It’s pretty rare for someone to have enough cash stored away to be able to buy a property outright. This means getting a mortgage is often a critical step in the home buying process. Mortgage debt can be a significant commitment for anyone.
Here lies the problem. For lenders to part ways with such a large amount of money, they have to scrutinise whether you can actually afford it. This can make applying for a mortgage feel pretty daunting. There’s a lot to consider before pen is put to paper and you’ve even begun the application process.
If you’re asking yourself ‘can I get a mortgage?’ we’ve got some tips and advice for you. Here’s how to improve your chances of getting a mortgage.
Grab a notepad and pen, you’re going to need them!
Understanding what mortgage to get
Let’s break the process of buying a house down. The first step on your pilgrimage to the mortgage application form is to understand exactly what it is you’re looking for. This might sound a little obvious at times but let’s drill down a little deeper.
There are numerous different types of mortgages available to lenders and your chances of getting approved may depend on going after the right mortgage based on your circumstances.
For instance, an interest only mortgage may seem like a cheaper or more convenient option, but lenders are stricter on approving this type of mortgage due to the uncertainty in whether you can pay the lump sum after your mortgage period is over.
Mortgage provider criteria
Not every lender has the same priorities. They will each have a set of criteria which they care about the most. Generally, the most common priorities for a lender are:
- How much you want to borrow – the mortgage loan itself
- The amount you can pay as a deposit – this is best worked out as a percentage
- Your employment and finances
- Your credit score
- How you manage with your current month-to-month outgoings
- Any existing credit or debt you may have
If any of these aspects reflect less than favourably on you, there’s a chance you’ll have your mortgage declined. Having said this, there’s certainly a lot which could be done to improve on this list. Our tips for getting a mortgage could see you on your way to a successful application.
Mortgage criteria essentials: A regular job and income
It’s important to demonstrate to potential lenders that you’re the epitome of stability. Essentially, you’re more likely to be approved a mortgage if you’re in long-term employment. It’s not the end of the world if you’ve recently moved to a new position – especially if this means your annual income has improved. If you can hold off applying for a mortgage until you’ve been working in the same company for at least six months, this may give you a better chance of getting approved.
If you are thinking about changing jobs in the near future, consider the impact it may have if done during the mortgage approval process. It could not only hinder your chances of approval, but also boost your stress levels! Moving house has been cited as one of the most stressful things you can do, starting a new job at the same time would likely add to that personal pressure.
Be realistic about what mortgage you can afford
Again, this sounds like basic advice but there are so many people out there who fall into this trap. Can you comfortably afford the loan repayments you’re looking to commit to?
To be sure, you need to do a full budget of your income and outgoings to weigh up exactly how you’ll be able to afford monthly repayments. If there’s even a slither of doubt in your mind regarding affordability, it’s almost certain the lenders will spot this too. Just about managing to make repayments each month isn’t acceptable, you need to already be living a lifestyle where you could manage to pay the additional monthly outgoings you’re looking to commit to.
Check your credit score & chances of getting a mortgage
Never go into a mortgage application blind, be sure to check your credit score in advance to see exactly how the lenders will view you. This can be a revealing exercise which could determine whether you postpone your mortgage application to make a few necessary adjustments.
Credit reports will give an insight into your payment history for credit cards, overdrafts, loans, mobile phones and even utility bills. The report will cover all activity over the last six years.
Generally, you need a good credit score to get a mortgage, though you can still get a mortgage with bad credit from some lenders. This is definitely not a position you’d like to be in though as interest rates are likely to be significantly higher.
Lenders tend to use one of three main credit agencies to verify your history, these are Experian, Equifax and Callcredit. You can get a report for around £2 though some sites like Noddle or Clearscore will shed light on some of this information for free.
It’s important to check your credit report thoroughly, some of the information may not be accurate. If this is the case, it could be harming your overall credit score. If you spot an error, contact the credit agency immediately to get this resolved.
What should I do if I have a bad credit rating?
It can take some time to improve your credit rating. Any previous missed payments of debt issues for the last six years will be highlighted on the report for six years. County Court Judgements give a significant blow to your score. This will cause problems if you’re applying for a mortgage.
