But getting your finances in shape early can make all the difference to your application and your chances of successfully buying a home.
Here’s what to do to improve your chances of being approved for a mortgage:
- Check your credit file early
Your credit report is one of the things a lender will look at when assessing your application. It shows what you’ve borrowed and how you’ve managed it.
Before applying, it’s worth checking your report with one of the main credit reference agencies – Experian, TransUnion and Equifax. It will highlight any issues that could make getting a mortgage more difficult. It doesn’t mean it’s impossible, but you will need to be upfront about them with a potential lender or your mortgage adviser.
It’s also worth looking out for any errors, such as incorrect addresses or missed payments that shouldn’t be there. Mistakes do happen and you can take steps to correct them. Around one in 10 people who check their credit record identify an error or issue, according to the Financial Conduct Authority.
Even small measures can help boost your score – make sure you’re registered on the electoral roll, pay bills on time and reduce outstanding overdraft or credit card balances.
- Tidy up your finances
Lenders don’t just look at how much you earn – they also look closely at how much you spend.
In the six months leading up to an application, cancelling unused subscriptions or direct debits, reducing credit card balances and avoiding large new purchases on finance can all improve how you look to a lender.
It’s also worth being aware of your spending patterns. If you use online gambling websites or you’re often falling into your overdraft, for example, it could raise questions during the mortgage application process.
- Building your deposit
Saving a deposit remains one of the biggest barriers to buying a home for many people.
While 5% deposit mortgages are widely available, meaning you can borrow up to 95% of the property’s value, that still means you need to be able to afford the mortgage repayments on a mortgage of that size. And in places where property prices are high (such as the south of England), the numbers don’t always stack up.
Some mortgage products aim to address this, such as the Helping Hand Mortgage from Nationwide, which won Best First-Time Buyer Mortgage Lender at the Your Mortgage Awards. It allows eligible buyers to borrow up to 95% of the property’s value and, in some cases, up to six times their income.
However, having a larger deposit is usually better because it does two things: reduces how much you need to borrow and gives you access to better rates and more choice.
The average first-time buyer puts down £61,090, according to Halifax – which won Best Overall Mortgage Lender at the Your Mortgage Awards – but, of course, many people don’t have that much to put down upfront.
One way to boost your deposit is to save it in a Lifetime ISA. Not only does this shield your savings interest from tax, the government will also boost your pot by 25% up to the age of 50.
You’ll also need to show where your deposit came from. Lenders need this to meet money laundering rules. They’ll usually expect evidence of regular savings, a work bonus or a gift from family. If it’s a gift, you might need a signed letter confirming it isn’t a loan.
- Get an agreement in principle
An agreement in principle (AIP), sometimes called a decision in principle (DIP), can be useful before you start viewing homes.
It gives you an indication of how much you might be able to borrow and shows estate agents and sellers you’re a serious buyer. It’s not a guarantee to lend, but it’s a useful guide.
Most large lenders now offer quick online decisions in principle, often using soft credit checks that won’t affect your score. Santander, named Best Online Mortgage Lender at the Your Mortgage Awards, offers a free online decision in principle that is valid for 60 days. If you have an offer accepted, you can move straight to a full application.
- Think about timing
One of the biggest mistakes buyers make is leaving everything until the last minute. But the sharp rises in mortgage rates in March show how quickly rates can change.
The good news is that, with many lenders, you can usually secure a mortgage offer six months in advance, and switch to a cheaper deal if rates fall before you complete your purchase.
Having paperwork ready – including payslips, bank statements and ID – helps avoid delays once your offer is accepted. Being organised means you can act quickly and with confidence when you find a property you like.
Buying a home is a big step, and while the mortgage may feel like the least exciting part, it’s essential to getting you there.
By checking your credit file, getting your finances in order and understanding your borrowing power, you’ll be in a much better position to move forward when the time comes.
