Mortgage eligibility - what do lenders look for?

Key takeaways

• Lenders consider the loan size, deposit, property type, employment status, borrowing history, and affordability to gauge the risk involved in lending to you

• Consider obtaining an ‘agreement in principle’ to gauge eligibility without a full application, but be aware of potential hard or soft credit checks

• Even if you have bad credit, you may still be eligible for a mortgage

What affects my eligibility for a mortgage?

Mortgage lenders have their own set criteria when deciding whether to lend to you or not. 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 the 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 history

• 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.

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 forms of income, such as government benefits and child maintenance, into account.

Your spending habits will be examined

As well as assessing your income, mortgage lenders will also look at your spending habits. They are likely to want to see six months' worth of bank statements too.

They will look at how much you spend on regular household bills and other costs, such as commuting and childcare fees. They will also ask you about costs associated with holiday, socialising, and hobbies.

Your credit history and committed spending are also factored in

How much you owe on credit cards, store cards, loans, car finance, catalogue credit accounts, impact your affordability, as existing debts or credit agreements affect your ability to repay loans.

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.

To work out whether you can afford your mortgage, use our mortgage repayment calculator.

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 if 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.

It's always worth checking your credit report for any errors, or factors that can give your score a boost.

What do I need to show to prove my mortgage eligibility?

To prove your identity, you’ll need:

• Passport

• 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 of 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’ worth of 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.

How do I test my mortgage eligibility?

A good way to check whether you are eligible for a specific type of mortgage, even before submitting your ‘official’ application, is go through a mortgage comparison. By doing so, you can test if you’re likely to be approved and understand which types of mortgages you would qualify for.

Am I still eligible for a mortgage if I have bad credit?

The answer is yes, you can generally get a mortgage with a fair or bad credit score.
However, having bad credit could make it more challenging to take out the loan amount you’re hoping for. Not only that, but you’re likely to face higher interest rates.

It is also worth mentioning that bad-credit mortgages usually require a larger deposit. So make sure to take all these factors into consideration when scouring the market in search of the right mortgage deal.