Buying a house is one of biggest personal expenditures for most people in the UK, and getting onto the property ladder is often regarded as an important goal in people’s life.
However, if you have found your dream home, it is likely that getting approved for a mortgage is going to be an important factor as to whether this will dream come true for you, and receiving one can sometimes be a challenge. We tell you everything you need to know about mortgages and compiled the ways in which can maximise your chance of getting accepted for one.
What is a mortgage?
In many respects, a mortgage is similar to bank loans. Banks or lenders will often require you to put down a deposit, but this will be largely paid for by the bank at this point. In some cases, this can be the entire amount. In a Bank of England study from 2015, it was revealed that the average homeowner in the UK has a mortgage debt of around £85,000.
As there are big stakes involved, banks tend to strictly regulate mortgages, and can have tough stipulations in place when it comes to whether you will be accepted for a mortgage or not. Indeed, it was reported in 2014 that around 30% of mortgage applications are refused.
Having a good credit history
It would be wise to check your credit report prior to applying for any mortgages. Having a bad score can make it extremely difficult to get accepted for a mortgage, if at all, whilst a good score means you will have a chance of getting one of the best deals currently available, and therefore more choice available to you.
Checking your credit report allows you to see if there are any items on it that are outstanding, even if they have been repaid. This also applies to any fraudulent attempts made in your name, which could equally affect your rating if not corrected.
Getting a copy of your credit report is easy, many credit references offer these sort of requests for free, through a trial. Check sites such as CallCredit or Experian to see if they have any current offers. Alternatively, many companies offer a one-off credit report for a small price, even as little as £2.
If you are young person trying to get a mortgage, you might find that you have little to show for in terms of a credit score, which can make an accepted application more difficult. There are ways in which you can build up your credit score such as:
- Try getting credit builder credit cards, which allow you to build your score through small repayments.
- Car finance can help to build your credit rating.
Joining the electoral roll
Making sure you are on the electoral roll, is an important step to take not only if you are applying for a home loan, but practically essential for almost any time of loan application made, and many people are declined as a result of not being on it. Why? Well, most companies use the electoral to check you are who you really are. If you have moved around a lot, double check that you are registered at your current address too.
Be prepared with the relevant documents
Whatever you do, don’t get declined for simply forgetting to be prepared with all your relevant documents when making an application! The saying goes preparation is key, and this is even more so the case when it comes to home loan’s strict criteria.
The documents you will usually require include:
- Making sure you have a valid driving licence.
- A valid passport.
- A recent bank statement that confirms your proof of address, this can be a utility or bank bill.
- If you have a job, you will also be asked for payslips dated from the last three months.
- If you are self-employed, you will also need to show evidence.
- Any other income such as benefits must be provided with evidence when making an application to a mortgage lender.
Think carefully who you are applying with
If you are applying for a joint mortgage, you must remember that their credit rating will also be taken into consideration. So if you are applying with a sibling, spouse or friend check if they have a bad credit history as this can seriously be affected your chance of being approved for a mortgage.
It is also worth noting that it will be essential to remove yourself from joint accounts with someone who has a bad credit score. This is due to the fact that even if your own credit score is good, both yours and the person with bad credit will be considered in tandem, which could end up reflecting badly on you.
Save up with a bigger deposit
You have a greater chance of getting a home loan if you are able to save up with a bigger deposit upfront. It makes sense: if the bank or lender has to lend you less then that means there is less risk involved for them. Indeed, it is often the case that some of the best deals on the market are for those who afford a higher deposit, with buyers even securing better rates than those who have smaller deposits.
Paying off unsecured debt and closing accounts
You will be judged by mortgage providers on how much you owe and total debt outstanding. As a result, it is vital you clear any outstanding unnecessary loans or repay as much as you can afford. This includes store cards, credit cards, personal loans and even guarantor loans, especially since some can last as long as 5 or 7 years.
This can reduce lenders fear that you may not be able to keep up with mortgage repayment amounts. It also means you are more likely to receive a better deal if these are dealt with. In addition, closing any accounts you do not need will increase your chance of having your mortgage application accepted.