Because taking out a mortgage means borrowing such a large sum of money, lenders don’t just hand them out to anyone. They want to know they can trust you to pay it back. And how do they decide that? By measuring you up against their “eligibility criteria.”
In other words, you can get a mortgage — but only if you tick a few boxes first.
Let’s take a look at what these criteria usually are.
How to get a mortgage: what do lenders use to decide eligibility?
First, it’s important to know that every mortgage lender is different. Some lenders are more risk-averse than others. So if you apply for a mortgage, and the lender turns you down, hope isn’t lost. You might still be able to get a mortgage with a different lender.
So, what do they want to know? Generally speaking, they’ll ask about the following:
- Your age (you need to be at least 18)
- Your UK residency status (you need to have lived in the UK for at least 3 years)
- How much you want to borrow
- How much you’ve got saved as a deposit
- Your credit score
- Your employment status and income
- Your debts
- Your spending habits
- The type, size, and location of the property you want to buy (some lenders won’t lend on specific properties, like flats above bars, listed buildings, or ex-local authority properties)
The lender uses the info above, along with their own unique criteria, to work out what’s referred to as your “affordability.” Essentially, this means they want to be sure you can afford to pay back what you’ve borrowed.
How do lenders work out “affordability”?
To figure out if you can afford to borrow what you’re asking for, lenders will look at:
- Your monthly income: Most lenders will ask for three to six months of recent payslips to get a handle on your earnings. Others might also want to see your most recent P60 (your end of year tax statement).
If you’re self-employed, lenders tend to ask you for a few more documents. You’ll need to produce at least two years of tax returns to prove your income. (Though for some mortgages, you’ll only need one year if you’ve been working for yourself for less than 2 years.) Some of the more risk-averse lenders might also ask you to throw in proof of upcoming work (like signed contracts).
Lenders sometimes also consider other forms of income, like government benefits or child maintenance.
- Your monthly spending: It’s not just your income they’re interested in – lenders want to see your outgoings, too. They’ll ask about credit cards, outstanding loans, household bills, and other regular expenses, like groceries, childcare, school fees, and travel to work costs.
On top of that, they’ll want to understand your additional living costs. For instance, how much you spend on clothes or entertainment each month. This means you’ll need three to six months of bank statements to back up the figures in your application.
Armed with this info, many lenders like to “stress test” your affordability. They’ll run your numbers through a few common scenarios – like having a baby, being made redundant, or a rise in interest rates – to see if you’d still be able to afford the mortgage payments on your current income.
- Your deposit: To get a mortgage, you’ll need to show you’ve saved up a healthy deposit – usually at least 5% to 10% of the cost of the property you want to buy. The more you’ve got saved, the better, as this can reduce your loan-to-value (LTV).
Your LTV is the size of the mortgage compared to a property’s value.
It works like this: Let’s say you’ve saved a 5% deposit. That means you’ll need to borrow 95% of the cost of the property. But if you can increase your deposit to say, 10%, you’d lower the amount you need to borrow to 90%.
The lower your LTV, the lower the interest rate, which makes the monthly payments lower, too. Suddenly, the whole thing is potentially more affordable, and you can seem less risky to the lender.
Heads up: they’ll also look at your credit history
Your credit score shows a lender how responsible you are when it comes to repaying any money you’ve borrowed. For instance, someone with a history of late and missed payments could appear riskier than someone who consistently pays their bills on time.
So, before you apply for a mortgage, check in with the usual credit reference agencies – Experian, Equifax, and TransUnion – and try to fix any mistakes. Here are some tips for how to improve your credit score.
Can I get a mortgage with bad credit?
It’s not impossible to get a mortgage with bad credit – but it can be tricky. It depends on the reason behind your bad credit. A missed mobile phone bill from five years ago might pull your score down a little, but many lenders will overlook the minor things if the bigger picture looks okay.
On the other hand, something like a County Court Judgement (CCJ) on your credit file could significantly limit your choice of deals.
What mortgage can I get?
There are various mortgages available today, but the most common are fixed rate and variable rate mortgages.
- Fixed rate mortgages: With this type of mortgage, the interest rate stays the same for a fixed period (usually two years, but sometimes three, five, or ten years). Fixed rate mortgages make budgeting more straightforward, as you know your interest rate won’t change over that time.
- Variable rate mortgages: As the name suggests, with variable rate mortgages, the interest rate varies throughout the length of your deal, often in line with the Bank of England’s base rate. This can result in lower rates and fees, but it’s also a bit unpredictable.
Read more about fixed rate and variable rate mortgages here.
For both types, the interest rate you’re offered will also depend on how much you want to borrow, the size of your deposit, and your credit score.
Get an idea of what you could borrow (and what sort of property price to start looking at) with our handy mortgage calculator.
Can Habito help me get a mortgage?
Why yes. Yes, we can.
Our friendly mortgage experts search the whole market to help you find the best deal for your unique situation. That’s over 20,000 mortgages from 90+ lenders (including exclusive deals you wouldn’t normally get to see). And the best bit? It’s totally free. Get started today.