Less than a decade ago, a few payslips and a meeting with a bank manager was all you needed to get a home loan but stricter rules introduced in 2014 made the whole process even harder.
Now, lenders will go through your finances with a fine tooth comb to make sure that you can afford the loan.
They will assess your income and outgoings which helps them decide whether you'll be able to keep up with the repayments.
It's important to be upfront with the lender as fudging your finances could lead to a rejection, and in turn leave a damaging mark on your credit score.
A hard check stays on your credit report for 12 months and other lenders can see it if you apply elsewhere – which could have an impact on its decision.
How to boost your chances of being approved for a mortgage
- Work out your budget: Check how much you can realistically afford keeping in mind how much your mortgage repayments will be. As well as the deposit also consider other associated costs including stamp duty, solicitor and surveyor fees.
- Put a deposit together: The larger your deposit, the better the mortgage deal.
- Get your credit report in shape: Make sure your credit report is accurate, up-to-date and in the best position possible.
- Prepare well before applying for a mortgage: This may seem like an obvious tip but take extra care when filling in application forms, the smallest of errors can cause huge delays and in some cases the whole application may have to be submitted again.
You'll also need to prove that you can afford the repayments at significantly higher rates – this is called stress testing.
The lender will run checks to see if you can afford a mortgage at three per cent above the standard variable rate, which is what you'll pay when your term comes to an end.
This is to show that if there was volatility in the market you would still be able to pay back the loan.
But it also means borrowers will need to prove they can afford a mortgage on rates of eight per cent or more.
You'll need to go through these tests whether you're a first-time buyer or remortgaging, so it's important to have the answers ready.
While some questions may vary, here's our checklist to the questions you'll definitely need to answer:
How much money do you earn?
Your salary is one of the most important factors lenders use to assess how much money you can borrow.
The maximum lenders tend to let you borrow if four and a half times your salary.
Those who work park-time, shifts or are self-employed are considered more of a risk than people who have a full-time job.
Standard mortgage applications require a two year work history – so be honest if you've change roles during this time.
You will also need to provide details of any bonuses you earn or any regular overtime that boosts your income.
Do you have any debts?
Weirdly, lenders prefer to see that you have debts – as long as you're paying them back.
This shows that you can be trusted to borrow money and honour your repayments.
Lenders tend to worry when the amount of debt you have hits, or almost reaches, your limits, such as maxing out your credit card or overdraft.
Tops tips: How to improve your credit score
- Pay your bills
Late payments, even if only slightly e.g. a few days, can have major negative impacts on your file. - Stay up to date with payments
Good credit is mainly about consistency, the longer you leave bills unpaid the more points you get knocked off your score – staying up to date with yoru direct debits and bills is key! - Contact your creditors
If you communicate with your creditors when you are having trouble making ends meet, you might be able to set up payment plans. - Paying off a collection account will not remove it from your credit report.
It will stay on your credit report for up to seven years. - Use a credit-builder credit cards
These cards tend to have high interest rates compared to normal cards but if you can show you're a responsible spender with them, it can improve your chances in the eyes of lenders.
They will also want to know how much your minimum payments are because if they're expensive it may look like you can't afford mortgage repayments on top.
Having no debts at all can be just as problematic,which is also worth thinking about.
What are your outgoings?
Where you could simply tell a lender how much you spend on your weekly food shop pre-2014, lenders will now check what you tell them against your bank statements.
Buying one too many coffees from Starbucks or splashing out on a one-off shopping spree isn't going to affect your application.
But they will be looking to see if excessive spending is something that is going to continue because it could be the difference between you affording a mortgage and not.
How did you get your deposit together?
Some lenders see saving the deposit yourself as you being more financially responsible than someone who's been gifted it or inherited it.
It may mean that you are offered a better rate too because you're seen as less of a risk.
What help is out there for first-time buyers?
Help to Buy Isa – This is a tax-free savings account where the government will give you a bonus for saving towards a house. You can save £1,200 in the first month and £200 a month after that. When you buy your first home the goverment will add an extra 25 per cent tax free. You need to have at least £1,600 saved to benefit and you need to 0pen one by 30 November 2019.
Lifetime Isa – This is another government scheme that helps first-time buyers get on the property ladder. Anyone aged 18 to 39 can open one and save up to £4,000 a year. The government will pay a bonus of 25 per cent on anything you save. You can only use the money money for your first home or a pension, if you try to take it for anything else you'll lose the bonus and face a fine.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific homes. Over time you can buy a bigger share of your house.
"First dibs" in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative – A government scheme that will see 200,000 new-build homes in England to be sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest here.
Do you have any children? Is this likely to change in the future?
It may feel like lenders are prying but kids are expensive and they want to know how your changing family will affect your mortgage repayments.
If you haven't got kids but are planning to have them in the future, then a lender will consider this as a potential life-long commitment.
Have you ever taken out a payday loan?
You took out a payday loan a year ago which you've now paid off. No problem, right? Wrong.
Most high street lenders will flat-out refuse your mortgage application if you've taken out a payday loan because a borrower who's willing to take emergency cash with extortionate rates is simply too risky.
There are some specialist lenders out there who may consider lending to you, but it's best to speak to a mortgage adviser before submitting an application because a refusal could damage your chances even further.
Taking out a payday loan will also affect the rate you're offered and is likely to mean that you'll need a bigger deposit.
It's not impossible though – we spoke to one lad and his girlfriend who managed to buy a £158,000 house even though he'd taken out a payday loan.
What's your credit history like?
Your credit history is really important to lenders who use it to assess how risky you are deemed to lend to.
Any defaulted payments, and in more extreme cases if you've filed for an IVA or bankruptcy, that have occurred in the past six years will show up on your credit history.
While a lender might not turn you down for this, it could affect the amount you can borrow and the interest rate you're offered.
It's worth checking out your credit history before submitting a claim – here's our guide to doing it for free.
It's not all doom and gloom though as we've put together a round up of how to get a mortgage with a poor credit score.
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