So, you want to buy a property and you need a mortgage.
You’ve got your deposit, and you’re ready to approach a lender… who doesn’t like what they’re seeing, and it’s left you stumped.
Here’s the thing: while saving for your deposit is a crucial first step, there’s much more preparation work needed to make your mortgage application successful. Before you even apply, you need to do a lot of work to make sure you’re mortgage-ready.
The mortgage process actually is a box-ticking exercise with criteria that you have to meet, so this week, I’m sharing my top tips to help you get started.
Start six months sooner than you think you need to
Your bank statement might be looking great right now, but how is your recent financial history looking?
This is a critical factor for mortgage lenders: most of them will look at the last six months of your financial behaviour, so you need to clean up your act at least half a year before applying.
This means making sure that you haven’t missed any bill payments –household bills as well as any credit card or loan repayments. Gambling transactions or payday loans are a massive red flag, so make sure they don’t appear anywhere, and don’t be tempted by them. Similarly, using too much of your overdraft will raise a lot of questions, so try to reduce how much you rely on it (if that’s the case).
Mortgage lenders will want to make sure you’re maintaining a stable income so you can make your repayments. If you can do that, great, and if you can demonstrate that you’re building a pattern of regular saving, that’s even better.
If that sounds harsh, look at it this way – you’re asking someone to lend you a huge sum of money, so you have to prove to them that they can trust you with it.
Clean up your spending habits
I mean it when I say that mortgage lenders are going to be forensic when it comes to digging into your finances. They’ll be looking at both your bank statements and your monthly commitments – as well as those household bills and credit card repayments and how well you can save, they’ll be examining your spending patterns on non-essentials too.
So, whilst you’re going through your bank statements, look at your other spending. Cancel any unused subscriptions or memberships that you might have forgotten about, and cut back on any non-essentials – that’s takeaways, meals out and impulse buys. For regular expenses, like your weekly food shopping, try and find cheaper alternatives.
Remember, it’s not just about how much you earn, lenders will look at your disposable income to determine how much you can borrow, so the smaller expenditure you’re showing, the better.
Take a good look at your credit profile
Your credit rating can make or break your mortgage application, and you shouldn’t wait until just before you talk to a lender to pay attention to it.
It’s pretty easy to get hold of your credit report, using platforms like Experian or ClearScore. Go through it with a fine-toothed comb and look for any mistakes – if you do find any make sure they’re corrected ASAP. Register on the electoral roll at your current address, and close down any credit accounts that you aren’t using.
Where possible, pay down existing debts, and avoid applying for any new credit accounts (including store cards and new phone contracts) in those months before your mortgage application: they’re all logged on your credit report and can bring your score down.
Get your paperwork ready
Again, this comes down to demonstrating you’re a serious (and trustworthy) applicant. Having all your paperwork organised and ready makes the process smoother, rather than having to scrabble around for things at the last minute.
You’ll need to gather your bank statements, payslips, information on how much tax you’ve paid, proof of address for the last three years, valid ID, proof that you have your deposit (and its source), as well as any relevant correspondence about any savings or investments you have.
You’ll also need to provide proof of any bonuses or additional income, give details of any existing loans or credit commitments, and give details of ALL your accounts – even that Revolut account you only got to use when you’re overseas!
Fill the gaps in your knowledge
Thorough research isn’t just helpful—it’s essential. It’ll allow you to make informed decisions and avoid costly surprises down the line.
Familiarise yourself with your target property market. Look at current property values in your preferred areas, paying close attention to recent sale prices and how they compare to asking prices. It’ll help you set realistic expectations and identify potential bargaining opportunities.
Make sure you’ve considered additional costs in a purchase that might impact your budget, such as stamp duty, leasehold fees or service charges, which can all add a substantial amount to your purchase price and affect your monthly outgoings – it’ll help prevent unwelcome surprises during the purchase process.
Know your mortgage options
Understand the various mortgage options that are available. Fixed rate mortgages offer predictability and protection against interest rate rises, while variable rates may provide lower initial payments but carry more risk.
How big is your deposit? That will play a key role in determining your mortgage options: larger deposits generally unlock better interest rates. Stress test how different deposit amounts affect your monthly payments and overall interest costs. Remember to research any additional fees and charges, such as arrangement fees, valuation fees, early repayment charges or exit fees as these can add a significant chunk of cash to your total costs.
Find the right lender
Different lenders have varying lending criteria, and understanding these can save you time and disappointment. For example, some high street banks might be more cautious about self-employed applicants, while specialist lenders may offer better rates for contractors or freelancers. Certain lenders also have more favourable policies for specific professions – teachers, nurses, or police officers sometimes get access to exclusive mortgage products with better rates. It’s worth shopping around to find lenders whose criteria align with your circumstances rather than applying everywhere and potentially damaging your credit score.
Whilst a mortgage application may feel like the final piece of the puzzle when you’re planning to buy a property, it cannot be the last thing you think about. You need to start thinking about your mortgage well before you start approaching lenders; it needs careful preparation and attention to detail and the more organised you are, the smoother the process will be. Remember, lenders want to see that you’re a responsible borrower and that you’ll be able to make repayments.
Taking these steps won’t guarantee mortgage approval, but they’ll certainly put you in the strongest possible position when you do apply.
If you didn’t hear it the first time round, go back and listen to episode 217 of the podcast, where I’m in conversation with Mags Barrett, the MD of Mortgage Navigators. We take a deep dive on the topic of getting mortgage ready and Mags shares some super useful tips that will definitely stand you in good stead before you start the mortgage application process.