If you are looking for a mortgage, it’s important to understand the way in which lenders will assess you. You may have a few strong areas such as income and affordability, but then you may have a bad credit score. But what does this mean for your mortgage? Let’s have a look below.
- Your income and expenditure
Lenders will all make affordability assessments. The way that lenders do this, is by assessing your income and your expenditure. Your income is assessed either by your payslips, work contracts and additional income streams such as investments.
If you’re self-employed, then your income is assessed on your net profit and not your gross earnings. This is done via your accountant or self-assessment forms. This can sometimes pose problems as net income is usually a lot lower than gross income amounts. For this reason, it’s often easier for employees to obtain larger loans than the self-employed, unless the self-employed are declaring huge net profits, which is rarely the case. This is because self-employed borrowers will try to minimise their tax bills. More profit equals more tax, but this isn’t good for mortgage applications, as income can sometimes to be too low as a result.
Lenders will also assess your expenditure. This is done by assessing your outgoings and any financial agreements you have in place. An example of this could be a car that you’ve purchased using a finance plan. You may also have other debts such as mortgages. Lenders will factor in all of this before agreeing to a maximum loan amount with you.
- Your age
Some lenders have age restrictions on who they’ll lend to. For instance some banks may have a minimum age of either 18, 21 or 25.
Other lenders may have a maximum age, but this does vary quite considerably as there are options available for elder clientele, such as retirement mortgages.
The reason lenders have minimum age restrictions is simply because they want to see a track record and history of credit and the borrowers conduct. Lenders may also feel that someone of the age of 18 for instance may be more of a risk when compared to a borrower who is
25 for example.
The reason lenders have maximum age limits is because of income and life expectancy. Lenders need to be confident that their loan will be repaid without any issues.
- The mortgage itself
The mortgage you apply for will also have a huge bearing on what you’re offered and whether or not you’re approved. For example, if you have a larger deposit then 10%, you may find it easier to gain approval. This is because larger deposits tend to offer less risk from a lenders perspective. There is more equity in a property from the start so if the loan wasn’t repaid, lenders simply have more chance of regaining their loan amount in full.
The type of property of you need a mortgage for will also play a part.
For example, some lenders will only lend on standard construction properties such as brick built but won’t lend on non-standard construction. This is why it’s important to consult a broker beforehand as they’ll approach the right lenders based on your situation.
- Your credit file
Lenders will always check your credit file before approving you a mortgage. It’s fair to say any financial company will check your credit file before approving any type of contract that involves finances. It goes without saying, but a good credit file is great for mortgages, as it shows your financial conduct to be respectable. If you have bad credit problems on the other hand, then this of course will go against you. Some lenders, especially high street banks will simply close the door on applicants due to bad credit.
Don’t panic. Some specialist mortgage brokers have access to lenders that specialise in mortgages with bad credit, such as Expert Mortgage Advisor. Bad credit problems can range from minor issues like arrears and late payments, to more severe issues such as bankruptcy and IVA’s.
Whether you’ve had a CCJ or a default, speak to a specialist before approaching lenders. This is because if you do get declined, it may leave a footprint on your credit file which can further damage your chances.