The Independent reported that around 9 out of 10 mortgage applications in the UK are rejected and the FCA confirms that only around 66,000 mortgages are approved each year. If you are looking for a mortgage, it is important to know the application process and the things you will need to have in order to qualify for a loan.
In this guide, we are going to be shedding light on all things to do with getting approved for a mortgage.
Affordability & proof of income
Lenders will conduct an affordability check to see if you will be able to manage the loan repayments without falling into financial difficulty.
They will start by asking you for your full income – this includes your basic salary as well as any additional income you make outside of your main role or from bonuses or commission. To prove your income, you will have to present bank statements and at least 3 recent pay slips.
Checking your affordability is a very detailed process. As well as your general income, lenders will take into account your household bills and any regular outgoings, along with any other forms of debt like credit cards or other loans. If you are not a homeowner already, they will look at other expenses such as phone, car, entertainment, holidays and more.
A ‘stress’ test will also be conducted to determine whether you are still able to afford the mortgage repayments even if the interest rates were to rise or if you were to retire on go on maternity or paternity leave.
Good credit score
Upon making a formal application, the lender will run a credit check using one of the 3 main credit reference agencies in the UK: Experian, Equifax and Call Credit. This will allow them to look at your financial history and make an informed decision on your creditworthiness and risk as a borrower.
The better your credit score, the more likely you are in being approved for a mortgage. But things that can bring you down include being too young and with a limited credit history or applying with another person such as a partner or spouse who has very bad credit history.
Lenders will check for general debt like credit cards and other short-term loans that you may have taken out previously, but they will also look for bigger debts and how you have dealt with your past and current debt.
If you have a history of late or missed repayments, this will be a red flag for a mortgage provider. Things like recent payday loans may be a turn off for mortgage providers because they believe that you might be financially stretched if you are using high cost short term products. Equally a history of arrears, recent County Court Judgements, bankruptcy or IVAs are considered to be warning flags.
Consider using a broker
Something that can maximise your chances of being approved for a mortgage is using an introducer. This is a company or individual that receives a commission only in the event that your loan is approved. A commercial mortgage broker will scour the market looking for the best deals and also assist with your application to boost your chances of approval.