When you compare mortgages, you’ll be asked how much you want to borrow and what the value of your property is.
This will give you a loan-to-value (LTV) which is essentially the size of the mortgage in relation to what the property is worth. You’ll then be able to see the mortgages that match up with that LTV.
However, the amount a lender agrees to let you borrow will depend on its own lending criteria.
What affects my eligibility for a mortgage?
Mortgage lenders have their own set criteria when deciding whether or not to lend to you. This means that if one lender rejects you, another might not. However, it’s best not to make too many applications at the same time.
Generally, a lender will be looking at:
- the size of loan you want to take out
- how much you’ve saved as a deposit
- the type of property you want to buy (certain properties such as flats above cafes and bars are deemed riskier to lenders)
- your employment status (the longer you’ve been in your job, the better)
- your credit rating
- your affordability
What do lenders look at when assessing affordability?
All mortgage lenders will want to be convinced you can afford your mortgage before they will lend you the money. No lender will want you to be overstretching yourself as ultimately you could end up missing payments.
This means you’ll need proof of your income. If you’re employed, you’ll need three to six months worth of payslips.
Some lenders may also take other income, such as government benefits and child maintenance, into account.
As well as assessing your income, mortgage lenders will also look at your spending habits and will ask to see six months worth of bank statements.
They will look at how much you spend on regular household bills and other costs such as commuting and childcare fees. They are also likely to ask you about costs associated with holiday, socialising and hobbies.
In addition, they will look at how much you owe on credit cards, store cards, loans, car finance, catalogue credit accounts and so on.
Mortgage lenders don’t just need to be satisfied you can afford a mortgage now, they also need to check you can afford it in the future, so they’ll assess your finances to work out if you could afford your mortgage if interest rates rise.
What about my credit rating?
Mortgage lenders will also take your credit rating into account. This will show lenders whether you are a reliable borrower and whether you have missed or made any late payments.
The better your credit score, the more likely you are to be accepted for the most competitive mortgage rates.
What do I need to show to prove my eligibility?
To prove your identity you’ll need:
- Driving licence
- Council tax bill
- Utility bills dated within three months
- Bank statements
To prove your income you’ll need:
- Payslips from the past three months
- Evidence of any bonuses or commission
- Bank statements from the past three to six months (this should be the account your salary is paid into)
- Your latest P60
To prove your income from self-employment you’ll need:
- Two or more years’ certified accounts
- SA302 forms or a tax year overview (from HMRC) for the past two or three years
- Evidence of upcoming contracts (if you’re a contractor)
- Evidence of dividend payments or retained profits (if you’re a company director)
To prove your spending patterns, you’ll need:
- Six months’ bank and credit card statements
Your mortgage is secured on your home, which you could lose if you do not keep up your mortgage repayments.