In what could be taken as the latest sign that the red-hot property market in the UK is cooling, new data from the Bank of England (BoE) shows that the number of mortgage approvals fell to the lowest level for a year in the month of August.
Here’s a quick look at how far the number of mortgage approvals has dropped. And if you’re thinking about buying a home soon, I give you three practical steps to improve your chances of getting approved for a mortgage.
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What are the latest numbers on mortgage approvals?
According to the BoE, a total of 74,500 loans were approved for house purchases in August 2021. This is a decrease of 600 from July’s total of 75,100 approvals and an even bigger decrease from June’s total of 81,300 approvals.
The approval rate for August is also the lowest since July 2020. However, the figure is still above pre-February 2020 levels.
What does the drop in mortgage approvals say about the market?
The reduction in mortgage approvals could be a sign that the reinstatement of standard Stamp Duty thresholds and continued house price growth are affecting demand.
Commenting on the latest mortgage approval numbers, Martin Beck, senior economic advisor to the EY Item Club, said that demand is likely to soften. This is despite a temporary rise in net lending in September as buyers raced to complete before the end of the tapered Stamp Duty holiday.
Experts agree that the high transaction levels witnessed over the past few months are unlikely to be surpassed in the future. However, they don’t expect activity to fall off a cliff.
They say that demand from buyers making lifestyle changes after the pandemic has further to run. As a result, mortgage approval numbers are likely to remain fairly consistent for the rest of the year.
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How can you boost your chances of getting approved for a mortgage?
If you’re planning to apply for a mortgage, the good news is that mortgage rates are currently at historic lows. The number of products available in the market has also risen considerably.
That being said, you still need to prove your worthiness to lenders to get approved for a mortgage. To help boost your chances, here are three steps you can take right now.
1. Improve your credit score
A good credit score not only improves your chances of getting approved for a mortgage but can also help you get one at the best possible terms. So, before you apply, work on improving your credit score first.
Key things you can do to improve your score include:
- Paying your bills on time. You can automate your bill payments if you tend to be forgetful.
- Reducing your credit card balances. High balances on your cards tend to pull your score down.
- Re-establishing a good payment record. If you have run into trouble keeping up with credit card payments, apply for a credit builder card to help rebuild your credit history.
- Reviewing your credit report. Take steps to correct any inaccuracies or outdated information on your credit report that could be negatively impacting your score.
2. Pay off some of your debts
If you are thinking of buying a home in the foreseeable future, you should prepare by reducing the amount of debt that you currently owe.
Your debt to income ratio (the ratio of your monthly financial obligations to your income) is one of the things lenders use to determine whether you can afford the monthly repayments on your current income.
By paying off some of your debt, you can reduce your debt to income ratio. This will make you a more attractive candidate for a mortgage. Additionally, reducing your debt may improve your credit score.
3. Get a steady job
Income stability plays a big role when it comes to mortgage approvals. If you have a habit of hopping jobs, or if you leave your job shortly before you make a mortgage application, you may come across as a higher risk than if you have held steady employment for several months.
Therefore, if you are planning on applying for a mortgage, try to stick with one employer for at least a few months before you make your application. And if you’re thinking about changing jobs, wait until you’ve been approved before doing so.
