A couple almost lost their dream home when advice from Halifax dealt a blow to their credit score.
If you are about to apply for a mortgage, think twice before opening a new current account, even if you think it will impress the bank you hope to secure a loan with.
Jack Siddall and his girlfriend, Abbie Johnson, almost lost out on the house they wanted to buy in Wingerworth, near Chesterfield, in Derbyshire, after their credit score was ruined by signing up for “too many” Halifax products.
The couple had a mortgage approval in principle from Halifax, and were approved to borrow 95 per cent of the house value under the Help to Buy scheme. They were told that their credit rating met all the criteria.
Yet despite paying nearly £2,000 in arrangement fees and securing an offer on their first home, they were rejected at the final stage because of a sudden dip in their credit rating. This, they believe, was down to the fact that they had opened three Halifax current accounts, one joint and two individual, from which to pay their new mortgage after advice that this would simplify their finances.
Halifax offered them a 90 per cent mortgage instead, but this meant they had to find a further £12,000 deposit.
Mr Siddall says: “We had at this stage negotiated an offer on the house, proved our deposit, all the searches had been done, and we’d already paid £500 to our solicitors. Everything was ready to go. We tried to negotiate with Halifax and it went back to the underwriters to try to be overturned three or four times, but all were declined.
“We were going to have to find a new, cheaper property, but fortunately my grandparents were able to step in and boost our deposit. We have now switched banks to get a 90 per cent loan, but have lost the fees we had to pay upfront,” he says.
When Times Money contacted Halifax it reviewed its position and the decision to restrict the couple’s lending to 90 per cent LTV was overturned.
A spokeswoman for the bank says: “We have contacted Mr Siddall to confirm this and to apologise. We have also arranged to refund product and valuation fees as well, as a payment for any distress and inconvenience caused.”
Mr Siddall says this was too little too late; the couple had to move fast and take out a mortgage with a new lender.
New applications and accounts are likely to depress any credit rating
Halifax does not deny that taking out Halifax current accounts may negatively affect credit ratings, but a spokeswoman says: “Information on lending policy and lending decisions is commercially sensitive and would not be disclosed. A customer’s affordability is determined by their ability to support their loan and financial commitments. Credit commitments include loans, credit cards or overdraft payments. Other costs are also considered, including childcare, school fees, maintenance payments or expensive hobbies.”
James Jones, of Experian, the credit scoring agency, says only the underwriters at Halifax could confirm exactly why the rating dropped.
“The guide scores you can get from the credit reference agencies give you an idea, but are not definitive because each lender uses bespoke scoring.”
However, he says that he would “certainly discourage” homebuyers for applying for any credit-checked products in the run-up to a mortgage application.
“New applications and new accounts, certainly dated within the past six months, are likely to depress any credit rating calculation. Current accounts included,” says Mr Jones.
Once a mortgage application has been made and processed there should not be any need for the applicants to be credit checked, says David Hollingworth, of London & Country Mortgages.
There is some good news for first-time buyers who may have missed out on the Help to Buy scheme.
Jonathan Harris, the director of Anderson Harris, the mortgage broker, says that there are plenty of options available, with rates on 95 per cent loan to value deals actually falling since Help to Buy finished.
The cheapest fixed-rate 95 per cent deal is 2.79 per cent from Barclays, with no arrangement fee. “This is far better than some of the 4 per cent-plus rates we saw when the Help to Buy scheme was in place,” he says.
Need a home loan? Plan ahead
● At least nine months before you submit your application, review your credit reports with all three credit reference agencies, suggests James Jones from Experian. This gives you the opportunity and time to highlight and resolve any discrepancies.
● Register on the electoral roll at least six months before applying, if you haven’t already, and break any links to old acquaintances, such as ex partners.
● Identify things you need to do to strengthen your credit score, such as taking out a credit card and spending a small amount on it each month.
● In the six months before your application you should avoid applying for any new accounts that may involve a credit check and try to pay down any existing debt, because many lenders will examine your “balance trend”, as part of credit scoring and affordability assessment.
Mr Harris says that it is “very uncommon” for cases to be declined on credit issues after the mortgage agreement in principle, however, he says “it is not unheard of”.
“My advice to clients would be that once your mortgage has been agreed in principle it is best to avoid making any financial changes, such as taking out new credit accounts. Banks always reserve the right to withdraw an offer of borrowing right up until completion,” he says.
“The advisers at the bank are not always the most well trained and should not recommend opening several bank accounts, so getting independent advice will likely yield better results.”