Don’t panic, this isn’t the end. Here are some ways to improve your credit rating over time:
- Pay all bills on time
- Check to see whether you’re linked to another person (spouse or family member) with poor credit
- Check for any fraud (credit applications made in your name)
- Pay off your existing debts
- Apply for (and use) a credit building card
- Regularly pay credit card balances off in full every month
This is a slow burner and it’s not something you can fix overnight. If you have a poor credit history, it may be worth taking some time before applying for a mortgage. This extra time can be used to improve your credit rating while also saving for a larger deposit.
Register to vote
The importance of this point cannot be underestimated. Irrelevant of whether you have a strong credit history or not, not being on the electoral roll will be a hammer blow to your chances of mortgage approval.
This is because banks and lenders will look to the electoral roll to verify your identity. There’s no reason why you wouldn’t do this, it’s free and will usually take about a month to implement. We recommend getting this done sooner rather than later. You can register to vote online via the GOV.UK website.
It’s worth double checking that your address is up to date too, even if you know you’re on the electoral roll. The last thing you want is for a mortgage application to be rejected because your contact details aren’t accurate.
Manage your existing credit
Mortgage lenders won’t just consider your monthly outgoings and the credit you’re applying for, they’ll also consider the amount of credit you currently have available. Think of it like this, if you’ve got a credit card with a £5,000 limit, lenders need to be sure you can manage that credit alongside what you’re applying for.
Here’s where it gets interesting. If you don’t use any of your credit, there’s less evidence to lenders that you can manage credit responsibly. If however, you were to use most of your available credit and were close to your credit limit, it’ll appear as if you’ve not got a solid grasp of your finances.
Managing your available credit is a fine balance. Generally, it’s recommended to continue to use your credit responsibly but to use less than half of your available limit. Even if you are using less than half your available credit, it might be tempting to lower your available balance, this may not be a good idea as it can potentially make you appear to be living close to your financial limits. Having said this, it’s also a good idea not to have an exuberant amount of available credit unused. This is because banks or lenders will see the potential for you to easily find yourself in financial difficulty after your mortgage has been approved.
If you’re weighing up your options and struggling to determine how to manage your current credit, consider your financial position through the eyes of your lender:
- What do your current borrowing/spending habits say about you?
- Could you afford your mortgage repayments if you were to use all your available credit?
- Are you living comfortably within your means?
- With mortgage repayments added to your monthly outgoings, will you still be able to live comfortably within your means?
Further to this, it’s always ideal to have repaid any long term debts you may have, as this will stand you in good stead moving forward. If you’re looking to get your credit card spending habits on the straight and narrow, consider using less than half of your credit each month and pay this off in full (or a large percentage of this) each month.
Close any old or inactive accounts
It’s not unusual to have old accounts hanging around which you barely use. These could play a detrimental role in your mortgage application for a number of reasons.
First of all, your details may not be up to date which could hinder the reliability of your application. Moreover, it could be an extra cloud of unused credit hanging over your head which lenders will see as available to you.
Think about it this way, in a lender’s eyes, what’s stopping you from going out and spending your extra £5,000 available credit one weekend and potentially finding yourself in financial difficulty. Just remember that if you do close any credit account, you may need to change current spending habits on other accounts to stay within the lower half of your available limit.
Nothing in mortgage application world is straightforward, so here’s another point to consider before you grab the nearest phone and close down that 7 year old credit card account. A long and happy relationship with credit companies is welcomed by lenders. It’s a sign that you’re financially stable. So if you have a number of credit accounts but only use one, close down the most recent and use your older account more regularly.
Be aware, being inactive is not closing an account – you need to pick up the phone, speak to the lender and follow all formal steps required to close your account. It may seem like an unnecessary hassle but it’ll be worth it if your mortgage application is approved.
Pay your bills on time
It sounds so simple, but while you’ve got all this talk of mortgages running through your mind, it’s easy to neglect the simple things. If you want to be approved for a mortgage, you need to maintain a solid record for paying your bills on time.
If you were to default on a payment prior to your mortgage application, you’re making it easy for a lender to refuse you. It doesn’t matter whether you pay everything else on time or have a strong history of making payments. Something as small as a phone bill could be the end of your mortgage chances for a number of years. Keep that credit score excellent!
A simple way to ensure everything’s covered is to set up a direct debit straight from your account at times of the month which suit you.
There’s no excuse for this one letting you down when applying for a mortgage.
Remember: defaulted payments stay on your credit report for six years! That’s a long time to wait for a mortgage if you think you’re ready now.
Pay off long-term debts before applying
We’ve touched upon this point before but it needs to be reiterated.
