Sorting out your finances
When thinking about buying a home, you’ll want to check your finances are in order before speaking to a mortgage lender or bank. Below we outline the basic things you could 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 lenders verify your identity and address. So, if you’re not already registered where you live, then you could put this at the top of your things-to-do list. You can get on the electoral roll online. While you’re checking, it’s a good idea to make sure you’re not still registered at a previous address.
If you can’t register to vote, because you’re not a UK citizen, or qualifying EU or Commonwealth citizen – don’t worry. The lender or bank will ask for different information to verify your identity and address.
Save up for your deposit
Generally, the sooner you start saving, the more money you’ll have for a deposit. And usually, the bigger your deposit, the better the rate you could get. You’re also likely to have more choice when it comes to mortgage deals. A deposit of 5% of the property price is usually the minimum you’ll need, but it can be 10% or more. So, if you can, it’s worth thinking about your outgoings and what you can do without.
Get your credit history into shape
Think about how you look ‘as a borrower’. What might a lender think about your credit history? Is there anything you’re doing that could make them more cautious? And, is there anything you can do to improve things? For example:
- If you have any debts, do you pay them off on time?
- Do you pay all your bills on time?
- Have you got any old, inactive accounts? You might want to close them.
- Have you applied for any additional credit, especially payday loans? This can make lenders more wary.
- Do you go into your overdraft?
- Do you have any out-of-date, joint current accounts with someone else? If anyone you’re linked to has a poor credit record, it might reflect on you.
Records stay on your credit report for around 6 years, sometimes longer.
Be aware that some lenders can view payday loans negatively, even if you paid them off on time.
Lenders may feel more comfortable lending to you if you’ve been in your job for a longer period. Each lender will vary, so it’s best to check, but you could view 3-6 months 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 use them as part of their decision-making process. It’s a good idea to check your credit record, just in case there are any errors, which could affect your score. Checking your own rating is viewed as a soft check and won’t impact your score.
You won’t know what lending criteria lenders will score you against as this isn’t publicly available. But don’t be put off, different lenders have different ways to score customers – so if one doesn’t want to lend to you, it doesn’t mean that they all won’t.
It is possible to check your credit score for free, but agencies will often ask you to register for a free trial, which then rolls into an ongoing cost, once the trial period ends.
If you’d like to know more about credit reports and how they’re used by lenders, visit the Government’s website – MoneyHelper.
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.