There’s nothing worse than spending hours of your time researching mortgage types, interest rates and property prices only to reach the application stage and be rejected by different lenders. Here, we’ll guide you on how to prepare for your mortgage application and what you can do to improve your chances of success.
Work out what you can afford
Before you can even think about looking at properties, you need to work out how much you can realistically afford to pay each month for your mortgage. Take into account all of your regular outgoings. These can include credit card payments, utility bills, insurance costs, telephone and Internet bills, loan payments and council tax bills. Then include how much you spend on food shopping, travel expenses, entertainment and childcare. Once you’ve done this, you’ll have a more accurate idea of what you can comfortably afford for your mortgage repayments.
Save as much deposit as you can
The higher the deposit amount you pay, the less you will need to borrow and the more attractive you become to lenders. By lowering the loan-to-value (LTV) ratio – the amount you borrow compared with the property’s value – you will be offered a wider range of mortgage deals with better rates. There are different LTV brackets, which can significantly impact the rates available. Mortgages generally become cheaper at the 90%, 80%, 75% and 60% LTV brackets, with the latter offering the best rates.
If you’re looking to buy a property in Bexleyheath for £300,000 and have a deposit of £60,000, for example, you need to borrow £240,000. This is an 80% LTV mortgage as your deposit constitutes 20% of the property’s value. You will be offered better rates for an 80% LTV mortgage than if you could only pay a 10% deposit and needed a 90% LTV mortgage. If you can pay a higher deposit of £75,000 (25% of the property’s value), though, this pushes you into the lower borrowing bracket of 75% and you will be offered better rates than with a 20% deposit.
Remember to budget for the other costs involved
Don’t forget to allow for other fees that you’ll need to pay when you buy a property. These can include valuation fees, mortgage arrangement fees, your solicitor’s costs, the stamp duty fee and moving costs. If you don’t budget for these at the start, you won’t be left with as much deposit as you thought you had.
Register on the electoral roll
This is essential as lenders will check the electoral roll data to confirm your identity. Do this as early as you can to allow for the registration processing time. It’s free to register and quick to do online. Being registered on the electoral roll also helps to improve your credit rating.
Improve your credit score
Lenders carry out checks on your credit record each time you apply for a mortgage. Therefore, it’s important to check that the information is accurate before they do this. Apply for a copy of your credit report from one of the three main credit reference agencies – TransUnion, Experian and Equifax. Check that the information is correct. If not, contact the credit reference agencies to amend your details.
As lenders want to see evidence of your creditworthiness, now’s the time to improve your credit score. Make sure you pay all of your bills on time, try to reduce or clear existing loans and make savings where you can. If you have a gym membership in Bexley that you rarely use, for example, simply cancel it.
Avoid new credit lines
Don’t apply for credit in the 6 months leading up to your mortgage application. Doing so can negatively affect your credit score. By opening new lines of credit, you increase your ratio of debt to income. This decreases your ability to repay your mortgage in the eyes of a lender.
Be diligent with a joint application
When applying for a mortgage with someone else, their credit history will also be checked by lenders. It’s important to make sure they check their credit report and improve their credit score if necessary. This improves your chances of a successful joint mortgage application.
Likewise, if you were financially linked with someone beforehand, such as with a joint bank account, and that’s no longer the case, ask the credit reference agencies for a notice of dissociation. This shows lenders that you no longer have a financial connection with them.
Don’t use your overdraft
Using your overdraft can be cause for concern with lenders as it shows that you can’t handle your finances sufficiently. If you’ve had to use your overdraft facility within the 3 months prior to your mortgage application, some lenders may refuse your application altogether.
Avoid a change in your employment circumstances
Lenders need to see that you have stable employment and a regular income. If you are thinking about changing your job or becoming self-employed, wait until your mortgage is already in place. If you have already changed the circumstances of your employment, delay your mortgage application until you’ve had your new role for at least 6 months.
Get your paperwork ready
Gather your paperwork in advance to speed up the application process. You will need:
- Proof of ID, such as your passport or driving licence
- Proof of your address, which can be a utility bill, council tax bill or credit card bill, etc.
- The last 3 to 6 months of bank statements, depending on the lender
- Proof of your deposit, such as statements from a savings account or a gift letter if someone is gifting you the deposit
- If you’re employed — the latest P60 and at least the last 3 months’ payslips
- If you’re self-employed — the last 2 to 3 years of certified accounts, SA302s and tax year overviews
- If you receive a pension income — your pension payslips or pension statement
Get expert help from a professional mortgage consultant
Get advice from your mortgage broker in Kent, London or Edinburgh about the types of mortgages and interest rates available before you apply. This is particularly helpful if you are a first-time buyer and unaware of the numerous options available to you. Your broker will check your paperwork and ascertain how much you can potentially borrow. They will be able to offer advice on which mortgage type best suits your circumstances and the best mortgage term to opt for.
Brokers have access to mortgages that aren’t publicly advertised. This means that a wider range is available than if you approached lenders yourself. Your broker can search for the best deals for your situation and needs, potentially saving you thousands over the mortgage term. They can calculate the costs involved and check for future fees you may be liable for, such as early repayment charges. This ensures that there are no nasty surprises further down the line.
When applying for Welling or Pimlico mortgages, your broker will know which lenders are more likely to approve your application. Not only does this make the application process faster but it prevents too many credit checks from being carried out on you by lenders. This increases the likelihood of having a successful mortgage application.