Getting a mortgage is more than filling out an application form. Before you complete a mortgage affordability check or book a mortgage interview you will need to make sure your finances are as healthy as possible.
First-time buyers can find out how to get their first mortgage in our step-by-step first-time buyer guide.
The bigger your deposit, the smaller the total cost of your mortgage will be. Mortgage rates are set out in different loan-to-value (LTV) bands. A larger deposit results in a lower LTV and lower LTVs often have lower interest rates. Your LTV is calculated by:
Value of property – your deposit = Your mortgage loan
Mortgage loan divided by the value of the property
You should check your LTV and make sure you reach the lowest LTV band you can. LTVs usually move in five or 10 percentage point bands. For example, without the use of a guarantor for your mortgage, the maximum LTV is 95%, followed by the most common bands set at 90%, 85%, 80%, 75% and 60%. If your LTV is 91%, then you will need a 95% mortgage. If you can save the extra and reduce this to 90%, then you should be able to obtain a better mortgage rate.
Search for high LTV mortgages.
Lifetime ISAs pay a £1,000 bonus per tax year from the Government, when you save a maximum of £4,000. Lifetime ISAs can only be opened by those under 40 (and 18 or over) and can only be used for buying a first home or as retirement savings. The rules on withdrawals are very strict and do come with penalties. Our Lifetime ISA guide sets these out in full.
A mortgage lender will check your credit history as part of reviewing your mortgage application. Lenders will want to know that you can manage your debts and have a track record of paying these back on time. Your credit report shows your current and previous credit agreements (for example any loans, credit cards or catalogue shopping accounts), as well as any defaults or late payments. This will also show any County Court Judgements (CCJs) made against you. The amount of total debt, frequency and recency of credit applications and your history on paying these back all impacts your credit score. For example, if you make multiple credit applications in short succession your credit score is likely to reduce after each application. Therefore, if your first mortgage application is refused because of a poor credit score, you should not make any further credit applications until this is resolved.
You will increase your chances of getting a mortgage by registering to the electoral roll – it can be extremely difficult to get a mortgage without doing this. All lenders are required to identify those they are lending money to. They do this to not only to correctly identify you, but also as part of their checks to show you are not laundering money.
The electoral roll is used by all lenders to verify you are who you say you are and that you live at your current address. You can check your credit file to see if you are registered on the electoral roll and that this is up to date. It’s free to register onto the electoral roll and can be completed online.
If you are a foreign national and therefore not eligible to vote, then you can add a notice to your credit file advising lenders that you have other documentation to prove your identity. Our guide to credit checks includes more information about how to correct your credit file.
Lenders will also have differing rules on their requirements to identify foreign nationals. A mortgage broker can also assist in helping you to understand the documentation you will need and the lenders that will accept your application.
To have the best chance of being accepted for a mortgage, you need to understand the basics of how lenders make their lending decisions. Each mortgage lender has their own set of rules and eligibility requirements and they use these to decide who they can lend money to and for which types of property. These are called their underwriting criteria and lending scorecard.
Underwriting criteria broadly spans the situation of the borrower and the property and the lender’s affordability rules. For borrowers, this includes how much you want to borrow, your income and employment type, your existing debts, any previously late or failed repayments of debt and your level of deposit. You will also need to meet the lender’s affordability requirements based upon your income, mortgage costs and other outgoings. The lending scorecard is a set of rules based on your credit score and history.
These eligibility rules can make it difficult to know which lenders are most likely to accept your mortgage application. A mortgage broker can boost your chances to get a mortgage as they know the eligibility rules of each lender.
To make sure your credit score is good enough for your mortgage application to be accepted, you should pay-off as many outstanding unsecured debts as possible. This includes clearing outstanding balances on credit cards, store cards, loans and catalogue accounts.
Not only does this help to boost your credit score, but it will also reduce your monthly outgoings, helping you to meet the affordability requirements of mortgage lenders.
Your available amount of credit is the total of the maximum available balances of your credit cards, store cards and overdrafts. Some lenders assess the affordability of your using the potential amount of debt you could have in the future. Therefore, you need to make sure that your availability of credit is not excessive and consider closing those credit cards you no longer use.
Be careful of reducing your credit limits if you have an outstanding balance on these. In the case where you do have some debts left, lenders prefer that this is less than half of the maximum balance available, according to credit agency Experian.
You can boost your chances of getting a mortgage by making sure you only retain the credit relationships you need or have held for a long time with a good payment record. Any credit cards or other forms of debt that you do not use should be closed. This will help to remove the risk of fraudulent use of these accounts and helps to reassure lenders that you are not over-indebted.
Also, lenders value longer held credit arrangements more than shorter-term ones. For example, if you have two unused credit cards, then close the one you have held for the least amount of time.
