What do Mortgage Lenders look for?
These days, securing a mortgage can feel like you’re at the bottom of a mountain looking up. Thanks to changes made by the Mortgage Market Review, lenders have become far stricter with their eligibility criteria.
On top of that, these new regulations mean that mortgage providers will go into far greater depth when it comes to vetting you as a potential client – whether you’re a first-time buyer, an existing homeowner or looking to remortgage. They will investigate your income, expenses and your ability to meet your monthly repayments. These ‘stress tests’ will uncover whether you could afford your mortgage in unforeseen circumstances, e.g. interest rates go up.
So you will now have to prove your circumstances and financial outgoings, such as:
Mortgage applications are income-assessed; meaning that your lender will want to see written documentation of your regular income. As a consequence, it is much easier for people in ‘traditional’ employment to get a mortgage over those who are self-employed.
That’s not to say that if you’re self-employed you won’t be able to get a mortgage, it’s just that the process is more arduous. You will have to prove your income by showing your tax returns and accounts – signed by a chartered accountant – for the previous two to three years. You may also be asked to prepare your financial projections too.
Perhaps the most significant contributor to a mortgage provider’s decision-making. Lenders will examine your income before agreeing a mortgage, to ensure that your ‘money in’ per month is enough to cover your repayments as well as your household bills etc.
Lenders will also consider the impact on your finances of a change in your personal circumstances (e.g. redundancy or separating with a partner), or if interest rates were to rise.
Credit scores are something of a mystical being – it exists but you have probably never seen it or even know anything about it.
Your credit report is like a potted guide to your financial history. It contains your outstanding debts, such as credit cards, utility bills, mobile phone contracts etc, as well as successfully paid debts. Crucially, it also contains any missed payments.
Together, this information forms the basis of your credit score – and a bad one can affect your chances of getting a mortgage as you will be considered a risk. Even if your credit score is good there are no guarantees you’ll secure a mortgage.
Simply put, the more ‘debts’ you have; outstanding credit card payments, personal loans etc, the less chance you have of securing a mortgage - regardless of how comfortable you are financially.
As you know, you will need a decent deposit before you can purchase a property. The higher your deposit in terms of its percentage of the property’s value, the less you will need to borrow as a mortgage, and thus the greater your chances are.
Be aware though that your lender will want to see your latest bank statement before giving your mortgage the green light, so ensure that your deposit doesn’t bring your bank balance to its knees.
Proof of Identity/Address
The truth is that you will struggle to get a mortgage if you cannot prove you have lived in the UK for more than three years. Lenders will want to see proof of your home addresses for at least the last three years, as well as records of your earnings and a document of identification, such as a passport or driving licence.
This is by no means an exhaustive list, but gives a good flavour of what to expect from prospective mortgage providers.
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