You would have saved a significant amount of money if you’re considering your chances of getting a mortgage. It may be worth taking a little more time saving and using some of that deposit cash to pay off your existing long-term debts. This includes loan payments, overdrafts or anything else you may have attached to your name.
Credit card debt is fine if it’s consistently used and paid off. It’s the long term arrangements which you should consider putting to rest. This will prove to lenders that you can deal with debt in a responsible manner while also making your application more attractive because you haven’t got any other debts which need to be considered.
It’s always worth reading the small print to any loan agreement you may have. There could be early repayment fees which need to be factored into the equation. If you’re unsure, don’t be afraid to pick up the phone and speak to your lender.
Don’t apply for any other credit
It’s not a good idea to apply for credit in the three months leading up to your mortgage application. Every time you apply for credit, there will be a search on your credit file recorded – this will be tracked and will be noticed by the lender you’re applying to.
If you have a number of searches over a short period of time, it can make you look desperate for credit. This isn’t a major cause for rejection (especially if you’re approved) but is far from desirable. Make sure you keep away from any form of payday loan though – this is a big warning flag for lenders.
Avoid using your overdraft
Overdrafts are a touchy subject with some lenders. Being trusted with the credit and using it wisely can often be a good thing. Whereas being consistently in your overdraft demonstrates that you’re not fully in control of your finances.
As a rule of thumb, it’s recommended to keep out of your overdraft for about six months before applying for a mortgage. This time frame may be longer if you’ve been consistently living in an overdraft for years.
Above all, your mortgage will only be approved if a lender sees you as financially stable. Extended periods of overdraft usage might give the impression that this isn’t necessarily the case.
Understand what your spending habits say about you
It’s time to scroll through your bank statements and scrutinise your spending habits. When you apply for a mortgage, lenders will want to see an accurate and detailed look at your outgoings. This will usually include bank statements too. This is to check that your application is accurate, but also that you could afford a mortgage if rates were to increase over your loan period.
Usually, you’ll need to submit about three months of bank statements to your potential lender. This means it’s probably a good idea to be a little less frivolous with your spending. Try to keep a regular routine of spending without any erratic behaviour.
Generally, spending less in the lead up to a mortgage application is commonplace. You’re going to be saving for moving costs, fees and extra expenses.
Look for external factors which could harm your application
There are a number of external factors which could work against your application.
For instance, if you opened any form of joint credit with a former partner, your credit report may still be linked with them. If they have a lower credit rating through defaulted payments or CCJs, this could have a detrimental impact on your score.
Don’t panic though, there’s a simple way to resolve this. Get in touch with the credit agencies and put forward a notice of disassociation with you former partner.
Your exes aren’t the only people who could be bringing down your credit score. You may be linked with old flatmates who you split bills with or even some family members.
Upgrade to an ‘Advantage’ or ‘Premium’ account from your bank
We recommend taking this point with a pinch of salt. Having an ‘Advantage’ or ‘Premium’ account with a bank isn’t likely to be the deciding factor in getting a mortgage or not. Nor are you likely to be refused a mortgage because you haven’t got an upgraded account.
If however, you are an ‘Advantage’ or ‘Premium’ member of a bank, there’s a chance your application is going to be looked upon slightly more favourably by that lender. This could give the lender an appreciation for your reliability and financial management.
Improve your credit score by paying rent
Paying rent on time doesn’t currently have an impact on your credit score. If you’re reliable with rent payments, there’s a way to have this tracked and therefore be added to your credit report.
You could sign up to Canopy Rent and make your rent payments as usual. Canopy will verify your payments and this will then be used to help build your Experian credit rating. This in turn could help your chances of approval and your access to better interest rates.
Save a large deposit
Mortgage lenders prefer homebuyers who pay a larger deposit. The more money you can offer up-front, the more attractive you will become. Generally, the very best interest rates and deals are offered to those who have a low LTV.
LTV stands for loan-to-value and refers to the percentage of money you’re borrowing compared to the property value. For instance, if you have a 90% LTV ratio it means you’ve paid a 10% deposit and your interest will be worked out based on the other 90%.
By paying a higher deposit, you’ll own a larger percentage of the property and will therefore have lower monthly repayments and lower interest rates. This helps make you seem more attractive for a number of reasons.
