Many readers can remember a ‘finance complete guide’ provided by several large banks. And lenders when they were first setting up. For those of you who don’t, it was a comprehensive outline of what every transaction involved. And what forms of documentation were needed. It meant the banks and lenders took a critical view of your credit record, meaning a shorter credit approval process. Nowadays, few lenders bother with this any more, preferring to use their credit approval criteria as a starting point for an application and assessing the candidate as part of the wider application process. You can also read about inverse cup and handle.
This financial guide should look familiar, but here’s how it has evolved:
A guide to getting an overdraft
Previously, your credit file could be looked at without prior approval. Which may have involved a small or large calculation on the basis of income, debt, value of assets and other assets, outstanding debts and income.
f this sounds complicated, it was. By issuing a simple and clear guide, you could be approved for a bank or building society account. Or credit card without needing to pass the lender’s balance sheet scrutiny.
Debt and expenses
How much you have already borrowed, including all previous debt and what is being borrowed now is a critical consideration when the lender decides to lend you money. If you have access to credit without collateral, they may require you to provide a financial guarantor or pledge your property to gain credit.
What documentation is needed?
The financial guide provides the entire form used to apply for credit. And also details any other documentation required for credit reference, for example, payslips, VAT and insurance statements. Then, for example, it tells you what documents are needed for a mortgage. Or car finance, including a minimum deposit for the property to allow the lender to make a ‘full investigation’. As to whether the borrower has sufficient income and assets to meet the lender’s affordability criteria. To have the form sent to you, you’ll have to go to a branch. Where an authorised officer will assess your application based on the information in your guide.
What can happen if you are not given a guide?
You may be asked for more documents or details from other financial providers that are not included in the guide. Then, even if you have been given an account, it may not be immediately available. It can take a while for the information to be completed and any delays could mean you miss out on applying for a product you are interested in.
If you are unable to get the right product in time, the insurer may cancel or reduce the product. So, If you cannot afford to make the minimum deposit, the credit provider might refuse the account and charge an early repayment fee. If you receive a large credit limit and then you become unable to afford to make the monthly payments, you could lose your account, even if you have made the minimum amount, triggering a penalty charge. You may need to contact the credit provider, which may tell you to speak to your adviser at a bank.
When can I get a guide?
As part of an existing bank or building society, as part of your first mortgage application, after a property deposit has been made or before a mortgage or credit card is transferred to a different provider. For a mortgage, it is usually first step on the ladder for home owners. It can be found in your bank’s online system or by contacting your adviser. For credit cards, it is often part of your account application form or ‘guide’ but this can vary according to the lender. Consumer Minister Margot James said: ‘This new guide brings us one step closer to simplifying the application process for those wanting to borrow a small amount of money for everyday costs.’
Who was involved?
A team of policy experts, Treasury officials and advisers from the financial sector worked on the project for more than six months to ensure it is as clear as possible and avoids unintended barriers. The new advice also shows consumers where they should go for more information on their specific requirements. The new guide will be on the Money Advice Service website www.moneyadvice.gov.uk and it should be up and running from today. There is also an online guide on the Money Advice Service website. A separate website, My Money Guidance, has been created for those who want to receive a face-to-face guidance session.
How much can I borrow?
So far, ten lenders have signed up to the guidelines and offer the guide to new customers. These include Starling Bank, Newcastle Building Society, M&S Bank, Halifax, Yorkshire Bank, Nationwide Building Society, Saga, Bank of Scotland, and the Co-op Bank. However, the Financial Conduct Authority warned consumers not to take ‘shortcuts’ and said ‘borrowers should proceed carefully and not take the lowest rate that is available without reading the small print.’
Where is the best rate?
The Which? Money Compare tables let you search thousands of consumer deals to choose a cheaper option. Homeowners could save up to £300 by making just a few small adjustments to the way they handle their mortgage. Regional variations: Small variations between mortgages may be due to provider region or the age of your property. You can search by property type to find out.
The market also takes in those with a standard variable rate (SVR) and is skewed towards homeowners with a tracker rate. Where the rate adjusts depending on mortgage rate changes. Most tracker rates are lower than fixed rates. So those who are locked into a tracker for three or more years can shave hundreds off the cost of their mortgage.
Experts suggest people have their money in a ‘draw-down’ mortgage. That lets them change the amount of money they withdraw from their investment each month. This lets homeowners borrow what they need in their investment. And can be set up to pay off when they sell their home or move to a more suitable property.
Tips for borrowers
• Do an independent mortgage research check. This will tell you the best deals based on your current and future requirements.
• Don’t automatically go for the lowest rate. Many borrowers fail to understand the additional cost of a mortgage broker and pay extra charges for taking advice.
• Take advice from a mortgage broker who will be able to manage your application and make the mortgage application process smoother and more straightforward.
• Make sure you know exactly how much your mortgage repayments will be each month. Don’t underestimate the impact paying a higher interest rate on your loan will have on your lifestyle or how much your mortgage will cost each month.
Also Read
• Read the small print carefully. You must check the eligibility criteria for your mortgage and how this will affect the amount of money you can borrow.
• Apply at the right time. Mortgage applications can take time to process, and if you apply after a lender has announced a new deal, your application may not be accepted.
• Do not apply unless you are financially ready. Only apply for mortgage loans when you are sure you can afford to take the risk, as taking on a mortgage with huge financial implications can only be taken if you have a clear plan for how you will manage it.
• Make sure you can cope with your mortgage repayments each month. Any changes you make can affect the interest you pay. And the total amount you will pay over the life of the loan.
• Don’t fall for bank promotions. Banks typically announce a ‘special deal’ for new mortgage borrowers before the end of the month. They may also offer ‘one week deals’ or ‘two-week deals’ with lenders, which will end in a day or two.
• Shop around to make sure you get the best deal. You should compare deals with a range of lenders before applying.
• Shop around to make sure you get the best deal. You should compare deals with a range of lenders before applying.
