Do I qualify for a mortgage?
There’s an awful lot to get your head round when you’re applying for a mortgage for the first time. Read on and we’ll make sense the requirements lenders set. And we’ve got some tips for how to qualify, too.
What affects mortgage eligibility?
Qualifying for a mortgage as a first-time buyer depends on a range of factors, as you’d expect, though the principal factor for mortgage providers is affordability. That’s to say, they'll want to make sure you'll be able to maintain payments on the loan.
With that in mind, to determine your eligibility for a home loan as a first time buyer, the key criteria that lenders will take into account include:
The sum you’re looking to borrow
The size of your deposit
Your financial obligations, including debts you may have accrued
Your spending habits
Your employment status (as a rule of thumb, the longer you’ve been in a job, the better)
Your credit rating. You can check yours for free with our Credit Monitor service
What type of property you’d like to buy
If you’re want to benefit from incentives reserved for those buying a home for the first time you’ll also need to satisfy the criteria to determine whether you count as a first-time buyer.
What determines whether I count as a first-time buyer?
The term ‘first-time buyer’ is actually a bit deceptive when it comes to determining whether you count as one.
That’s because it’s not really buying a property that’s the key determinant of whether you qualify. Rather it’s whether you’ve owned a property before - under any circumstance.
As far as lenders and regulators are concerned, if you own a house now or have owned a home in the past, you lose your status as a first-time buyer.
Other disqualifying circumstances include:
You’ve sold a home and now live with your parents
You had a joint mortgage with a partner that you’re no longer with
You’re looking to buy with someone who owns, or has previously owned, a home
Your parents, a guardian or another benefactor bought a home for you, but you own it
You inherited a home that you own or have owned in the past. This applies even if you’ve never lived there
You’re looking to buy your first property and intend to let it out
You may also be disqualified if you’ve owned a property somewhere else in the world
What requirements do lenders set?
Some lenders have different requirements to others when assessing mortgage affordability for first time buyers.
But there are certain standards and criteria that you can expect to apply pretty much universally.
We take a look at some of them below…
The size of your deposit. The more you can put down, the better. The difference between the size of your deposit and the home loan you’re taking out is know as the loan to value ratio (LTV). If you’re putting down 20% of the value of the property as a deposit, your LTV would be 80%.
Monthly expenditure and debts. Lenders look closely at your regular outgoings (household bills, discretionary spending, debt repayments) and how you spend your money to assess whether you’re a safe bet as a borrower. It’s likely that you’ll be asked for bank statements as proof of where your money goes.
Income. What you’re bringing in is probably the biggest factor in assessing affordability. To prove your income is steady, you’ll usually be required to provide three to six months of payslips and/or benefit payments. You may also be asked for two years of P60 forms. In the event you’re new in your job so can’t produce at least three months of payslips, you may be asked to show your employment contract.
Your credit score. Available to check for free from MoneySuperMarket’s Credit Monitor service, your credit score is principally determined by how you’ve managed credit in the past and your financial history. The higher your credit score, the more likely you are to be accepted for a mortgage. And by extension, the more you’re likely to be able to borrow.
How old you are. To even be considered for a mortgage, you’ll need to be aged 18 or above. Lenders usually expect you to have paid off the mortgage in full by the time you’re 75. So they may apply an upper age limit too.
Your prospective financial future. Tighter mortgage lending regulations mean that lenders now carry out ‘stress tests’ on your finances. This means they’ll check whether you’ll still be able to afford the mortgage if your circumstances change (for instance, interest rates go up substantially, or you’re made redundant).
The finances of your buying partner. If you’re buying with someone else, your lender will look at their financial situation too.
How likely am I to qualify for a mortgage?
Your eligibility for a mortgage is influenced by lots of factors. But the key determinant is affordability.
To get a good idea of whether you’ll be accepted or just get to grips with your options, take a look at our mortgage calculator tools.
We’ve got practical, simple-to-use tools for every purpose. So you can work out how much you likely to be able to borrow, what your repayments will be and how much stamp duty you’ll be obliged to pay.
But that’s not all. We’ve also got calculators that can help you see how you could by overpaying on your mortgage and see how much your payments could go up if the base rate rises.
How much will be able to borrow for a mortgage?
As a rule of thumb, lenders are prepared to lend four times your income. But this varies between mortgage providers, some of whom are wiling to lend substantially more.
Of course, if you’re borrowing with someone else, it's your combined income that lenders take into account.
But remember your income is only the half the story. Lenders will look closely at your personal circumstances and outgoings, when they’re calculating what size of mortgage they think you can afford.
Find out how much you'll be able to borrow with our handy mortgage calculator.
What do I do if my mortgage application gets rejected?
Being rejected for a mortgage doesn’t feel great, but try not to get too down about it. There are lots of things you can do to ensure you’ve got a better chance next time you apply.
Find out the reason for the refusal. Ask the lender why the mortgage application was refused. They may be able to identify exactly what the problem was. If they can’t, try asking the credit report agency you used.
Check your credit report. If you don’t have any luck with those avenues, get hold of your credit report yourself and scrutinise it to see if you can spot anything that might have been off-putting to a lender. You can get tips for improving your credit score when you sign up for our Credit Monitor service.
Practice better financial hygiene. To make yourself attractive to lenders, endeavour to practice good financial habits from hereon in. That means paying your credit cards and loan debts on time, and paying your household bills in a timely manner too.
Lower your borrowing. Paying off debts in full will make you a better bet in lenders’ eyes, by cutting your monthly outgoings and reducing your credit utilisation ratio. This is the percentage of your available credit that you make use of.
Don’t rush to reapply. It’s tempting to reapply again quickly, but bear in mind making multiple applications and being rejected will damage your credit score. That’s likely to make it harder to get approved for a mortgage down the line.
Tips to improve your credit score for mortgage applications
Improving your credit score is one of the most important things you can do to boost your mortgage eligibility.
Simple steps you can take to improve your credit score include:
Get on the electoral roll
Pay your bills on time
Don’t use all your available credit
Close any unused credit card accounts
Work on building your credit history
Need some more help? Read our full guide to improving your credit score.
Will I pay stamp duty as a first-time buyer?
Under current rules, first-time buyers are exempt from stamp duty on properties up to £300,000.
If you’re buying a property priced in excess of £300,000, use our stamp duty calculator to check what you’re obliged to pay.
Other useful guides
Taking your first-ever steps into the property market and could use some help? We’ve got you covered, with our one-stop guides to mortgages for first-time buyers:
Your home may be repossessed if you do not keep up repayments on your mortgage.
