Getting a mortgage might seem like climbing Kilimanjaro, but there are ways to increase your chances, even if the coronavirus epidemic has made it even more difficult. If you’d like to get the best mortgage offer, you’ll need to make yourself as appealing to lenders as possible. Here are our 18 suggestions for increasing your chances of landing the offer of your dreams so you can find out how to make a successful mortgage application.
Don’t Expect Every Lender To Want To Lend To You
Every lender uses its own set of guidelines to determine whether or not to lend to you. If you meet a lender’s requirements, you can be approved quickly. If you’re far from perfect, you’ll be more likely to be rejected.
However, it’s more of a grey area for those in the centre, and the lender’s scorecard will be dependent on many factors, including:
- The amount of money you want to borrow. Do you need a loan for £100,000, £150,000, £200,000, or more?
- How much money you’ve put together for a deposit. The higher your deposit, the less risky you’ll be considered.
- Your job situation and earnings. Are you a full-time or part-time employee, a freelancer, or self-employed?
- Your credit score and history are significant. In point two, we’ll go through this in greater detail.
- Your expenses. This is how you divide your funds.
- Your current debt. This may include debt from credit cards, student loans, and other sources.
If you qualify, it means you have a better chance of getting a loan, but nothing is guaranteed.
Check Out Your Credit Report Before Your Lender Does
You must show lenders that you have the financial discipline necessary to repay your mortgage. They can look into this by reviewing your credit report(s) to see if you have a strong repayment history.
Your credit report includes information from any open accounts you’ve had in the last six years, such as:
- Credit cards
- Some utilities
Experian, Equifax, and TransUnion are the three credit reference companies in the United Kingdom. Checking your credit report used to be expensive, but these days you can do it for free.
It’s worth double-checking each of them because you never know which one(s) the potential mortgage lender would look at.
Is It Possible To Get A Mortgage With A Poor Credit Score?
An imperfect credit report does not automatically rule out the prospect of securing a mortgage, but it does increase the risk of sabotaging them. Take the time to clean up your credit report before applying for a mortgage to give yourself the best chance of being approved.
Correct Credit Score Errors As Soon As You Can
If the information in your credit file is incorrect, you have the right to have it checked or, at the very least, to have your say.
Checking if the mistake is on your credit file with other agencies should be the first move, followed by speaking with the lender. If this doesn’t work, the Financial Ombudsman, a free service, may step in and order changes.
Here’s how to do it step by step:
Check with other organisations about your file. Check to see if you have the same mistake in your file with them. If you correct it with one entity, the information can be submitted to the others as well. Still, it’s best to contact them directly to ensure that the files with all three – TransUnion, Equifax, and Experian – are correct.
Make contact with the lender. Most businesses would have a system in place to handle consumer complaints, and if you have evidence, it can be handled quickly. Write to them, explaining why you believe the mistake is unjust and requesting that it be removed from your file.
You might also consider bargaining with your lender if you’ve defaulted and are willing to settle with them in part or in full. You could make it a condition of the settlement that the default is excluded from your credit file. This is something that corporations can do for contested defaults.
Write to one of the three credit reporting agencies. If the lender refuses to comply, write to the three credit reporting agencies and request that a ‘notice of correction’ be added to your file.
This is the segment where you can describe the default. You should write about 200 words that describe the issue, which will be included in your report. “It was a joint credit/bank account, and the debt was racked up by my ex after I divorced my ex-husband/wife,” for example.
This will slow down potential credit applications because most businesses will review them manually. Still, if the mistake is a significant default that will prevent you from obtaining credit, it is normally not a concern.
If the lender refuses to assist you, file a complaint with the Ombudsman. If you think the mistake is unjust and writing to the lender hasn’t succeeded, you have the right to go to the free, impartial Financial Ombudsman Service. It serves as an independent adjudicator for resolving conflicts between individuals and financial institutions.
It has the power to rule on whether the debt is unjust (if it is) and if the default can be erased.
Financial Assistance Related To Coronavirus COULD Jeopardise Your Chances of Getting A Mortgage
After the coronavirus outbreak, lenders and the government have implemented a variety of financial assistance programmes, including the furlough scheme and payment holidays on credit cards, leases, instalment loans, buy now, pay later goods, and insurance premiums.
