23 Sep 2016
Author: Stephen Breen
Today’s economic climate means lenders are more cautious about accepting mortgage applications. Here, we set out what you need to do before you submit your application, to give you the best possible chance of success.
1. Avoid best buys unless you’re squeaky clean
Best buy deals are intended for borrowers with a perfect credit history and the lowest risk, from a lender’s perspective. If you don’t have a clear credit history, it’s unlikely your application for one of these deals will be accepted.
2. Minimise spending
Lenders used to calculate what you could borrow by multiplying your income. Now, lenders will assess your application using affordability criteria. This includes going through the last three months of bank statements to see what you actually spend. It makes sense to curb your spending in the three months before you apply.
3. Check you can afford an interest rate rise
Make sure you know how much you’ll be paying out if interest rates rise – and you can afford those payments. Your lender will be doing these calculations so you can avoid the possibility that your application will be rejected by checking for yourself first. Of course, with the Bank of England cutting the base rates, interest rates have fallen – and the stress tests that lenders apply have fallen too. Currently Nationwide’s ‘stress rate’ is 6.74%.
4. Clean up your credit score
Check your credit reports for each of the major agencies well before you apply. You can do this by sending £2 to Callcredit, Experien and Equifax. Alternatively you can get your report and credit score online for free using Noddle or Clear Score..
Make sure you make all of your payments on time as the better your credit report, the better the deals available to you.
5. Be aware how the bank will view school fees
Banks view school fees as a full credit commitment – the same as a credit card or bank loan. If you pay out private school fees, it can affect the affordability test – giving you less spare income and making it harder to show you could afford an interest rate rise. This is something you need to be aware of before making your application, so you can ensure that you can indeed afford the mortgage repayments despite the school fees – even if interest rates rise.
It’s worth knowing that each lender has their own rules about school fees. For some lenders, where a borrower has significant assets, the lender may discount the fee commitment from their affordability calculation.
6. Be ready to prove where funds came from
Lenders are obliged to check the source of funds so don’t be surprised if your lender wants to know where your deposit came from. If it was a gift, the lender will want evidence of this – including proof of when the sum was deposited. It helps to have your account statements to hand.
7. Maximise your deposit
The bigger your deposit, the lower your loan-to-valuation ratio will be – and the better rate you will get. It’s worth asking your lender how much extra you need to get into the next band for deals – this might be just a few hundred pounds which you could take from other savings or borrow from a relative.
8. If you’re self employed, be ready
It’s more difficult for the self employed to get a mortgage than it is for someone who is employed. However, the good news is that the three years’ accounts rule has now gone out of the window. Most lenders will accept two, and some will even accept one. Some lenders also will take form SA302 instead of accounts which you can get from HMRC (find out more here).
9. Find the right lender
Choosing the right lender will give you the best possible chance of success. Just because you don’t fit the lending criteria of one lender does not mean you’ll be rejected by all the rest.
10. Use a broker
A broker can be very helpful in identifying suitable lenders for you – especially if you’re self employed. You can find a broker online using unbiased.co.uk or vouchedfor.co.uk.
11. Maximise your income
On the run up to your application, consider whether there is anything you can do to boost your income. Check you are claiming everything you’re entitled to – for example tax credits, which many lenders will take into account (click here to use the calculator).
Some lenders will take overtime and bonuses into account but each has their own way of calculating it – with some allowing only 50% and others considering the full sum. Again, this is where a broker can help.
12. Speak to our property team
Our property team can offer you advice on getting a mortgage and maximising your chances of being accepted.