Initially, it shows that you can manage your finances well enough to save a large cash sum. Moreover, the lower monthly repayments are likely to be more affordable than a high LTV mortgage loan. The lender will also see the higher deposit as a greater level of security for potential non-payment issues.
We understand that not every borrower is capable of saving up large deposits. Having said this, we’d recommend offering something a little greater than the minimum, even if it is only by a few hundred pounds.
Provide evidence of earnings if you’re self-employed
Getting approved for a mortgage when you’re self-employed can appear tricky at first. Like any mortgage applicant you’ll need to provide full evidence of your earnings to demonstrate that you take home a reliable and steady income.
Applying for a mortgage when self-employed will usually require an SA302 form for details of the last two to three years from HMRC. Alternatively, full account details for this time period may also be requested.
Provide as much information as you can. Essentially, you need to offer evidence of affordability and income. If your accounts demonstrate any dramatic spikes or fluctuations in earnings, some lenders may shy away from offering a mortgage.
Don’t panic though, you’re not the first person to apply for a mortgage when self-employed. Get yourself a good mortgage advisor, help the lender with any questions or evidence they need and be entirely transparent about your earnings history.
Avoid quirky or unusual properties
Unusual or quirky properties can come in many different forms. This ranges from distinctive restorations or conversions through to properties situated above busy bars or shops. These types of properties can often be harder to sell and therefore can prove tricky for those looking to improve their chances of getting a mortgage.
It’s possible that these types of properties could be looked upon less favourably and result in lenders being less inclined to offer a mortgage. This is because if you were to miss a payment, a lender wants to be sure they’ll get their money back when selling the house on again. Therefore, they may be more comfortable with conventional properties which won’t cause too many problems if put back on the market.
You could better your chances of getting a mortgage by keeping things simple and sticking to the norm.
Shop around to find the right lender for you
This makes perfect sense. A mortgage is usually the largest sum of money you’ll ever borrow, it’s vital to get the best possible deal. The differences from one mortgage deal to another can save you thousands of pounds in the long run.
There are plenty of tools and platforms out there to help homebuyers find available mortgage deals to suit each specific circumstance and budget. Alternatively, seek the help of a reputable mortgage broker to receive advice and guidance on finding the best possible mortgage. A lot of brokers will have offers and deals which aren’t necessarily available if you apply direct.
Many brokers will get a commission of the mortgage loan you receive, so they’ll do everything within their power to find you a deal which you’ll be approved for. Often they can give you an extra bit of help and advice with your application. These services can be worth it for the peace of mind – especially if you’re a first time buyer.
Deal with people, not call centres
Applying for a mortgage is a very personal thing to do. You essentially list the full details of how you live your life, your finances and hopes for a new home to a lender which will judge you and deem whether you’re worthy of their money. This can make the process feel pretty stressful and anxiety inducing.
This is why, for some people, it’s important to deal with dedicated individuals and not just call centres or online search engines. Actually talking on a one-to-one basis with a broker who will see your case through from beginning to end, to discuss your circumstances and application, can help enormously. If you’re using an online broker, speak to one of their mortgage advisors and get the genuine one-to-one help you may need.
Moreover, you could genuinely work with an advisor or associate within the company who actually wants to support you and see you succeed with your application. In this case, there’s a strong chance they’ll be able to offer a few helpful comments or pointers to ensure you tick the boxes needed to be approved.
Prepare your documents and paperwork thoroughly
There’s a lot of information lenders need to see before they can even consider approving your mortgage. Make sure there are no last minute rushes to get everything in order. Throughout the process of looking for a mortgage, get all your information organised into a single folder which you can offer the lender when they need it.
Here’s a little checklist to help you start your organisation of documents. Your lender may ask to see some of the following:
- Proof of identity – a passport is the best option
- Proof of address – utility or credit card bills are often sufficient
- Bank statements for the last 3 months (at least)
- Tax returns or accounts for the last 3 years
- Pay slips for the last 3 months (at least)
- Proof of any bonuses or additional payments on top of your usual salary
- Proof of any additional income – this includes Child Benefit payments
- The two most recent P60 tax forms – this will show your income and tax payments
This is not an exhaustive list, there may be other important documents which may be required from you when applying. It’s usually recommended to send all of these documents together to speed up the process and improve your chances of getting approved for a mortgage.
If you’ve received help raising your deposit from a friend or relative, it’s important to include a letter which explains this is a gift and not a loan. This is important for lenders to determine that you will be the sole owner of a home and your friend or relative cannot stake any claim to part ownership of the property.
