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HOW TO: FOUR WAYS TO IMPROVE YOUR CHANCES OF MORTGAGE APPROVAL

HOW TO: FOUR WAYS TO IMPROVE YOUR CHANCES OF MORTGAGE APPROVAL

For most people, a crucial step towards home ownership is being approved for a mortgage. While you might have been saving for the past few years for a deposit, the decision to give your home loan the green light remains very much in the hands of a lender.

There are now ways to improve your chances of owning a new home, such as the government backed Help to Buy scheme and the associated ISA, which makes saving for a deposit easier. 

But did you know there are steps you can take to help your chances of getting a mortgage before making that all-important application?

1. Register to the electoral roll

Many lenders use the electoral roll to carry out quick identity checks, so if you haven’t already, it’s time to register to vote, says the Money Advice Service. If you’re not on the register, the lender will have to carry out various other checks to verify you are who you say, slowing your chances and making the process more difficult.

Bear in mind signing up to the electoral roll isn’t something that will happen straight away, so do it as long as possible before making a mortgage application. To be eligible to vote in the UK, you must be a British citizen or qualifying Commonwealth citizen over the age of 18. 

2. Save a decent deposit

It’s often the case the larger your deposit, the better standing you’ll have with lenders. This will decrease the loan-to-value of your mortgage and possibly open up a wider range of home loan products for you to consider.

Research carried out by Which? showed the average size of a deposit for first-time buyers stood at 17% in 2015. If you’re in a position to save more, it will only benefit you in the long run as you will own more equity in your home.

If you’re planning to use the government’s Help to Buy scheme, you’ll need to have at least a 5% deposit on your chosen property. Otherwise you should aim to save a minimum 10% of the property’s value.

For example, if you’re looking to buy a £150,000 home, you will need a £15,000 deposit. 

For more advice on how to save for a deposit, read our blog here.

3. Know your credit score

“Your credit score is a very important piece of criteria lenders take into consideration before deciding whether to approve your application,” says Lee Cardwell, an independent advisor from Mortgage Bureau in Rotherham. “Some lenders will accept applications from people with poor credit scores, but the majority won’t.”

Your credit score is calculated using a variety of information, with the main one being your credit report. This includes details of the different accounts you’ve owned in the past, as well as your financial connections.

Each lender will use a different formula to calculate your credit score, but generally speaking, the higher your credit score the lower risk you pose. It might also open up a wider range of deals, which is essential if you’re applying for your first home loan.

Another incentive for checking your credit report is if you spot any inaccuracies, you can make sure they’re rectified before approaching a lender. All you need to do is get in touch with the financial institution with the relevant evidence and they can look into the issue.

A problem lenders may encounter is a homebuyer with no credit score. “If you’re planning on applying for a mortgage in the next 12 months, I’d recommend you sign up for a credit card and make sure you pay it off in full each month,” says Mr Cardwell. “This will create some sort of credit rating lenders can refer to.”

4. Repay any existing debts

One factor that may reflect your credit rating is whether you have existing debts. Unpaid credit card bills and loans won’t work in your favour when applying for a mortgage.

Home loan providers are interested in whether or not you’ll be able to repay your mortgage. If you already have other commitments, this will greatly impact your overall financial health, which won’t bode well for a lender.

Figures from The Money Charity show total credit card debt stood at £2,346 per household in December 2015. This would take an average 25 years and 5 months to repay if you only made the minimum repayment each month.

Another way to improve your chances of mortgage approval is to close any credit card accounts you no longer use. The more accounts you own, the more difficult it is to keep track of your finances, and having access to too much credit makes you a more risky prospect in the eyes of lenders.

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