Getting a home loan can be the most stressful a part of purchasing a home, but there are methods of creating the process as simple as possible.
By making the effort to understand what makes you attractive to a home loan lender, fixing your credit rating, and getting your deposit savings to a level where you’ll have a broad choice of deals will help you obtain the loan you have to purchase a property.
Here, we take a look nine methods to enhance your likelihood of obtaining a mortgage and securing your dream home.
1. Know very well what lenders are looking for
Mortgage providers are looking for clients who are able to afford to make your loan payments, so proving this will help improve your likelihood of securing a loan.
Working out roughly what you can borrow before approaching a lender, will help you apply for loans you’re more prone to be approved for.
As a general rule, lenders is only going to loan you 4.Five times the earnings of you and other people you buy with. Some lenders tend to be more generous, though and people in a few professions could be offered mortgages of up to 5.Five times their salary.
In October 2022, mortgage providers lent the typical first-time buyer 3.66 times their salary and the average home mover 3.44 times their salary, based on data from UK Finance, the banking trade body.
As along with taking a look at just how much you get, lenders will look at your outgoings and existing debts. They’ll also conduct a ‘stress test’ to sort out what you can do to repay the loan in the long term.
Stress tests will take into consideration the result of possible rate of interest rises and changes for your lifestyle, for instance, being made redundant, expecting or taking a career break.
If your lender doesn’t think you’ll have the ability to afford your loan, it could limit the number you can borrow, or refuse your loan outright.
Use our calculator to see the impact of various interest rates on your monthly repayments.
2) Jump on surface of your credit score
Generally speaking, the greater your credit score, the much more likely are to be approved for a mortgage.
Your credit history is essentially a financial CV which contains all the information a lender needs to confirm your identity and see whether you’re a reliable borrower.
It includes information on a history of your credit accounts and current and past addresses too.
There are three main credit reference agencies in the UK: Experian, Equifax and Transunion (formerly called Callcredit). You will see your statutory credit report free of charge, and websites for example Noddle, Clearscore and MoneySavingExpert.com’s Credit Club offer these details free of charge.
Be certain to look into the info on your credit score carefully, because there might be incorrect info on your file which could damage your score.
Our investigation; credit rating: are you in the dark? reveals all you need to know about how your credit score impacts your ability to gain access to financial products and the way to correct mistakes.
If you have a a bad credit score history, all hope isn’t lost – it might be possible to obtain a mortgage.
Bad credit mortgages are available for buyers with a poor financial history, County Court Judgements (CCJ), or bankruptcy on their records. Only a small group of providers offer these types of mortgages, though, so your selection of lenders is going to be restricted.
For tips about improving your credit rating, check out our guide on how to improve your credit score.
3) Join the Rental Exchange
If you’re currently renting a house, joining the Rental Exchange could help you improve your credit score as well as your mortgage chances, too.
The Rental Exchange is an initiative, produced by Experian and The Major problem, that allows private and social housing tenants to improve their credit score if they pay their rent on time each month.
Tenants can connect their bank to a third party called Credit Ladder, who is able to read your rent payments through open banking technology. Credit Ladder are then able to let Experian know that you’ve made the payment on time.
After receiving this information, Experian updates your credit file accordingly.
It’s completely free to make use of and could be especially helpful for students, young people and individuals with thin credit files to assist build up a good credit history.
In to sign up for the Rental Exchange, your landlord or letting agent must accept to you paying your rent using Credit Ladder.
Once you've their approval you can register online through the Credit Ladder website.
If you decide to join the scheme, it’s important to keep an eye on your rental payments, as failure to pay for promptly will negatively impact your credit rating.
4) Sign up for the electoral roll
Registering around the electoral roll increases your odds of obtaining a mortgage. A lot of companies, including mortgage brokers, use the electoral roll to confirm your identity.
If you’re not registered, some lenders may refuse your application altogether.
Registering is extremely easy, all you need to do is head over to GOV.UK and complete an online form that takes about 5 minutes. You’ll must have your National Insurance number as well as your passport details.
You can also register by post using paper forms.
To avoid any problems that could delay or prevent you from having your loan approved, make sure that your details are up to date.
5) Reduce your debts
Mortgage lenders will look at just how much credit your debt when deciding whether or not to provide you with a loan, because it will impact how much money you will have open to make repayments each month.
Clearing your debts including credit card debt and personal loans – or reducing them as much as possible – before applying for any mortgage will improve your chances of being accepted for a loan.
We spoke to David Blake that? Mortgage Advisers about this, and that he told us that ‘qualifying for the cheapest mortgage products can save you a lot of money therefore it is worth taking action before you decide to actually need to use.
‘Checking your credit file and resolving any issues, getting registered around the electoral roll, coming out of an overdraft and paying off or lowering your debts are a great place to start.’
6) Save the largest deposit you can
Saving a bigger mortgage deposit will help boost your chances of having your mortgage. It often enables you to access better mortgage handles lower interest rates too.
Currently, you have to save the absolute minimum deposit of 5% of the property’s purchase price to obtain a loan.
There are government-backed savings schemes – the assistance to Buy Isa and the lifetime Isa – that are designed to help you build up your deposit.
If you’re struggling to save for a deposit some lenders may be able to off a 100% mortgage if you're able to obtain a a family member to act like a guarantor.
For help and tips on how to pocket some extra cash and beef up your deposit saving, take a look at our roundup of 11 ways to save money in 2022 and our comprehensive guide on 50 methods to save money.
7) Possess a regular income or a stable job
Mortgage lenders are more likely to approve your mortgage application if you’re in stable, long term employment. Ideally, you should be employed at your current project for a minimum of three to six months before you apply for any mortgage.
If you’re considering moving jobs, it might be better to prioritise securing a home loan first. Similarly, if you’ve started a new role, you might desire to wait several months before you apply to provide you with enough time to set up a history with your new employer.
It can be trickier to prove income when you're self-employed. Buyers here will often need to provide a minimum of two years’ worth of accounts, signed off with a certified accountant when applying for a loan.
Find out more within our guide to mortgages for self-employed buyers.
8) Avoid buying ‘non-standard’ properties
Some lenders are reluctant to approve loans for certain kinds of properties, such as flats in a high-rise block over the 10th floor.
This is basically due to the fact the quality of communal areas in high-rise properties are from the homeowner’s control, meaning they have little say over the way they could affect the property’s value.
For example, if the hallways or communal lift are neglected, this may put buyers off and lower the need for the home in general, even if the flat itself is in good condition.
If you're really set on buying a property like this, it’s important to check the lenders you are interested in will offer you a loan for it.
This can help you find out the lenders who are more likely to approve your mortgage application, thus upping your chances for securing a loan.
9) Ready your documents promptly and carefully
As that old adage goes ‘by failing to prepare, you prepare to fail,’ which is particularly true for mortgage applications.
It’s crucial that you get all the supporting documents for the mortgage application in order before submitting them.
Any delays to get your paperwork across could cause your application taking more than essential to process.
Take care when completing the application forms too, as any mistakes could result in the application having to be resubmitted and checked again.
10) Make contact with a mortgage broker
Speaking to an impartial broker might help improve your likelihood of securing a mortgage.
As along with helping you get the best mortgage deals, based on your financial circumstances, they are able to also give you personalised, tailored advice that will help you enhance your likelihood of being qualified for a loan.
* Updated: This short article was updated on 24/1/2022 to reflect changes to how rent payments are reported to Experian through Credit Ladder. *