Be accurate and clear in your application
The way you apply for your mortgage will determine the way you fill in or provide your details. Whether you apply in person, via a form, online or through a broker, it’s absolutely crucial to ensure everything is accurate.
Be sure your income information is clear and truthful. Use exact amounts and have proof of any information you provide the lender/broker.
Be thorough with your details. Double, triple and quadruple checking your information is a necessary step. The slightest inaccuracy or mistake could come back to hurt you.
Be clear about your current debts. Declare these fully and list agreed repayments, outstanding balances and payment history. Transparency is the key.
When you’re asked about your spending habits, be honest. There’s no point in lying or bending the truth here, you’ll either be caught out by the lender or struggle with repayments if approved.
Apply for a mortgage agreement in principle
A mortgage agreement in principle is essentially a quick check that will tell you whether you’re likely to get approved. This will give you an initial indication of whether you’re likely to be approved or not.
This is a great way for first time buyers to test the waters and see whether they’re seen as attractive borrowers by their chosen lender. It’s important to note that a mortgage agreement in principle is NOT final. This can be rescinded by the lender when you submit your formal application which is when you have a negotiated and agreed on a property you want to buy. It only really looks at the top level information without delving into the nitty-gritty. There’s always the potential that something under the surface could put a lender off.
Moreover, finalising the mortgage details will also take your chosen property into account, this is another potential avenue for problems to arise. This could be due to a number of reasons, including the locating of subsidence during a survey or even the lender’s valuation of the property.
The benefit of this goes beyond simply giving yourself a better understanding of how lenders view you. If you’re a first time buyer, a mortgage in principle will give estate agents and sellers an extra level of confidence in your ability to complete a sale. This can help the offer you’ve submitted on a property to be looked upon more favourably. Be aware, a mortgage agreement in principle does have a shelf life, often they will only remain valid for between 60 and 90 days (it’s recommended to check this with your lender before applying).
You’re not tied into a mortgage if you’ve been approved an agreement in principle, you can still apply to a different lender if you’d like. It’s worth flagging that it’s not advisable to go through too many of these checks if you can help it. Regular credit checks can harm your credit rating and impact your chances of approval. If you get the opportunity, take a lender’s soft search option which won’t be visible on your credit file. Unfortunately, not all lenders offer this.
Don’t change your mortgage application once it’s submitted
Once you’ve submitted your mortgage application, leave it be. Don’t be tempted to ask for more money or change your application in any way. This could cause some real problems for your application and could result in lenders not accepting your application.
You should have budgeted and planned how much you can afford long before submitting an application. Making last minute changes on the finances can give the impression that you’re a spontaneous borrower. This is a big warning flag for lenders.
What if you’re rejected?
Rejection can hurt. In the world of mortgage applications it can seem like your dreams of a new home have just come crashing down. This isn’t necessarily the case, but that doesn’t mean you should bounce to another lender just yet.
If you find yourself in this situation and you’ve been rejected it can be tempting to apply immediately to another lender. Be mindful that this could reflect negatively on your credit file. Any new lender will see that you’ve been rejected and will start to ask why. This could lead them to uncovering the same problems as the previous lender. Not only this, but applying for lots of credit in a short space of time looks desperate and is recorded on your credit file.
The best thing to do if you’ve been rejected is to take stock and do a little digging. Scrutinise your application, investigate your finances and go through every stage of this article again. Try to uncover what’s holding you back. Once you’ve found the weak spot, do whatever you can to put it right again.
If you can’t find a weak spot, it might mean that you’ll have to pay a higher deposit or consider buying a cheaper property. This may not be what you want but sometimes you have to be objective about your borrowing. What may seem affordable to you, may not seem affordable to your lender.
You’re perfectly entitled to ask your lender why your mortgage application wasn’t approved, although often they’ll cite the main reason in their rejection communication with you.
Once you’ve resolved any issues, you can reapply to another lender. It may be a good idea to wait a few months before reapplying which can be difficult if you’ve got your heart set on a property in particular.
Get the area right
Applying for a mortgage can be a long and arduous process, don’t let it be for nothing. Make sure you’re absolutely sure that you’re moving to an area where you’ll enjoy living. Our property reports take the guess work out of this. We offer vital information on the property itself, local crime rates, school ratings, amenities, local planning applications and more. Enter your postcode and get Phil Spencer’s property report here.