How to get your mortgage application accepted
The days of easy credit are long gone and getting a mortgage can sometimes be a difficult task in today’s lending environment.
Tighter regulations were introduced in 2014 to protect mortgage customers from overborrowing. This means that now when you apply for a homeloan you will face a long and sometimes intrusive mortgage interview, designed by the lender to work out how much you can really afford to repay.
The amount you can borrow these days is about much more than just your income. Your outgoings are vitally important to lenders because they need a full picture of your financial situation, even down to how much you spend on your children’s Christmas presents or your annual holiday. And if your figures don’t add up you may not be deemed a suitable borrower.
So before you try to get a mortgage it can make sense to do a bit of preparation to maximise your chance of having your application accepted first time. But where should you start?
Pay your debts
You don’t have to get out of debt to get a mortgage. Some debts are useful because they prove to the lender that you are responsible enough to manage credit agreements.
But if you have debt, make sure you meet each and every payment on time and in full, because lenders will search your payment history and late or missed payments raise a huge red flag.
A smart idea is to get a copy of your own credit report now to see if there is anything you can do to make it better. Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “Check your credit rating before applying for a mortgage and improve it if necessary, as it is crucial to you getting accepted.
“Some first-time buyers make the mistake of thinking they are in a strong position because they have no debt but lenders need to see a track record of paying back debt on time, so take out a credit card and ideally pay off the balance in full each month. Good conduct of your accounts – such as paying bills on time – is crucial and a clean credit history with no missed mobile phone payments will help enormously with your mortgage application.”
Rein in your spending
Lenders don’t just look at whether or not you can pay your credit cards, loans and other credit agreements, they will scrutinise all of your finances. This means that you need to get your overall spending in check too.
It’s not enough to ensure you stay in the black each month, although that is essential. You also need to look at what surplus you have at the end of each month and whether you can increase this by cutting back on any regular spending.
Adrian Anderson, director of mortgage firm, Anderson Harris, says: “Watch your spending before making your mortgage application. Since the new rules were introduced last year, lenders have been scrutinising regular spending and taking it into account when calculating how much you can borrow. So if you can do without that wine club membership, cancel it several months beforehand if possible.”
NEXT STEP: Look through your last three months’ bank statements and see where you could cut back. Then draw up a realistic spending budget and stick to it.
The more you move house and job, the less attractive you become to a mortgage lender. Of course, not everybody who has recently switched their home and workplace is a high risk borrower, but stability in work and home life is a good indicator that you will have the ability to meet your mortgage repayments.
Lenders take account of these broader trends when it comes to assessing applicants for a mortgage, but that doesn’t mean that if you have recently moved house or job you won’t get a deal – it will just have an impact on your overall appeal as a borrower.
Anderson says: “Don’t change jobs if you can help it. Going self-employed, for example, can be devastating to your application as many lenders will want to see two or three years of accounts before they will lend. A steady employment history will make it easier to get a mortgage.”
It’s also important to make sure you are on the Electoral Register as this is something that is checked by lenders as another measure of stability. If you have moved property recently it’s worth double checking with your Local Authority that you are on it.
NEXT STEP: Moving house or job is sometimes unavoidable, and you wouldn’t want to turn down an ideal job because it may, or may not, hamper your mortgage prospects. Only you can decide whether or not it is worth jeopardising a mortgage application for.
Consider all the costs
There are so many costs associated with getting a mortgage that you could come unstuck before you start if you haven’t taken them all into account. The money you have saved tirelessly for a deposit will need to cover a few more, expensive costs, so you may not be able to put it all down on a property.
Harris says: “It’s not just about saving for a deposit, there are plenty of other costs associated with buying a property such as legal fees, valuation costs, mortgage arrangement fees, possibly a broker’s fee and Stamp Duty, and then there’s the cost of moving itself.
“Make sure you have all of these expenses covered.”
Your potential lender will want to know how you intend to fund these costs as they add up to thousands of pounds and could eat into the deposit you hope to be able to put down. The fact is, you need to have the money for both the costs of buying a property and as big a deposit as you can save.
Anderson agrees: “The deposit is crucial when it comes to the mortgage rate you can get so save, save and save some more. It could make the difference between getting a fairly good rate of interest and a very cheap one so save as much as you can and ask the Bank of Mum and Dad for help.
“If the deposit is a gift from a family member, the lender will require ID and proof of funds so get those ready in advance.”