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What can go wrong when I’m applying for a mortgage?

Hopefully nothing, but….

The most common issue people have when applying for a mortgage is bad credit. Lenders perform affordability assessments on all applicants, and a history of credit issues is a red flag. Credit issues won’t come out of the blue, and working towards minimising any you might have is a must before applying for a mortgage. This post details credit issues that can be resolved, and credit issues that can cause a real barrier to a successful application. If you do have bad credit history, there are organisations that can offer advice. Speak to the Money Advice Service in the first instance.

Having credit commitments shouldn’t be a barrier to mortgages. Manageable debts such as credit cards and student loans prove to lenders you can borrow responsibly. If you keep on top of your monthly payments, credit shouldn’t detract from your mortgage eligibility.

These issues shouldn’t stop you being able to get a mortgage. However, if you do fall into these categories, it’s a good idea to resolve them to make sure you get the best possible mortgage offer. Here are two issues that could prevent you getting a mortgage.

Low Credit Score

A credit score is a number which reflects your borrowing habits. Different credit scoring agencies will have different scales to measure this, but they all work on the same principle. The better your borrowing habits, the higher you’ll score. There are several credit rating agencies in Britain including Equifax, Experian, Callcredit and ClearScore.

The information in your credit file includes:

  • Search footprints on your file, such as credit applications
  • Financial links to other people including joint loans and bank accounts
  • Late / missed payments or defaults
  • Outstanding debt with lenders
  • County Court Judgments (CCJs) against you
  • If you’re on the electoral register at your current address
  • If you have been declared bankrupt or entered an IVA (Individual Voluntary Arrangement).

We encourage all applicants to create accounts with the three main agencies and check their score. Applying for mortgages before checking your credit score can cause some nasty surprises. We want to help you avoid that happening, so try and stay on top of your credit before applying.

There are many ways to improve your credit score and increase your chance of a successful mortgage application. We would recommend checking out the Money Advice Services guide to increasing your credit score before anything else.

Unstable Income

Large fluctuations in income and spending can be another red flag to lenders. Your income is the main factor that lenders take into account when assessing affordability. This is why lenders need evidence of your income for the last two years at least, and several months of bank statements to check spending.

Because of the length of a mortgage, lenders need to be able to predict your future income so they can be sure you will be able to manage future payments. If your income has large fluctuations, it will be harder for lenders to predict this accurately. This is why income can become such an issue when applying for a mortgage.

Furthermore, erratic spending patterns can also have an impact on your mortgage application. Lenders will be impressed with stable, manageable monthly outgoings. You can read more about income and outgoing in our post that answers the question ‘How much can I borrow?’.

Some credit issues can prevent a successful mortgage application. This is because of the criteria lenders must follow to ensure appropriate lending. Issues such as CCJs and IVAs will stay on your credit file for 6 years and will seriously affect your mortgage eligibility. If you have defaulted on a previous mortgage, it is unlikely you will be approved for another mortgage. These issues will present a greater challenge to getting a mortgage, but some lenders can help those who fall into these categories.

You can help yourself by always staying on top of your credit and spending. We encourage people to go out and check their scores with the different credit agencies, and work towards improving them if possible. We want to help you borrow responsibly, and we think managing your personal finances is a great place to start.

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