If you’re looking to buy a property, having a mortgage arranged before making an offer can give you an advantage over other potential buyers. But how do lenders determine if you can afford a mortgage? And what do you need to do to prepare for your mortgage application? Read on for a detailed guide on everything you need to know about mortgages.
Lenders will assess your affordability by calculating your household income, including your basic salary and any additional income you receive from a second job, freelancing, benefits, commission, or bonuses. However, checking affordability is a much more detailed process. Lenders will take all your regular household bills and outgoings into account, along with any debts such as loans and credit cards, to make sure you have enough left to cover the monthly mortgage repayments. They’ll also stress test whether you could still afford the mortgage repayments if interest rates were to rise, or if you were to retire, go on maternity leave, or experience other life changes. Additionally, they’ll perform a credit check with a credit reference agency to assess how much of a risk lending to you might be.
Before applying for a mortgage, it’s a good idea to contact the three main credit reference agencies and order your credit reports. Make sure there are no mistakes or incorrect information about you. You can do this online either through a paid subscription service or one of the free online services currently available.
You will need to start collecting all the documents you’ll need for the mortgage application process. This might include:
Self-employed people should provide information alongside their tax return that supports what the SA302 says about their income, such as bank statements.
Make sure the information on the application form matches the documents you supply. For example, don’t round up your salary if the amount on the payslips differs from this figure. Provide details of the address of the property, the estate agent, and your solicitor. These are the basics, but some lenders might ask for more paperwork. Bear in mind that lenders might have different criteria around income and outgoings, so ask your lender or independent mortgage adviser what else you might need. Please note that printouts of online statements of your current account and utility bills might not be acceptable. You will either need hard copies or to have copies certified by your solicitor, your bank, or your utility provider.
You might also need to show your outgoings, including how much you’re borrowing on credit cards and other loans. As well as your household bills, including utility bills, council tax, insurance policies, and general living costs such as travel, childcare, and entertainment.
If you want to increase the size of your mortgage, you might also have to go through the affordability checks above, and you’ll be given advice around which mortgage products are suitable. If you have a mortgage and don’t want to borrow any additional money, there are more flexible arrangements.
Not all lenders offer interest-only mortgages. If you do apply for one, you will have to show you have a credible repayment method in place, as well as meeting the necessary income criteria.
For more information and guidance on mortgages, feel free to contact Auckland Estates. We are happy to recommend trusted mortgage advisers who can assist you throughout the process. Simply give us a call or send us an email by clicking here. (firstname.lastname@example.org)