Sorting out your finances
When thinking about buying a property, you’ll need to ensure your finances are in order ahead of speaking to a mortgage lender or bank. Below we outline the fundamental things you should look to do in order to boost your chances when it comes to applying for a mortgage.
6 to 12+ months in advance
Register to vote
This is one of the main ways that lenders verify your identity and address – so if you’re not already registered where you currently live, then make this top of your list. You can get on the electoral roll online. While you’re at it, make sure you’re not still registered at a previous address.
Not a UK, EU or qualifying Commonwealth national – and therefore can’t register to vote? Don’t worry, the lender will ask for alternative information to verify your identity and address.
Save up for your deposit
The sooner you start saving, the more money you will have for a deposit – and the bigger your deposit the better the rate you could get. You’ll also have more choice when it comes to mortgage deals. A deposit of 5% of the property price will be the minimum you’ll need, but it is more likely to be 10% or more. So it really is worth tightening your belt and thinking about what you can do without.
Get your credit history in shape
It’s important that you can demonstrate you would be a responsible borrower and that you’re not stretching yourself too thin. So:
- Pay off any debts on time
- Pay all your bills on time
- Close old, inactive accounts
- Don’t apply for additional credit, especially payday loans
- Avoid going into your overdraft
- Close any out-of-date joint current accounts that you hold with someone else, in case the other individuals weren’t responsible with their money. If you’re still linked to them, their poor record can negatively impact yours
Records stay on your credit report for around 6 years. Also, keep in mind that since 2011, any payday loans you’ve taken out will be listed on your credit file – even if you paid them off on time. They don’t look good and make lenders think you can’t cope with having a mortgage.
Maintain job stability
It’s a good idea not to change jobs too close to applying for a mortgage. Most lenders will feel more comfortable lending you money if you have been in your job for a longer period, but 3 to 6 months would be seen as a minimum.
Check your credit record
You’ll want your credit report to be in the best possible shape before a lender looks at it. Credit reports provide an insight into your payment behaviour – and lenders turn to them as part of their decision-making process. So take the time to check your credit record and correct any errors that you come across.
You won’t know what lending criteria lenders will score you against since these are not publicly available. But don’t be put off, each lender will probably have a different way to score customers – and if one doesn’t want to lend to you, it doesn’t mean that all lenders won’t.
All three credit agencies are required to provide you with your credit report for £2, and you can access your report online or by asking for a written copy. You may be able to register for a free trial with these companies and see your file for no extra cost. Just be sure to cancel before the trial period is up – or you might get billed.
If you would like to know more about credit reports and how they are used by lenders, visit Money Advice Service.
Up to 6 months in advance
Gather important documents
Lenders want to get a good picture of your financial situation. This is why they will typically ask you for the following:
- Proof of income / 3 months’ payslips (they might contact your employer)
- Last 3 months’ bank statements
- Proof of current UK address, such as a council tax bill or a utility bill from the last 3 months
- Proof of bonuses/commission
- Your latest P60
- Your last 3 years’ accounts or tax returns (if you’re self-employed)
- Your Self Assessment tax return (if you’re self-employed)
- Proof of deposits (e.g. savings account statements)
- Proof of ID (passport or photocard driving license)
- A gift letter if you’re getting help with your deposit, stating that the person is gifting you the money and not lending it to you
Familiarise yourself with your spending
Before you can get a mortgage, mortgage advisers or lenders will need to understand your spending habits so they can recommend a mortgage for you that’s affordable and won’t stretch you. In order to do this, you’ll have an interview that could take anywhere between 1 and 3 hours.
Although the interview is later in the process, it’s a good idea to familiarise yourself with the areas you’ll be asked about. These include:
- Essential expenses, like groceries, utility bills, and household cleaning
- Basic quality of living costs, like clothes, holidays, household goods and childcare
- Repayments and other commitments
Getting your head around what you spend also means that if there are any areas where your spending is higher than you would like, you can take some steps to get on track.
Keep in mind, you’ll also be asked about any future plans that could impact the money coming into your household.