Last updated: 23/07/2020 | Estimated Reading Time: 5 minutes

Am I eligible for a mortgage?

Since taking out a mortgage involves borrowing a large amount of money lenders won’t provide one to just anyone. Providing a mortgage to someone who cannot afford it could lead to missed payments and even eventual repossession. Therefore, lenders will usually have a criteria you have to meet in order to be eligible for a mortgage.

This guide will take a look at the factors that make you eligible for a mortgage and how you can improve your chances if you’re currently struggling to get a mortgage.

In This Guide:

• What decides my eligibility for a mortgage?
• Your credit rating
• How much you’ve saved for a deposit
• Your ‘affordability’
• Self-employment
• Other factors

Your credit rating

Your credit rating lets potential lenders know what your financial history is like, including how regularly you keep up with credit payments and if you have ever missed any. A lender will look at this score when considering your application so they can have an idea of how risky it would be to lend to you. For example, you will appear more high risk if you have consistently missed payments and lower risk if you have consistently kept up with credit payments.

Before you make your mortgage application you should contact a credit agency to get an idea of your report and correct any inaccuracies before you present it to a lender. When examining your credit score, your lender will be looking out for a lack of financial history e.g. if you have never previously missed credit payments, any late payments and any legal judgements against you for non-payment of bills.

If you’re concerned about your credit rating, take a look at our guide on how you can improve it.  

How much you’ve saved for a deposit

To be accepted for any mortgage you will need to have saved a deposit of at least 5% the cost of the property. The more you’ve saved the more likely you are to be approved for a mortgage and the lower the interest rate will be. This means it’s a good idea to start saving as far in advance before you make your application.

Your ‘affordability’

Before approving your loan, lenders will need to assess your ‘affordability’ which means they want to ensure you can afford to pay back any loan they provide. To do this, lenders will need to see proof of your income which you’ll need to provide through showing up to six months’ worth of pay slips.

In addition to income from paid employment, lenders may also consider other income such as welfare payments. When assessing your ‘affordability’ lenders will also want to get an idea of your spending habits by looking at your bank statements to get an idea of your outgoing costs for each month. They may also ask you about your lifestyle costs for instance, how often you go on holiday or what leisure activities you do. Any current outstanding payments will also be considered such as credit card payments, loans, car finance or a phone contract.

Lenders need to be sure you will be able to keep up your payments for the whole of your mortgage term, particularly if interest rates rise.

Self-employment

If you’re self-employed it may be harder to get approved for a mortgage. You’ll need to prove your income to the lender by showing them your business accounts after they have been approved by an accountant as well as providing your tax returns over at least a 24-month period. If you’re a contractor, you will also need to show evidence of upcoming contracts to prove your work is sustainable. If you’re a company director, you will need to show evidence of retained profits.

Other factors

In addition to your credit rating, current savings, affordability and employment status, there are some other factors which could affect your rating.

• For example, it may be difficult to find a mortgage if you have not been living in the UK for at least three years. If you find yourself in this position it may be worth exploring the option of applying for a mortgage based in the country you were living in prior to the UK.  
• Lenders will also consider the size of the loan you want to take out, so the total cost of the property in comparison to how much you have already saved.
• Another may be the type of property, for instance flats above bars may feel a bit risker to lenders.
• As well as your employment status, generally speaking lenders prefer it if you have been in your job for a longer time.

There are a number of mortgage eligibility checkers found online that don’t tend to cost anything that are worth using before you make your application. Once you’ve determined your eligibility be sure to use our mortgage comparison tool to find the best mortgage deal for you.