When you submit your mortgage application, it can be a nerve-wracking experience. Being rejected by a lender could mean you lose the house you’ve put an offer on. Understanding what banks and other lenders are looking out for can give you confidence when you submit your application.
As a first-time buyer, one of your first steps should be to understand how much you’ll be able to borrow. This can help you set a target for your deposit and search for a property that’s within your budget. Many things can affect how much you’re able to borrow. As a general rule of thumb, you can borrow 4.5 times your annual income.
Applying for a mortgage in principle, which will usually not affect your credit score, can give you an idea of whether a lender would accept your application and the amount they would lend. But keep in mind this isn’t a guarantee. If you’d like some help applying for a mortgage in principle, and the rest of the house buying process, please contact us.
Why having confidence in your mortgage application is important
Once you’ve saved a deposit and found the home you want to buy, having confidence that your mortgage will be approved is important.
A rejection can slow down the process and it could even harm your chances of being approved by another lender. This is because the lender will carry out a hard credit check, which will show up on your credit report. This could put off other lenders and make it more challenging to get the money you need to buy your first home.
So, what does a mortgage lender look for?
1. Income and affordability
One of the key things a mortgage lender will look at is simply whether you can afford to keep up with the mortgage repayments. As well as looking at your income, they’ll also assess your outgoings and what your existing financial commitments are. As a result, you’ll probably need to provide payslips covering several months, information of any benefits you claim, and bank statements.
2. Payment history
Your credit report shows your payment history, from your mobile phone to utility bills. If you’ve paid late or defaulted in the past, it could have an impact on their decision. If you have missed payments, it doesn’t automatically mean your application will be rejected, but you may need to approach specialist lenders or be prepared to accept a higher interest rate on your mortgage as a result.
Lenders want a borrower to be stable, indicating that they’ll be able to meet mortgage repayments over the long term. There are several things they may look at, including whether you’re registered in the electoral roll at your current address and how long you’ve been in your job. Mistakes can occur on your credit report, so it’s worth checking that your current and previous addresses are correct. Rectifying mistakes on your credit report can provide an easy win when looking for ways to boost your credit score.
4. Credit utilisation
How much of your available credit are you currently using? Having too much debt could put off lenders as it means your financial commitments are likely to be higher and could indicate that you need to borrow to get by. Generally, it’s recommended that you keep your credit utilisation below 30%.
5. Red flags
As part of the application process, you’ll usually have to provide bank statements to demonstrate your income and outgoings. When reviewing these, lenders will keep an eye out for red flags that could lead to your mortgage application being rejected. Frequent outgoings to gambling firms or deposits from payday lenders, even if the balance is repaid on time, could harm your plans. It’s worth being more cautious with your spending than normal in the months leading up to submitting a mortgage application.
Keep in mind that it’s not just your finances a lender will look at, but the property too. If the lender doesn’t believe the property is worth the amount you’ve offered for it, they may reject your mortgage application based on this. With a fast-moving property market, it can be tempting to increase your offer, especially if other buyers are interested. Before going above the asking price, take a look at what other properties nearby have sold for and be cautious.
Helping you find the right mortgage for you
There are lots of different mortgage lenders to consider, some of which don’t have a high street presence. Lenders set their own criteria and it can be difficult to know whether your mortgage application has a good chance of being approved. This is where we can help. We’re here to help you find a mortgage that matches your needs and offers a competitive interest rate to save you money. If you’d like to discuss buying your first home, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.