Mortgage Eligibility Guide

Lenders carry out thorough checks when you apply for a mortgage, to help them work out how likely you are to be able to meet repayments. Here’s everything they look at when deciding if they are willing to lend to you, and how much they will let you borrow.

John Ellmore 13 November 2020

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Applying for a mortgage is a big life event and represents a huge financial commitment. In fact, it’s typically one of the most significant financial commitments you’ll ever make. Finding the right mortgage for your circumstances involves a lot of research, but before you get to that stage you need to ensure you are eligible for a mortgage.

Each provider has different lending criteria, so before you apply to any mortgage it’s important to thoroughly understand a lender’s particular set of requirements before embarking on an application.

Mortgage eligibility requirements - Am I eligible for a mortgage?

As mentioned, some lenders may accept you based on your circumstances, while others may not. It all comes down to their lending criteria.

But, typically, all mortgage providers will assess the following.

  • How much you would like to borrow
  • Your deposit
  • The value and type of property you’d like a mortgage for
  • Your employment status and salary
  • Your credit rating
  • Any debts you have
  • Your monthly spending

After analysing and weighing up all these factors, a lender will determine the risk level you present, whether you can afford the mortgage, and the terms they will offer you, if they are willing to lend to you.

What documents do I need to show to prove mortgage eligibility?

The types of documents you may need to prove your identity and demonstrate your eligibility for a mortgage include:

  • Your driving license and/or passport
  • Your regular utility bills
  • Payslips for at least the last 3 months
  • Bank statements for the last 6 months
  • Any benefits you receive
  • P60 form (this comes from your employer)
  • SA302 tax return form if you have income from more than one revenue stream or are self employed

If you’re self-employed you will also need:

  • At least two years of accounts supplied by your accountant (this may depend on the lender)
  • SA302 tax return form for the last 2 or 3 tax years

Other types of employment:

  • As a contractor you will also need to supply details of any future contracts
  • If you’re a company director you will also need to provide details of dividend payments or retained profits.

What do lenders look at when assessing your eligibility for a mortgage?

Here’s an in-depth look at what mortgage providers will examine when assessing your eligibility for one of their mortgage products.

Affordability

Before approving you for a mortgage and lending you the money you need to buy a home, mortgage providers will assess your affordability. This means they’ll want to be sure that you can comfortably afford to keep up with repayments both now and in the future, without overstretching yourself or risking missing payments in tight months.

Usually, lenders will start to assess your affordability based on your payslips. If you’re employed full time you’ll typically need to provide payslips from the last three months, sometimes six, as well as your most recent P60.

Lenders will also take into account other forms of earnings such as investments and inheritance, and may also factor in government benefits and child maintenance.

The self-employed won’t have payslips to produce, which makes it harder for them to prove their income. In these cases, lenders are likely to ask applicants to produce their accounts to evidence their earnings.

Providers don’t only assess your income, they’ll look into your regular spending habits too. A thorough assessment of your spending habits will allow them to understand how you manage your money every month, and whether you’ll have enough money each month to pay for your monthly mortgage repayments.

They will pay close attention to major, regular expenses such as your utility bills, commuting costs, and childcare. They’ll also explore your other living costs such as socialising, holidays, hobbies and eating out.

Your regular outgoings may include debts. If you do have debts, a mortgage provider will scrutinise these until they are confident that they won’t affect your ability to meet your repayments.

Why do mortgage lenders look at other debts when assessing your mortgage affordability?

Basically, lenders want to be sure you can afford your mortgage now and in the future.

If you have credit cards, car finance, loans, or use buy now pay later facilities, lenders will look at whether your combined debts show that you may struggle with your repayments if your financial circumstances changed slightly. There needs to be enough room in your finances to comfortably afford all debt.

Credit rating

Your credit rating is an indication of your financial history and stability. It reveals your creditworthiness — showing how you have fared when borrowing money in the past, whether you have paid back what you have borrowed on time, if you’ve missed any payments, if you are in arrears, and the number of times you’ve requested credit from lenders, including any current debts

Your credit score quickly gives lenders an idea of the risk your borrowing presents, the higher the score the better.

Before you make your mortgage application contact one of the UK’s three main credit agencies Experian, Equifax or TransUnion to get your credit score.

The higher your score the better mortgage rates you could be offered, so it is worth making a concerted effort to improve your score before applying for a mortgage. It can also be beneficial to limit any other credit applications in the run-up to applying for your mortgage.

The more hard credit checks on your file (generated when you apply for finance), the more desperate you could appear for credit, and the more likely a mortgage lender will be thinking you don’t manage your money responsibly. This means they may be more likely to decline your application.

If you’d like to understand how you could improve your credit rating before applying for a mortgage read our guide on how to rebuild your credit history.

Deposit

These days there are a range of mortgages available with many different loan to value (LTV) ratios — the amount you borrow through a mortgage compared to the total value of the property.

Read our guide on how much you’ll be able to borrow if you’re unsure about what you can afford.

Typically you’ll need to save a deposit of between 5-20% of the value of the property, with a mortgage to cover the remainder. The larger deposit you save, the more likely you are to be approved for the mortgage of your choice, and the higher the likelihood is that it will have a competitive interest rate.

If you have no deposit, 100% mortgages, could be a consideration but you will need to have a guarantor to help you obtain this. Low deposit mortgages are also available to some. Check out our guide on how to get a mortgage without a deposit.

Employment

Your employment status is important to your application. Lenders will look more favourably on those with a more stable employment history that don’t change jobs regularly.

In the lender’s eyes the longer you’ve been in your job the better. This will let them know you are in stable employment and that your salary is unlikely to be reduced at any point in the near future.

As mentioned earlier, if you're self-employed it may be harder to get a mortgage, especially if you haven’t been self-employed for a long time, as it will be hard to provide enough evidence of what you earn. If you can provide accounts to demonstrate your earnings this will significantly improve your chances of being accepted for a mortgage.

Read our guide on getting a mortgage when you’re self-employed for more information.

Compare mortgages

Now that you know whether you are eligible for a mortgage, you can start comparing mortgages on our site today if you’re ready.

About the author:

John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more

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