MARTIN Lewis has explained the two checks you need to pass in order to get accepted for a mortgage.
In the latest MoneySavingExpert newsletter, Martin revealed his step-by-step guide if you’re looking to remortgage soon.
His advice included how to actually get accepted for a mortgage loan in the first place.
There are two main factors that will decide whether you’ll get accepted.
The first is an affordability check, which is how lenders decide if you’ll be able to make your payments on top of your other expenses.
Martin said that because of the rising cost of food and bills, it could be harder to get accepted.
He also pointed out that lenders don’t just look if you’ll be able to pay back at the current interest rates – but how you’d cope if they went up too.
The current base interest rate, set by the Bank of England, is 3% but it is expected to go up to 3.5% today.
The move will make the cost of borrowing, including loans, credit cards and mortgage repayments more expensive.
This means that in order to pass an affordability check you should have extra wiggle room in your finances.
Martin added that it might be best to try to be “more frugal” in the run-up to a mortgage application.
The second factor Martin said could make or break your mortgage application is a credit check.
Your credit score, sometimes called credit rating, determines your creditworthiness to lenders.
When you apply for credit – like a loan, credit card or mortgage – the lender tries to predict your future behaviour based on the way you’ve acted in the past.
To work it all out, they’ll look at various different data.
This could include how many applications you’ve made recently, how much you owe, what credit products you’ve had and whether you paid them all off on time.
Some of this comes from their own information.
But they’ll also go to credit reference agencies Experian, Equifax or TransUnion, which hold a lot of this data on you.
You can check your credit file for free on websites like ClearScore and Credit Karma.
It’s important to remember that even if you pass a credit and affordability check, nothing is guaranteed.
What lenders look for differs from one to the next, so not everyone will accept you.
Martin recommends using a mortgage broker to help you navigate getting a loan.
A good mortgage broker can help you out with information that’s tricky to find out yourself.
Their advice can give you an idea of whether you’ll be accepted and how much you’ll be able to borrow after lenders do credit and affordability checks.
Check first for fees for this service, as it can cost you extra, but could be worth it in the long run if you save cash.
They might also have some top deals that aren’t available to the public.
We’ve rounded up some of the ways you can boost your credit score and affordability.
How can I boost my chances of getting a mortgage?
Anyone expecting to apply for a mortgage in the near future should look at their money habits.
Lenders will usually look back over current account activity over the past few months before a mortgage application is made.
Make sure your bank statements are as clean as possible with no excessive spending.
While there is no credit blacklist which bans people from any sort of borrowing at all – if you have struggled in the past you may find lenders won’t consider you.
If that’s the case, then there are steps you can take to help improve your rating:
- Get on the electoral register – This proves who you are and where you live meaning it’s easier to get credit if you’re on the list. Also check the electoral roll for any errors. You can sign up by registering to vote.
- Don’t make too many credit applications – Making lots of requests in a short period of time can be seen as a sign of financial distress – and each application will be recorded on your file. Use a “soft-search” eligibility calculator to show how likely you are to be accepted.
- Always pay your bills – Late payments are also recorded in your file so make sure you pay your monthly bills on time including utility and credit cards.
- Pay down your debt – Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already have a large amount of debt.
- Use a credit-builder credit card – 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.
How to get the best deal on your mortgage
Getting the best rate on your mortgage can depend on the rates available at the time, but there are several ways to land the best deal.
Usually the larger the deposit you have, the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed, this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
To find the best deal use a mortgage comparison tool to see what’s available.
As we said, you can also go to a mortgage broker who can compare for you, but you may have to pay for this service.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it on to the cost of the mortgage, but beware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
You may need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statement.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
