evidence.

Repayment Mortgage
With this type of mortgage (also known as capital and interest) you repay part of the amount borrowed together with the interest being charged each month. In the earlier years, the majority of your monthly repayment is made up of interest, however towards the latter part of your mortgage term the situation is reversed with the majority of your monthly payment reducing the amount borrowed.

Reservation Fees
This is a ‘front end’ charge levied by several home lenders. The idea is you’re asked to pay the fee (typically £100 to £300) to secure the funds you are intending to borrow. It is sometimes described as an administration or booking fee.

Self Certification Mortgage
Also known as ‘self cert’, these mortgages were developed for self-employed people. Applicants who ran their own business or don’t technically have an employer were granted a mortgage without having to confirm their income by way of a P60, payslips, accounts, etc. In the current economic climate, these mortgages have virtually disappeared.

Shared Ownership
Shared ownership schemes are designed to allow people who would otherwise be unable to get a foot on the property ladder to do so. The home buyer will enter into an agreement, usually with a local housing association, which sees them take out a mortgage on a share of the property and pay rent on the remainder. The portion that is owned will vary depending on the circumstances.

Solicitor/Conveyancing Fees
Conveyancing is the legal process to transfer the ownership of a property from the seller to the buyer. If you are buying a property, your solicitor generally works on behalf of the mortgage lender, who usually insists on certain searches before they will release the money for your property.

Stamp Duty
You pay Stamp Duty Land Tax (SDLT) when you buy houses, flats and other land and buildings over a certain price in the UK.

Standard Variable Rate
This is a rate set by the lender, your payments may rise and fall in line with the Bank of England base rate changes, but not necessarily at the same time or by the same amount or at all. Your lender may not necessarily pass on the change in base rate immediately.

Structural Survey
This is a detailed report that can include tests on drains and utilities. It could be very useful if you’re thinking about building an extension, or purchasing an older property.

Sub Prime/Non-Conforming
A sub-prime mortgage, also known as a non-conforming mortgage, is geared towards those with a less than perfect credit history. This could be bankruptcy or county court judgements (CCJs), or you could have fallen into arrears in the past. These products, because of their circumstances, have higher rates, but mean that those who couldn’t otherwise obtain finance for their property purchase can do so. 

Subject to Survey and Contract
Wording included in any agreement before the exchange of contracts. This wording allows the seller or buyer to withdraw from the property sale.

Terminal Illness Cover
An option included in life assurance policies whereby the life company will pay out if the policy holder is terminally ill – this should not be confused with Critical Illness Cover (CIC).

Tie-In Period
This is the period during which you are ‘locked in’ to your mortgage deal and will pay an early repayment charge to move your mortgage elsewhere – for example, if you have a 2 year fixed, your tie-in period might be for 2 years. Once an initial deal is up, you will typically move from your introductory rate to your mortgage lender’s standard variable rate (SVR), which is usually higher, so if you don’t have to pay early repayment charges to switch to a new deal at this point you may well save money by doing so.

Title Deeds
The legal documents which set out the ownership of a property.

Tracker Rates
Tracker rates are usually linked to the Bank of England base rate, which means they’ll change in line with changes to the base rate.

Trust
If a policy is written in trust, then you can help determine who should benefit from the policy when it is eventually paid.

Underwriter
The role of the underwriter is to look at individuals based on knowledge of that individual – e.g. medical history, hereditary illnesses, occupation, sporting activities. For the life assurance, they will assess the risk and decide whether to offer cover and if so at what price. For mortgages they will decide whether to lend.

Utmost Good Faith
Is a minimum standard that requires both the parties (life company and life assured) to act honestly towards each other and to not mislead or refrain from providing critical information to the other.

Valuation
This is the most basic type of survey and is the mortgage lender’s inspection of the property to assess whether it is suitable for a mortgage.

Valuation and Survey Fees
You will need to get a valuation and survey carried out on the house you want to buy. A valuation will value the property and tell you how much it is worth, whilst a survey will tell you about the structure of the property and any faults that it may have. There are 3 levels of valuation/surveys 1. A basic valuation, 2. Homebuyers survey, 3. Full structural survey.

Waiver of premium (WOP)
Is an additional option that can be taken out with most forms for protection. The insurance company will pay the premiums due on a life assurance policy if the policy holder is unable to do so because they are unable to work due to accident or illness. The insurance company will pay the premiums for you until you are able to return to work.

Will
If you do not make a will then you will die Intestate and will lose control over the proceeds of your estate.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Not all Buy to Let Mortgages are regulated by the Financial Conduct Authority.

You may have to pay an early repayment charge to your existing lender if you remortgage.

There may be a fee for arranging your mortgage, however the precise amount will depend on your circumstances. Typically the fee is £395.