little credit history

freddielover

Hi,
First post but avid reader of the forum for the past few months. I've never bought a house so can offer no personal experience/help to my son who is looking to buy his first house. I'm hoping folk with experience/knowledge may be able to offer advice/experience/reassurance, as I'm trying to work out if he's likely to actually qualify/meet the criteria when he formally applies for a mortgage.

He is 24 and extremely savvy with his money. Over 5 years at uni, including 1 year work placement, but no other job, he's managed to save £10 000. He's now been in full time permanent employment for a year and got his savings up to over £17 000.

A couple of years ago I advised him to get a credit card to try get him some credit history ( I hope this was good advice?). Anyway, as he manages his money so well he never used it! I suggested he use it a little and pay the balance in full every month, which he now does but only for his Netflix account!

He's got a DIP (not worth the paper it's written on I have learnt from this forum) from HSBC for 4.75x his salary based on a mortgage of 89% LTV. If he were to be able to use the full DIP amount, or close to, it would put monthly mortgage payments at £25 more a month than he's currently paying in rent (on a 5 year fixed rate of 2.44%, which is what he wants for peace of mind). Currently he pays his rent/bills etc and is still adding about £750pm to his savings.

My question is this - as he's never had loans/credit etc only the credit card, which is barely used, and his rent, will he have enough of a credit history? Or will his sparse credit history work against him? On the affordability front it seems that he would have no problem, we've done the MSE calculator with the interest rates up to 7% and it's still affordable to him. BUT is a mortgage lender likely to agree?

If I've missed anything out or more info is required please let me know.(and please be kind, I'm naive but trying to learn)
Thank you in advance.

scholesfan88

Sounds like he wont have any issues with a high street lender.

Happy house hunting to your son.

ACG

Your son sounds like one of those rare people... a perfect applicant. I am still yet to come across one in 7 years :P Everyone has some sort of complication usually.

You say your son has no/little credit but I am guessing he has a bank account, possibly a mobile phone, potentially even gas/electric if he is renting in addition to his credit card.

sal_III

freddielover wrote: »

He's got a DIP (not worth the paper it's written on I have learnt from this forum)

Not true, I think you misunderstood some post(s). Although DIP is not binding, unlike mortgage offer, it's a good indication that the lender is willing to lend "in principle" under your circumstances if you are able to prove them which is done after the mortgage application.

I would advise your son to use a mortgage broker as a first timer, even if there is a fee involved, chances are he might be able to get him a better deal with another Lender which can end up saving him money

AdrianC

freddielover wrote: »

He's got a DIP (not worth the paper it's written on I have learnt from this forum)

That's not quite true.
A DiP is not a guarantee of a mortgage - but it's the lender saying "We don't have any issues with the concept of lending you the money, based on what we know so far."

Most failures of DiP to turn into an actual loan are based on the lender not liking the property.

My question is this - as he's never had loans/credit etc only the credit card, which is barely used, and his rent, will he have enough of a credit history? Or will his sparse credit history work against him?

He's already past that step with the DiP. It's time for him to start looking for the right property. Good luck to him.

freddielover

You say your son has no/little credit but I am guessing he has a bank account, possibly a mobile phone, potentially even gas/electric if he is renting in addition to his credit card.[/QUOTE] (sorry I don't know how to use the quote tool properly yet)

he has a pay as you go phone (spends £10 per 6 months! and yes he pays his utilities, I didn't think of that, and he pays his rent every month, also a bank account for 6 years where he's saved his money, foolishly not used better accounts for saving!

I think I was worried that a 'lack' of credit ( he likes to pay for things with cash and not use credit) would make a lender unsure of whether he lives up to his responsibilities of paying debts, but hoped that if they looked at his bank records and could see that he's a saver and not a spender that that would help alleviate those doubts?

Thank you all for your comments, they're very reassuring

Out,_Vile_Jelly

I've never had a loan (inc student loan) or credit card and had no problem obtaining or renewing a mortgage. I've always been on the electoral roll though, despite numerous moves whilst renting.

sal_III

freddielover wrote: »

sorry I don't know how to use the quote tool properly yet)

Click on the orange chat bubble at the bottom of the post you want to quote, then if you want to only keep part of the post in the quote, remove the unnecessary bits between the [QUOTEheader] and [/QUOTE]

ACG

AdrianC wrote: »

That's not quite true.
A DiP is not a guarantee of a mortgage - but it's the lender saying "We don't have any issues with the concept of lending you the money, based on what we know so far."

Most failures of DiP to turn into an actual loan are based on the lender not liking the property.


He's already past that step with the DiP. It's time for him to start looking for the right property. Good luck to him.

The bit underlined is why they are not really worth much.
I think the reason for most DIPs being passed followed by declined applications (or at least it was when I worked for a bank) was people putting in the wrong information. Not necessarily intentionally, but an example could be entering tax credits/benefits as income when the lender may only accept half of them (or none if the children were over a certain age), another example would be self employed entering their latest years annual income where as the lender expected the average of the last 2 years to be entered.

Admittedly, I have not worked for a bank for around 6-7 years now so it could have all changed.

freddielover

sal_III wrote: »

Click on the orange chat bubble at the bottom of the post you want to quote, then if you want to only keep part of the post in the quote, remove the unnecessary bits

thank you (hope I've done that right now)

sal_III

ACG wrote: »

The bit underlined is why they are not really worth much.
I think the reason for most DIPs being passed followed by declined applications (or at least it was when I worked for a bank) was people putting in the wrong information. Not necessarily intentionally, but an example could be entering tax credits/benefits as income when the lender may only accept half of them (or none if the children were over a certain age), another example would be self employed entering their latest years annual income where as the lender expected the average of the last 2 years to be entered.

Admittedly, I have not worked for a bank for around 6-7 years now so it could have all changed.

Based on your experience what % of the DIPs failed a subsequent application?