Will lenders penalise our daughter for being careful?

Q Our 31-year-old daughter is a first-time buyer and has been told that as she has no credit cards, store cards, and has not had any loans (in other words she's been careful) she will not qualify for a low-interest mortgage.

This is in spite of the fact that she has paid rent, utility bills and has had a current account for several years. She is a graduate with a steady job, which she's had for three years. Is this right?

PP

A Well it seems that the doom merchant that your daughter has been speaking to is suffering from a nasty case of a little knowledge being a dangerous thing.

The fact that your daughter doesn't do short-term credit will make no difference to the rate of interest she'll have to pay on a mortgage. While it may be true that she won't necessarily qualify for the lowest interest rates on offer, this is likely to be more to do with the size of the loan she wants in relation to the lender's valuation of the property she wants to buy. In general, the best rates are available to people wanting to borrow no more than 75% of a property's value while customers needing a 95% loan tend to have to pay a higher rate because, from a lender's point of view, they are a bigger risk. However, special deals available to first-time buyers may mean that she can still get a competitive rate of interest even if it's not the lowest.

What the person who has misinformed your daughter may be thinking of is the fact that your daughter's lack of credit cards and other short-term borrowing will show up on her credit file. This absence of a history of repaying debt may put off lenders who base their lending decisions purely on consulting the information held by credit reference agencies. But according to Jill Stevens, Director of Consumer Affairs for Experian (one of the three credit reference agencies) this is highly unlikely to be the case with mortgage lenders since they make many more enquiries and don't simply look at a prospective customer's credit file.

And the fact that she has no credit or store cards or other short-term borrowing may actually work in her favour when applying for a mortgage, especially with lenders - including big names such as Halifax and the Nationwide building society - which look in detail at a prospective customer's ability to afford mortgage repayments. Her employment record will also work to her advantage when applying for a mortgage as will any evidence - a rent book, for example - that she has an exemplary record in paying money she owes.

Lenders do, however, start to get cold feet if a mortgage applicant isn't on the electoral roll (which, if applicable, will show up on her credit file). So if your daughter hasn't registered to vote, now is the time to do so if she is considering getting a mortgage in the near future.