However, if you use one of these schemes, you can find that your chances of having a mortgage are harmed. In summary:
If a coronavirus-related payment holiday taken before March 31, 2021, will not appear on your credit report, a mortgage lender will still learn about it in other ways. A lender, for example, can see that your unpaid credit card balance isn’t decreasing and use that information to decide whether or not to approve you for a mortgage.
Any payment holiday taken after April 1, 2021, will be reported on your credit report, and a lender will be able to see it. So, if you’re thinking about applying for a mortgage in the future, consider whether you still need to take a payment break.
Fewer lenders are encouraging homebuyers to use furlough income or self-employed income support scheme (SEISS) grants to help them qualify for a mortgage. In fact, if you’re a furloughed employee or self-employed but unable to trade and therefore dependent on SEISS grants, you may need to wait until your income is no longer reliant on one of these government assistance programmes before applying for a mortgage.
If You Don’t Register To Vote, Your Odds of Getting A Mortgage Are Slim
This could be a deal-breaker. Although you can get a great credit score without being on the electoral roll, getting a mortgage without it is extremely difficult. Lenders use electoral roll data to conduct identity checks (to ensure that you are who you say you are, live where you say you live and are not laundering money).
If you’re not on the electoral roll, your credit file will tell you, but you can also consult with the local council. This should be completed as soon as possible. Although you can typically be added within a month, it will take longer in the late summer and early autumn.
You should register on the electoral roll for free if you aren’t already on it. If you Are not a UK, Irish, or EU national and can’t vote, you can file a note of correction on your file, claiming that you have other proofs of address and ID that lenders can recognise (assuming that you do).
Carefully manage your available credit.
This applies to the amount of credit you have available for credit cards and overdrafts. It’s the difference between your combined debt balances on your cards and bank accounts and your combined credit limits/overdraft limit.
You must strike a balance between not having too much – lenders may assume you’ll pile up more debt if you spend it all – and not getting too close to your financial limits, which makes it seem you’re on the verge of defaulting. According to Experian, a credit monitoring agency:
Lenders recommend that your loans account for less than half of your available credit if you have any. To be extra secure, limit your debts to no more than 25% of your available credit. If you have a combined limit of £10,000, lenders recommend that you use less than £5,000 of it, preferably closer to £2,500.
If you’re using a significant portion of your usable credit, don’t lower your limits to the point that you’re on the verge of going over. Similarly, don’t make tens of thousands of pounds of credit available excessively – new lenders get nervous if you unexpectedly become even more indebted than you are now.
Getting a mortgage is an art, not an exact science, and various lenders have different ideas about how much credit you should have. Try to use about 25% of your usable credit on average, but if you do need to use more, keep it below 50% in all situations. Of course, you can pay off your debt if you can.
New, Unused Accounts Should Be Closed
It might be worthwhile to close an account if you aren’t using it. It could be a fraud risk if you leave it open, and it could show out-of-date information.
Longer, healthier credit relationships, on the other hand, are a plus when applying for a mortgage. So, if you have two credit cards, one that you just got and one that you’ve had for a while, it’s probably not worth closing the older one before applying for a mortgage because you’ll lose the credit score boost it provides.
For more information about why you should (and shouldn’t) close old accounts. Remember that simply cutting up the card isn’t enough to close an account; you must also inform the bank that you want the account closed.
Don’t Apply For Credit Just Before Your Mortgage Application
Applying for credit in the three months leading up to a mortgage application will hurt your credit score and lead to rejection. To be healthy, some experts suggest at least a six-month gap. The Credit Scores guide includes all of the required material.
This is because any time you apply for a loan, credit card, overdraft, or increasingly, mobile phone or utility contracts, lenders can review your credit history. Even if you don’t take it out, this search, known as a ‘hard credit check,’ is reported on your file.
The more searches you conduct in a short period, the less likely you are to be given credit, as you might be seen as desperate for cash.
If you really must apply for credit, it’s unlikely that one application will cause you any major harm, as long as it’s within your means. However, if you’ve had a payday loan during the last year, some lenders will turn you down for a mortgage. For more details, see our Payday Loans guide.
