Trying to get a mortgage can be a daunting proposition, however, it’s not that difficult and there are several things you can do to improve your odds of being accepted. To have the best chance of securing the cheapest deals, you’ll need to have your finances in order before you apply.
What do lenders base their decision on?
Lenders all have their own set of criteria and what makes you attractive to one may not satisfy them all. Generally, they look at the following:
- Your employment status and income
- Your outgoings
- How much you want to borrow
- Your existing debt
- The size of the deposit you’ve saved
- Your credit rating
What can you do to improve your chances?
1. Register to vote
If you’re not registered to vote, you’ll find it very difficult to get a mortgage, even if you meet all the criteria. Lenders use electoral roll data to run identity checks: to check you are who you say you are, that the address you give them is legitimate and that you’re not laundering money.
Check with your local council if you’re unsure. If you’re not registered, get yourself on the electoral roll as soon as possible.
2. Check your credit score
Lenders check your credit report to ensure that you’re financially responsible. They need to know that you’re able to pay back what you borrow. Your credit report shows any overdrafts, credit cards, loans, and mortgages you’ve had in the last six years. It may also include any mobile phone contracts you’ve had and some utility accounts. You can access your credit report for free via Experian, Equifax, or CallCredit.
If there are any errors in your report, talk to the lender(s) associated with the erroneous data and they should be able to amend it for you. If that doesn’t work, contact the free Financial Ombudsman and they will step in to order the necessary changes.
3. Manage your available credit wisely and stay out of your overdraft
If you’re always in your overdraft, lenders may see this as a sign that you’re not financially responsible. Some lenders may not accept you if you’ve been in your overdraft at any time within the last three months, so it’s best not to dip into it at all, if possible.
As for your credit cards, lenders prefer you to be using less than 50% of your available limit. Yet, they may also penalise you for having too much available credit, as there’s a chance you could suddenly spend it and rack up debt. Try to strike a balance; if you have £5,000 available credit, stay below the £2,500 mark. If you have £10,000 available credit and aren’t using any, consider reducing it a little to reduce the perceived risk to potential mortgage lenders.
4. Don’t apply for credit before trying to get a mortgage
Each time you apply for a new line of credit, the provider searches your credit file and this search is registered on your report. Having lots of searches on your file may look like you’re desperately trying to borrow money, and this will turn lenders off. If you must apply for credit, you’ll probably get away with one application, as long as it’s affordable. Don’t use payday loan companies, as some lenders will decline your mortgage application if you’ve used such a company within the last year.
5. Close inactive accounts
If you have old, inactive credit accounts, these can be seen as a fraud risk. It’s worth closing any account you haven’t used within the past twelve months.
Long-term, stable credit relationships are seen in a positive light by lenders. So, if you’ve had a credit card for a while but recently stopped using it after getting a new one, it’s probably best to keep the account open until after you’ve applied to get a mortgage, as it could be giving your credit score a boost.
6. Always pay bills on time
This might sound obvious, but did you know that missing just one payment will count against you for at least a year and will be visible on your credit report for the next six?! This could make it extremely difficult for you to get a mortgage.
Set up direct debits for all your accounts to make sure they’re always paid on time. If you’re struggling to keep up with payments, contact the lender before the next instalment is due and often they’ll be able to help and save you from defaulting.
7. Speed things up by having paperwork ready
Lenders need to see proof of your income before they can offer you a deal. They may want to see all or any of the following:
- Three months’ bank statements
- Three months’ pay slips and proof of bonuses
- Three years’ accounts or tax returns (if you’re self-employed)
- Proof of deposit (e.g. savings account statement)
- Your latest P60
- ID documents (usually a passport)
- Proof of address (e.g. utility bill)
- A gift letter if you’re getting deposit help (to prove it’s a gift and not a loan)
Lenders often want original bank statements (not copies printed out at home) so go into your local branch and ask for originals. These can take a couple of weeks to arrive, so it’s best to do this in advance.
It makes sense to have all these things ready to go, as it will save you time and reduce the number of people your application is reviewed by.
8. Fill out the application correctly
Make sure your application form is filled out honestly and accurately. Declare all your debts and give your exact income (don’t round up), as dishonest answers will mean a rapid decline of your application.
9. Put down a little extra if you’re on the border of mortgage band
For example, if you have £20,000 to put down on a property worth £100,000 (making your loan-to-value 80%), it may be worth coughing up an extra £100 as it will make you more attractive to potential lenders. All mortgages have a maximum loan-to-value. Borrowing just below this will boost your chances of being accepted and may give you access to better rates.
10. If rejected, don’t apply again straight away
If you get rejected, don’t apply for another mortgage straight away. As with applying for credit, more searches on your credit file will reduce your chances next time and you could end up making the problem worse. It’s best to contact the lender and find out their reasons for rejecting you. They may have their own reasons, but if it was your credit file, go through this guide again and tidy it up before trying to get a mortgage again.
Key Mortgage Advice are an independent mortgage broker with over 17 years’ experience in the market. We can help you through every step of your application and give you the best possible chance of being accepted for a loan. Contact us via the button below to arrange a free consultation. We’ll assist you in getting the key to your dream home:
