What decides my eligibility for a mortgage?
A wide variety of factors determine whether you’re approved for a mortgage. Generally, each provider will have its own specific criteria to assess your eligibility. This means that if you’re rejected by one provider, it doesn’t necessarily mean you won’t find another willing to accept your application. However, making too many applications at once is not advised. Let’s examine the factors that determine your mortgage eligibility.
Your credit rating
Your credit rating shows potential lenders what your financial history is like, including how regularly you keep up with credit payments and whether you've missed any. Lenders use this score to assess how risky it would be to lend to you. For example, you will appear higher risk if you’ve consistently missed payments and lower risk if you've consistently kept up with credit payments.
Before you make your mortgage application, you should contact a credit agency to review your report and correct any inaccuracies before presenting it to a lender. When examining your credit score, your lender will look for a lack of financial history (e.g., if you’ve never missed credit payments), any late payments, and any legal judgments against you for non-payment of bills.
If you're concerned about your credit rating, take a look at our guide on how to improve it.
How much you’ve saved for a deposit
To be accepted for a mortgage, you will need to have saved a deposit of at least 5% of the property's cost. The more you save, 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 well in advance before you apply.
Your ‘affordability’
Before approving your loan, lenders will need to assess your affordability, meaning they want to ensure you can afford to repay the loan. To do this, lenders will require proof of income, which you’ll need to provide, typically in the form of up to six months of pay slips.
In addition to income from paid employment, lenders may also consider other income sources, such as welfare payments. When assessing your affordability, lenders will also want to understand your spending habits by reviewing your bank statements to see your monthly outgoings. They may also ask about your lifestyle costs, such as how often you go on holiday or what leisure activities you participate in. Any outstanding payments, such as credit card payments, loans, car finance, or phone contracts, will also be considered.
Lenders need to be sure you can keep up with your payments for the entire 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 by showing your business accounts, which must be approved by an accountant, as well as providing tax returns for at least the past 24 months. If you’re a contractor, you’ll also need to provide evidence of upcoming contracts to prove your work is sustainable. If you’re a company director, you’ll need to show evidence of retained profits.
Other factors
In addition to your credit rating, savings, affordability, and employment status, there are other factors that could affect your eligibility.
For example, it may be difficult to secure a mortgage if you haven’t been living in the UK for at least three years. If this is the case, it may be worth exploring the option of applying for a mortgage in the country where you were living prior to moving to the UK.
Lenders will also consider the size of the loan you want to take out, comparing the total cost of the property to how much you have already saved.
Another factor is the type of property; for instance, flats above bars may seem riskier to lenders.
Additionally, lenders generally prefer if you have been in your job for a longer period.
There are several free mortgage eligibility checkers available online 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 deal for you.