Cut Back On Spending Before Making Your Application
To get a good idea of your outgoings, lenders will likely want to see your bank statements. One explanation is that mortgage lenders have been allowed to stress test borrowers since 2014.
Prior to submitting an application, reduce your spending.
This isn’t about hooking you up to wires to see if you’re lying; it’s about seeing if you’d still be able to pay your mortgage if prices rose to 6% or even 7%.
Before you apply, the lender can request your most recent three months of bank statements. These will be used to double-check that your salary suits what’s on your paystubs and to look over your recent expenses.
In the months leading up to your application, it’s worth tightening your belt. If you’re applying for a big mortgage that will place a strain on your monthly budget, don’t go ordering a round for everyone in the neighbourhood, betting online, or spending every Saturday night in a casino.
It’s also a good idea to be a little frugal in the months leading up to your first home purchase. Since moving costs are so high, every penny you save means you’ll have more money to cover unforeseen expenses. For assistance and advice on sticking to a spending schedule, see our How to Budget guide.
Make paying your rent to boost your credit score
Do you make on-time rent payments? If that’s the case, there’s a free programme called the Rental Exchange Initiative that millions of private homeowners and social housing residents can use to improve their credit score by paying their rent on time.
Experian and The Big Issue Group launched it in 2016, and it tracks your rental payments (just like a mortgage payment) and adds them to your Experian credit sheet.
This can be a smart way to make your rental payments count towards improving your credit rating or building a credit history if you know you’ll be able to pay on time. Of course, if there’s a chance, you’ll miss a payment, that might hurt your credit score.
Add An Extra £100 On Top Of Your Deposit If You’re On A Deposit Band
Putting down a little more than the necessary minimum deposit will make you more appealing to the lender, or at the very least reduce the amount of paperwork it needs.
If you can afford the additional £100 fee, instead of applying for a £75k mortgage on a £100k property (where the loan is 75 percent loan-to-value), apply for a £74,900 mortgage.
Both mortgages have a maximum loan-to-value (the amount you borrow relative to the value of the property), so if you can, borrow only under this.
Alternatively, adding an additional £100 to your deposit could help you get your mortgage into one of the lower loan-to-value rates. Mortgages are typically cheaper at 90 percent, 80 percent, 75 percent, and 60 percent loan-to-value, so saving £100 could mean lowering the loan-to-value from 76 percent to 75 percent.
Your ex-partner’s score can wreck yours
If you’re financially attached to someone else (which only happens when you apply for shared credit, like a bank account, loan or mortgage), de-link yourself from them, so you’re no longer together or have no business with them.
If you don’t, any late payments or misdeeds they commit would reflect poorly on you. Write to the credit bureaus and submit a ‘disassociation note.’
If you had a shared bank account for bills, you might still be connected to old flatmates, so make sure their credit history isn’t impacting yours. If this is the case, de-link yourself as soon as possible.
Even if the person you’re connected to has a clean credit history now, missing payments will cause issues in the future. The Credit Scores guide explains what you need to know.
Test drive your mortgage chances
Your finances should be in great shape after you’ve completed all of the steps above. The acid test is a mortgage agreement in principle (AIP), which is provided by many lenders.
It’s a conditional offer, meaning you could be accepted if a fast check of your income and, most likely, your credit file turns up positive. It does not, however, include any assurances and is not needed. However, for first-time buyers, it increases the trust of estate agents and sellers that you will be able to complete the deal, raising the chances of getting an offer accepted. Some sellers may deny viewings if you haven’t completed a mortgage AIP.
It’s worth using our Mortgage Best Buys tool to find a great deal and asking the lender (or your broker) whether you pass their AIP tests. Don’t worry – just like it doesn’t obligate them to lend to you, it also doesn’t obligate you to borrow from that lender if you find a better offer later.
Be cautious: if the lender performs a credit check and records it on your file, too many of these checks in a short period of time can damage your credit rating. This could jeopardise your mortgage application in the future.
Some lenders have a soft search option that is hidden from other lenders. Before agreeing to one, find out which one it is from the lender.