Before a lender gives you a mortgage, you need to tick a few key boxes.
Essentially, they want to know they can trust you to keep repaying the loan throughout the agreement. They do this by measuring you against certain mortgage eligibility factors.
Depending on the lender, if you comfortably meet most (or all) of these factors, it makes getting a mortgage a whole lot easier.
Let’s explore them in more detail, so you know what you need to know before applying.
The most common mortgage eligibility factors explained
First, you need to remember that every mortgage lender is different. Some stick to strict guidelines with very little wiggle room, while others can be a bit more understanding. The great thing about this is that if one lender rejects your mortgage application, there’s still a chance you’ll find another who’ll lend to you based on the same information.
So, what do they want to know? Generally speaking, most mortgage lenders will use the following criteria as a jumping-off point when they’re deciding your eligibility:
- Your age and UK residency status (you need to be at least 18 and be either a UK resident or have lived in the UK for at least three 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)
Armed with this information (and their own internal criteria), the lender will then work out your “affordability.” In other words, they want to be sure you can afford to pay back what you’ve borrowed.
How does a mortgage lender calculate “affordability”?
To calculate if you can afford to borrow what you’re asking for, lenders will look at:
- Your current income: Most lenders will ask to see your last three to six months of payslips. Others might ask for your most recent P60 too (that’s your end of year tax statement).
If you’re self-employed, there are a few more hoops to jump through. You’ll need to provide at least two years of tax returns to prove your income. Some lenders may even ask for proof of upcoming work (like signed contracts) before lending to you.
Sometimes, lenders might also consider other forms of income, like government benefits or child maintenance.
- Your current expenditure: In addition to what you’re bringing in, lenders want to know where your money is going. You’ll be asked about credit cards, outstanding loans, household bills, and other regular expenses like groceries, childcare, school fees, and work travel costs.
They’ll also want to know about your other living costs, like how much you spend on clothes or entertainment each month. You’ll need to provide your last three to six months of bank statements to back up the numbers in your application.
- Your future: Finally, lenders like to “stress test” your future affordability. They’ll run through a few common scenarios (like having a baby, being made redundant, or rising interest rates) to see if you could still afford the repayments if those things happened.
If you’re applying for a joint mortgage, the lender will look at the income and outgoings of everyone who’s applying.
What documents do you need to prove your eligibility for a mortgage?
When you apply for a mortgage, lenders won’t just take you at your word. You need to prove you are who you say you are – and that the figures in your application are accurate and up to date.
To do that, you’ll need to gather several different documents.
To prove your identity, you’ll need to show your lender:
- Your passport or driving licence
- Proof of address (council tax bill, recent utility bill, or bank statement)
To prove your income, you’ll need to give the lender:
- Payslips from the past three to six months
- Your most recent P60
- Evidence of any bonuses or commission, received or due
- Bank statements from the past three to six months for the account your salary is paid into
To prove your income from self-employment, you’ll need:
- Two (or more) years of accounts
- Your SA302 tax calculations and tax year overviews for at least the last two years
- If you’re a contractor, you’ll have to show proof of upcoming contracts
- If you’re a company director, you’ll have to provide evidence of dividend payments or your share of net profits after corporation tax.
To prove your expenditure, you’ll need:
- Three to six months of bank and credit card statements
- Information about any outstanding loans or credit agreements
Another important factor: your credit score
Another major factor that will impact your mortgage eligibility is your credit score. This shows a prospective lender how responsible you are when it comes to repaying any money you’ve borrowed.
To a lender, someone with a history of late and missed payments could appear riskier than someone who always pays their bills on time and in full.
Before applying for a mortgage, check your score with the usual agencies – Experian, Equifax, and TransUnion – and try to fix any mistakes.
And if you want some tips, here’s how to improve your credit score.
Why might you not be eligible for a mortgage?
Here are a few common reasons why you might be ineligible for a mortgage at this moment in time:
1. You have a poor credit history
Mortgage lenders are, by their very nature, risk-averse. If you have a poor credit history, they may be unwilling to lend to you until you show you can manage your money responsibly.
Thankfully, it’s not impossible to get a mortgage with bad credit – it just makes things a little trickier. A missed mobile phone bill from five years ago might dent your credit score slightly, but many lenders will overlook the small stuff 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 mortgage deals.
2. You have too much existing debt
If a significant chunk of your annual income is already going towards paying off existing debt, a mortgage lender won’t want to lend you more on top. Before applying for a mortgage, you may need to pay off your higher-interest, more expensive debt first.
3. You don’t earn enough (or your income is unreliable)
If you want to buy a £200,000 house with a 10% deposit, you’d need to borrow £180,000.
But many lenders cap their mortgages at four to four-and-a-half times your annual salary. That means if you earn £30,000 a year, the maximum amount you could borrow would be £135,000 – so if you apply to borrow £180,000 that would be unlikely to go through.
If you’re self-employed and your earnings are inconsistent, lenders will view you as a bigger risk than someone who has a steady salary from their employer. If they think you won’t reliably meet your mortgage repayments, they’ll reject your application.
Need some more advice on your mortgage application? We can help. Get started here.
What sort of mortgage can you get if you’re eligible?
If you’re eligible for a mortgage, there are several different types you can choose from. Two types you might have already heard about are fixed rate and variable rate mortgages.
- Fixed rate mortgages are mortgages where the interest rate stays the same for a fixed period (usually two years, but sometimes three, five, or ten years). A fixed rate mortgage makes budgeting a bit easier, as you know your interest rate won’t change over that time.
- Variable rate mortgages are mortgages where (surprise!) the interest rate varies throughout the loan, either in line with the Bank of England’s base rate or the lender’s standard variable rate (SVR). Choosing a variable rate mortgage could mean lower rates and fees, but it’s also a tad unpredictable.
Learn more about fixed rate and variable rate mortgages here.
For both types of mortgage, the interest rate you’re offered will depend on a few factors: the amount 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.