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Can you get a mortgage if you're in debt, how does it work and what schemes are available?

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Getting on the property ladder is no small feat, especially if you’re doing it on your own with no help from family or a partner. A considerable amount of money is required for the upfront deposit, something that typically takes years to save up, especially if you’ve already borrowed money and are paying back loans or credit cards every month.

The average house price to income ratio varies considerably across the UK, according to Compare The Market research. But, even the most affordable city in the country – Stoke-on-Trent – isn’t exactly cheap.

The Midlands location has an average house price of £109,894 as of February 2019. The median salary for the location is £22,082.

However, this is nothing compared to London, which at the other end of the scale has a ratio of 15.34, meaning that the average cost of a home – £464,998 – is over fifteen times the cost of the average Londoner salary, which sits at £30,311.

The average mortgage deposit in Britain falls at around 15 percent, meaning that someone from Stoke-on-Trent who earns the average £22k a year would need to save around £16,500 to put down a mortgage on a house, with someone from London potentially needing to save closer to £69,600 on just a £30k salary.

The Midlands location has an average house price of £109,894 as of February 2019. The median salary for the location is £22,082.

However, this is nothing compared to London, which at the other end of the scale has a ratio of 15.34, meaning that the average cost of a home – £464,998 – is over fifteen times the cost of the average Londoner salary, which sits at £30,311.

The average mortgage deposit in Britain falls at around 15 percent, meaning that someone from Stoke-on-Trent who earns the average £22k a year would need to save around £16,500 to put down a mortgage on a house, with someone from London potentially needing to save closer to £69,600 on just a £30k salary.

READ MORE: What is a bad credit score and what affects your rating?

Fortunately, there are ways around this and a number of different schemes, tips and tricks that can help, no matter what your financial situation.

Express.co.uk spoke to credit expert and consumer affairs executive, John Webb from Experian about mortgages. He revealed how a good credit score will always help.

What is a mortgage and how does it work?

A mortgage is a type of loan that people can use to purchase a property over a certain period. Commonly, a mortgage lasts for 25 years, although they can range from six months to 40 years.

When you buy a home, you’ll ordinarily put down a lump sum, called a ‘deposit’, towards the property’s purchase price. The remaining cost of your home is paid off monthly with a mortgage.

What are some of the main schemes in the UK?

Using one of the UK Government’s house buying schemes is a good option for people who can’t afford a hefty deposit. There are three main schemes, two of which are help to buy, helping new homeseekers to get on the property ladder with as little as a 5 percent deposit:

Lifetime ISA

A lifetime ISA is where the Government tops up your savings by up to £1,000 per year. You can use this to buy your first home and put up to £4,000 each year in the account until you are 50.

Help to Buy – Shared ownership
You buy a share of your home (between 25 and 75 percent) and pay rent on the rest.

Help to Buy – An equity loan
The Government lends up to 20 percent of the purchase price. This loan will need to be paid back after 25 years or once the house is sold (if this happens earlier), so if the value of the property has gone up in the meantime, the Government will make a profit.

The size of your deposit helps to determine the deals that you can access. Generally, the higher the deposit, the lower the loan-to-value ratio, and so the cheaper the deal. In the current market, securing at least a 10 percent deposit can give you a much wider choice.

Can people with bad credit still apply for a mortgage?

When you apply for credit the lender will look at your credit report, as well as your affordability and their own records, if you’re already a customer.

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It’s possible to get a mortgage with a poor credit history, although you might pay higher interest rates, and you may need a larger deposit to get accepted too.

There are mortgages designed for people with poor credit, and some lenders specialise in offering these. If you haver a poor history of managing credit then consider using a specialist mortgage broker who can help match you to the right lender.

When you apply for a mortgage, a lender will typically look at three things to assess your creditworthiness and generate a credit score for you. These are your credit report, application form (affordability) and their own records if you bank with them.

Mortgage lenders will use this to assess your current level of borrowing, repayment history and whether you can afford the monthly repayments.

For more information, visit sites such as Experian or Which? that can help you prepare for any meetings or applications you are thinking about making.

When you apply for your mortgage use comparison services, like Experian to search for deals you’re more likely to be accepted for. These searches also won’t impact your credit score.

Tips for saving and getting yourself in a position to apply

Know your credit score

Understanding your credit score, what it is and how it could be improved is the first step to ensuring you are in the best possible position to apply for a mortgage. The higher your credit score, the better your chances of being accepted for a mortgage, at the best rates.

Remember, credit reports generally cover the past six years. So, the sooner you are able to take control of your finances and make sure any problems you might have faced in the past (such as paying bills on time) have been sorted, the better.

Try to reduce borrowing before applying for a mortgage

Credit cards with a balance nearing the limit can reduce your score. If you can, it’s a good idea to bring the balance down to around 30 percent of the credit limit.

If you have other forms of borrowing such as store cards or overdrafts, reducing these can also help.

You also want to avoid applying for new credit at least six months before applying for a mortgage. These can leave ‘hard search’ on your credit report, and can reduce your score.

Sort out a savings accounts

As well as using the Government’s schemes, setting aside some savings is a very sensible move when planning to purchase your first home.

However, the Bank of England’s rate is currently 0.1 percent, so your savings rate may have dropped. Research the best accounts for your savings to make sure you’re getting every possible penny of interest.

See if you can boost your credit score

Experian has launched its new free service, Experian Boost, which could instantly improve your score by volunteering more information about how you manage your money.

It works by taking into consideration everyday payments to digital entertainment services, like Netflix and Spotify, and includes regular payments to things like council tax and savings.

Your score won’t go down when you sign up – and if you don’t get a boost immediately, stay connected as your score could increase overtime.



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