You can improve your chances of getting a mortgage by curtailing your spending for the six months prior to making your mortgage application. Lenders need to show that your mortgage will be affordable, and this includes a stress test that you could meet the payments should your interest rate increased to 6% or more. The greater amount of disposable income you have left each month, the easier it will be for you to pass these affordability checks.
Reducing your spending will also help you to save more for your deposit, potentially saving you money across the lifetime of your mortgage.
Lenders are likely to be cautious about your mortgage application if you have had a payday loan in the last six years or if you are regularly using your overdraft. These are considered signs of being in financial distress. You should reflect hard about your current circumstances and if now is the right time to get a mortgage. If you are confident that any former debt or spending issues are now resolved, then a mortgage broker may be able to help you find lenders that cater to those looking for a mortgage with bad credit.
You greatly increase your chances of being accepted for a mortgage if you have a clean record on paying your bills on time. A missed mobile phone payment, a late electricity payment or a late credit card payment will stay on your credit file for at least six years. Some lenders may accept elements of failed or late payments, but you may find you have fewer lenders to choose from and potentially higher interest rates.
Your chances of success in getting a mortgage are greatly improved if there are no other recent credit applications on your credit file. While one credit application is not likely to strike you off every lender’s list (if it is not a payday loan), you must make sure that any extra debt will not make your mortgage application unaffordable. In addition, multiple credit applications will be viewed as a sign of financial distress and will significantly reduce your chances of being accepted for a mortgage. Always check your credit score before making a mortgage application, as once this is on your file, you will need to wait months for your score to recover.
Lenders prefer stability and knowing that your income is secure. Some lenders will not accept applications from those still in a probationary period. So, if you can, it is best to avoid switching jobs when applying for a mortgage. If you do need to change jobs, then a mortgage broker can save you a lot of time in finding lenders that will accept you.
Being organised can help to increase the speed of your mortgage application. Try to compile everything you need for your application in one go as this reduces any back and forth between you and the lender. Also, you may need certified copies or originals of certain documents. Some of the documents you may need include bank statements, payslips and evidence of bonus payments, savings account statements, ID documents, utility bills, credit card bills, a P60 and if you are self-employed or derive your income from a business, your last three years of accounts and tax returns. You will also need to show evidence of benefit income if you are using this as part of your mortgage application.
If you are self-employed, to access the greatest number of mortgage lenders possible, you will need to show a SA302, your full accounts or tax returns from at least the last two if not three years. Some lenders have underwriting criteria that will accept those with start-up businesses and identifying these is most easily done by speaking with a mortgage broker.
Those who are employed will need three months of payslips and their latest P60.
You can give your deposit a boost by buying a property under the Help to Buy scheme. This allows first-time buyers to put down a 5% deposit and get a 20% Government equity loan to help fund the rest, meaning they will be able to apply for a 75% LTV mortgage (for a new-build up to a certain value). Compared with a 95% LTV mortgage, 75% LTV deals will almost always offer better rates if you manage to make a successful mortgage application, so this scheme could help dramatically reduce your repayments.
If your mortgage deposit needs a boost, then family members may be able to help you out. This can include a cash sum gifted to you towards your deposit. Mortgage lenders sometimes have limits on the percentage of gifted deposit they will accept. Alternatively, there are guarantor mortgages available where your family members either use their cash or equity in their own property as security for the mortgage. These do come with risks though for your family members, including the potential repossession of their property if you fail to make your mortgage payments.
Our guide to guarantor mortgages includes more information.
Once you have your deposit and are ready to make an application, you can look for the best mortgage rates on our charts. Make sure to look at the total cost of lending, especially if you plan to include your mortgage fees in the total you plan to borrow. In some cases, a slightly higher rate with a lower fee can work out cheaper over the mortgage term. You can also speak with a mortgage broker who will be able to search the market and have knowledge of lending conditions particular to each lender. They will also be able to take account your financial situation and use this to make a recommendation of the right mortgage and lender for you.
The mortgage lender will use your mortgage application form, any information they already hold if you are an existing customer and your credit file to collate information about you and your circumstances.
Choosing to buy an unusual property may reduce your choice of mortgage lenders and very much depends on the nature of the property being bought. If you’ve set your heart on buying a property that has some quirks, then read our guide to find out how to get a mortgage for a property of unusual construction.
You should make sure that you close any jointly held accounts and request to be unconnected to any former partners or those you have held accounts with through a credit reference agency. Our guide about credit checks includes how to make changes to your credit file. If you already have a mortgage, then our guide about divorce and mortgages may be helpful.
Since March 2016, rental payments can be included in your credit file – of course make sure you are paying these on time. You will need to contact Experian make a request for this to be added to your credit file. You will also need to check which credit reference agency your mortgage lender will use or that they can include this information in the decision-making.
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