Home buyers must 'live on credit card' to get mortgage

Brokers are telling people with small deposits they have no hope of securing a loan if they cannot show they have a history of managing debt.

The advice is the latest sign of how strict mortgage-screening rules are locking out first-time buyers.

Just a handful of mortgages are available for 85 or 95 per cent of a property's value, but deals are elusive for even impeccable buyers, brokers said.

James Rodea, of Savills Private Finance, said: "Some of our squeaky- clean customers, who have never missed a payment and would have got any mortgage they wanted a year ago, have been rejected recently."

Ray Boulger, of John Charcol, said: "My best advice to someone hoping to buy with a small deposit is to live on a credit card. Buy your groceries on it, go out to dinner on it, spend on it what you'd normally spend on a debit card. And make sure you pay it off each month to prove you're handling the debt."

David Hollingsworth, of London and Country, said: "It's ironic that you're seen as a better bet if you're someone who's been in debt, but people without a credit history are viewed as a blank book who can't be trusted in the current climate." Another credit pitfall young people tend to fall into is frequently changing their electoral roll address.

Mr Boulger said: "Young people renting should keep themselves registered at their parents' address. A single address history is seen as a sign of a more stable, responsible borrower." It also helps to have the same address on financial statements, and to stay with the same bank and employer. A Savills Private Finance client was penalised for not having a landline because it made them seem less "settled".

Broker Capital Fortune said one "high net worth" client was rejected for an 85 per cent loan because he was in a dispute over a £20 mobile phone bill, which was going to court.

Andrew Montlake, of brokers Coreco Group, said each lender used more complicated calculations than credit agencies, such as Experian.

Mr Boulger claims banks regularly tweak how they calculate credit scores. He said: "If their deals are starting to become too popular, they up the credit scores so applicants get rejected."

FIRST-TIME buyer Fay Alison, 42, had a "total nightmare" trying to secure a 85 per cent mortgage for her one-bedroom garden flat in Chigwell, despite being a "top class customer".

The personal assistant had never missed a payment for anything in her life, but was rejected by Abbey because her credit score was not high enough.

The building society gave no explanation, but with the help of her broker, Capital Fortune, Ms Alison spent nearly a month delving through her financial records to discover the reason.

The main problem was that the credit card she had been using and paying off regularly for 20 years was too old to be registered with a credit agency so she had no track record of borrowing money and paying it back.

The other issue was that the basement flat she rented had been variously recorded over the years as a 'basement flat', a 'garden flat' and just a door number with the companies she organised her finances through.

In the current climate of ultra-strict screenings, those factors were enough to ruin her credit score.

Ms Alison said: "It was extremely stressful because the banks tell you nothing, you're digging around blind trying to work out what's wrong when you thought you'd been so perfect with your credit. It's very upsetting and takes so much energy, time and effort.

"I'd been doing exactly as is recommended - spending a few hundred pounds on my credit card each month and paying it off in full each month - but I got the card back in the Eighties before they even registered them with credit agencies. Once I knew that I took out a new one and started using that and got a letter from my bank stating that I had been using a card for two decades which I showed to the lender to prove my credit history.

"Also I had no idea that companies had taken my address down differently but apparently it can be a problem with flats and it can make you appear dodgy. I standardised how it appeared on my driving licence, on the electoral roll, on my bills, with my bank and savings accounts and it seemed to work."

Once the changes were made, Ms Alison secured a mortgage at 85 per cent through Alliance & Leicester at 5.69 per cent fixed for three years.

"I feel incredibly lucky to have managed to get a mortgage of that size at the moment," she said.

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