Submitting your mortgage application can be stressful. If the lender rejects your application, it could mean you miss out on the chance to buy the property. Understanding what lenders will be assessing could put your mind at ease and may help you identify ways to improve your application.
Here are seven factors mortgage lenders will review when deciding whether to approve your mortgage application.
1. Income and employment stability
Lenders want to ensure the repayments you’d be committing to are affordable. As a result, your income and employment stability are important parts of your application.
The lender will usually ask how long you’ve been employed, and will want to ensure you’ve passed the probationary period. It’s not impossible to secure a mortgage if you’ve started a new position, but the lender may ask you to provide further details of your employment history and a copy of your contract.
If you’re self-employed, it can be more complicated to demonstrate stability. You might need to provide two years of accounts and contracts as part of your application.
As well as showing you have a reliable income, the lender will assess if your income is enough to cover the potential mortgage repayments. Typically, you can borrow between 4 and 5.5 times your annual income through a mortgage, but this varies depending on your circumstances.
2. Credit history
The lender will also use your credit report to review your credit history and see how much of a risk you pose.
They will be looking out for a history of late payments, as well as evidence of bankruptcy, county court judgments, or Individual Voluntary Arrangements, which will usually remain on your credit report for six years.
A poor credit history doesn’t mean you can’t secure a mortgage, but you might benefit from approaching a specialist lender.
3. Existing debt
As part of affordability assessments, lenders will look at your current outgoings, including other debt repayments. They’ll want to ensure you can meet your mortgage repayments alongside your existing financial commitments.
So, if you have outstanding loans or credit cards, you might benefit from paying them off before you apply for a mortgage if you can.
4. Regular outgoings
It’s not just debt repayments that lenders will review when looking at your outgoings to assess your affordability. They might also consider regular expenses, such as household bills, child maintenance, or childcare costs.
5. Deposit
Your deposit is used to assess financial stability and lending risk. Typically, you’ll need a deposit of at least 10% to secure a mortgage, but there are deals available with low or even no deposit requirements.
The size of your mortgage will also determine the deal you’re offered if a lender accepts your application. Usually, the more equity you’ll hold in the property, the more competitive the interest rate you’re offered.
6. Property value
If you default on your mortgage repayments, your lender may repossess the property if an agreement cannot be reached. They’d then sell the property to recover the debt.
As a result, the lender will check that the property is worth the amount you’re paying for it; otherwise, they could struggle to recoup their losses if you default.
Potential difficulty when reselling is one of the reasons why some lenders are reluctant to secure a mortgage against unusual homes. For example, you might struggle to obtain a mortgage with a traditional lender if the home you want to buy has a thatched roof or is a listed building.
7. Your age and the mortgage term
Many lenders will want you to pay off your mortgage before you retire. As a result, your age, and the mortgage term you select is often important.
Traditionally, first-time buyers have taken out a mortgage with a term of 25 years. However, it’s possible to take out a mortgage with a 40-year term in some cases. You might adjust the term in the future. For example, you might shorten the mortgage term through an overpayment, or extend it to manage your budget if you’ve borrowed more against your home.
Again, if you want to take a mortgage out past traditional retirement age, it’s not impossible. You might need to demonstrate how you’d meet repayments once you stop working, discuss your plans, or use a specialist lender.
Contact us to talk about your mortgage
Understanding the criteria of different mortgage lenders and assessing which ones might be right for you can be time-consuming and difficult. A mortgage adviser will review your situation and needs to identify which mortgage lenders are likely to approve your application.
Please get in touch to arrange a meeting.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
