Looking to secure a mortgage? It might seem daunting at first but with the right preparation and knowledge, you can increase your chances of approval. This article offers practical advice and strategic steps to strengthen your application.
1. Know what lenders want
Mortgage lenders want to make sure you can pay back the money they lend you, so showing that you can afford the payments will boost your chances of getting a mortgage.
It’s a good idea to figure out how much you could afford to borrow before you ask a lender for a loan. This way, you can apply for amounts that you’re more likely to get approved for.
Generally speaking, lenders will offer an amount between four to five times your income. If you’re looking to buy with a partner, they’ll combine your income.
But lenders don’t just look at how much money you earn – they’ll also consider your spending and any debts you have. They’ll want to know if you’d still be able to afford your mortgage if things change, like if interest rates increase or if you have a major life change such as losing your job, having a baby, or taking a break from work.
If the lender thinks you might struggle to make payments, they might let you borrow less or even turn down your application.
2. Check your credit report
When you’re looking to get a mortgage, it’s important to show lenders that you can manage your finances well enough to make your payments. They do this by looking at your credit report, which shows if you’ve been good at paying bills on time. Your credit report will list information about any accounts you’ve had in the last six years, including:
- Credit cards
- Loans
- Overdrafts
- Mortgages
- Some utility bills
- Buy Now, Pay Later plans
In the UK, the three main groups that make these credit reports are Experian, Equifax, and TransUnion. You can check your credit report from each of these for free.
3. Cut down on your monthly spending
Look at what you spend money on each month. Are there any subscriptions or regular expenses you could cut back on for a while? Are you able to cut down on your weekly food shop by visiting a different supermarket?
By lowering your monthly spending, you’ll have more money to save for things like a deposit or legal fees. Saving for a down payment is a key step to buying a home.
There are plenty of free budgeting apps you can use which could help you save the spare pennies.
It’s important to note, built-in budgeting tools within mobile banking apps typically require you to open a current account with them in order to help you manage your money by tracking your spending. For example, Monzo offers various features such as spending categories, bill splitting, and saving pots, which are all tied to the linked account.
Here are a few of the top UK budgeting apps:
- Plum: The free version of the app includes a spend tracker that breaks down your monthly expenses by category. It also features deposits where Plum’s algorithm can save small amounts of money for you by regularly rounding up your spending to the nearest pound.
- Monzo: Monzo has lots of helpful budgeting tools. You can set spending budgets, earn interest on saving pots and you’ll get a clear and easy summary of your spending. And if you’re going abroad, it’ll help you to avoid any unnecessary fees.
- Revolut: The app has a built-in budgeting feature and it’ll also help you to round-up your spending to the nearest pound. The money is then automatically put into a savings pot. It’s important to note, although Revolut operates as a bank, it’s still waiting for its UK banking licence so it’s not currently covered by the Financial Services Compensation Scheme (FSCS).
4. Avoid unarranged overdrafts
Falling into an unarranged overdraft can negatively impact your credit score, which is crucial when you’re trying to get a mortgage. Credit reporting agencies keep track of your financial behaviours, including any overdrafts. If your bank marks your unarranged overdraft as a default, it could stay on your credit report for up to five years.
As a general piece of advice, try to avoid spending more than you earn. Using an agreed-upon overdraft won’t typically harm your mortgage application. However, if you find yourself frequently dipping into your overdraft or consistently overspending, you should consider addressing this before applying for a mortgage.
5. Reduce your debts
How you manage credit cards, loans, or other types of credit will affect how a lender views your application for a mortgage. They want to see that you have a positive relationship with debt. The amount you owe, the reasons you borrowed, and how much you manage it are all crucial. Any lender will need to be confident that you can handle a large debt like a mortgage on top of your other financial obligations.
If you feel you have too much debt to comfortably apply for a mortgage, consider the below steps to improve your financial situation:
- Pay more than the minimum: Try to pay more than the minimum payment on your debts. This will help you clear your debt quicker and save money on interest in the long run.
- Tackle high-interest debt first: If you have multiple credit cards, prioritise paying off the one with the highest interest rate. If possible, you could transfer your debts to a 0% balance transfer card to avoid accruing more interest while you pay down the balance.
- Utilise savings: Although it might be difficult, using your savings to pay off debt can be an effective strategy to reduce what you owe.
6. Register for the electoral roll
Registering for the electoral roll is important for your mortgage application for several key reasons:
- Proof of identity and address: Lenders use this information to confirm that you are who you say you are and that you live where you claim to live. This reduces the risk of fraud.
- Credit score impact: Being registered can improve your credit score, making you appear creditworthy to lenders.
- Credit history and stability: Lenders favour borrowers who have a stable living situation, as it suggests financial reliability and predictability.
- Lender’s assessment: If you’re not registered, it may slow down the application process or raise concerns about your creditworthiness and identity, potentially leading to a rejection.
7. Save as much as you can for your deposit
When you’re buying a house, the more money you can put down as a deposit, the better your interest rate on the mortgage will be. Usually, you need at least a 5% deposit of the home’s value to qualify for a mortgage. This means you’re borrowing 95% of the home’s value, which is the most that nearly all lenders will allow.
If you’re able to save a 10-15% deposit, you’ll likely find more mortgage options available.
8. Have a steady job or consistent income
Banks and other mortgage lenders typically favour borrowers who have stable and predictable incomes. This reassurance helps them feel more confident that you’ll be able to keep up with your mortgage payments. If your income is irregular or fluctuates—for example, if you’re self-employed, work on commission, or have varying hours—it might be more challenging to get approved for a mortgage.
To improve your chances, try to demonstrate financial stability in other ways, such as maintaining a good credit score, having a larger deposit, or reducing your debts. You might also consider providing additional documentation that shows your income history over a longer period or getting a co-signer to back your application. These steps can help convince lenders that you’re a reliable borrower, despite having an unconventional income.
9. Compare mortgage companies
MoneyHelper recommends talking to several mortgage companies to compare what they offer and their fees. It’s smart to pick a broker or adviser who offers a ‘whole of market’ service. This means they’ll show you options from a wide range of lenders and mortgages, helping you find the best deal.
Note, any firm giving mortgage advice must be regulated and approved by the Financial Conduct Authority (FCA). You can find a list of all the regulated firms on the FCA’s register.
10. Prepare your documents promptly and carefully
Make sure you gather all the necessary documents for your mortgage application and have them ready before you submit them. If you’re slow to provide your paperwork, it could slow down the whole process. Also, be careful when filling out your application forms. Any errors might mean you have to submit them again, which can cause further delays.
For more helpful tips, see How to Find the Cheapest Mortgage.
To discover more about how to manage your debt and to receive free debt advice, you can visit www.moneyhelper.org.uk or read about options for paying off your debt.
