What do Lenders look at when assessing you for a Mortgage?

When you apply for a mortgage in the UK, lenders must follow rules from the Financial Conduct Authority (FCA) to ensure you can afford the loan — both now and if interest rates rise.

Lenders look at several key factors, and they tend to look at 4 main areas. Here we break down how each applies to a mortgage application.

1.        Income & Affordability

Lenders want to ensure you have a stable and sufficient income to cover the mortgage payments and other debts. They will look at

Your income:

·      Salary, bonuses, overtime, commissions

·      Self-employed income (usually based on 2–3 years’ tax returns)

·      Pension or benefit income (if applicable)

Your outgoings:

·      Existing loans, credit cards, car finance, childcare, etc.

·      Regular commitments (utilities, subscriptions, living costs)

Your affordability ratio:

·      Typically, lenders allow you to borrow about 4 to 4.5× your annual income, though this can vary based on credit profile and deposit size.

·      They’ll also “stress test” your finances — checking if you could still afford repayments if interest rates rose by a few percent.

2.        Credit History & Score

A credit report shows the agreements and debts you have or had in the past. It also shows any missed or outstanding payments. This identifies how reliable you are at repaying your debts. On a credit report lenders will look at

·      The actual credit score. A high score indicates you are good at repaying and managing debt.

·      Payment history. So, they will be checking for any missed payments, defaults, bankruptcies etc.

·      Credit utilisation. For example, if you have a £1000 available balance on a credit card are you always at the maximum you can borrow.

·      Length and mix of credit accounts. Do you have a lot of credit or store credit cards open. And if you do then have you had balances on them for a long time?

3.        Deposit & Savings

·      Having your own funds signals to lenders that you have financial strength so having savings or some simple reserves is a positive sign to them.

·      Deposits affect your eligibility and your interest rate. Generally, the more of a deposit you have then the better the mortgage offer. Minimum 5% deposit for some lenders, 10-25% will give you more of a competitive rate and 40%+ often qualifies you for the best deals.

·      Lenders also have a duty to check where deposit comes from – savings, gifted or inheritance. This must be done verify anti-money-laundering.

4.        Property Value

The property itself is what secures the loan from the lender. So, it’s only fair for the lender to confirm the market value.

·      They will look at the purchase price vs. the valuation survey

·      This then allows them to compare the loan to value ratio, the lower the percentage the better. Lower loan to values gets better interest rates and more product options.

·      Check the loan to value (LTV) ratio = loan / property value. Lower percentages of LTVs get better interest rates and more product options.

5.        Your Documentation

They will ask for supporting documents to confirm your personal details and income. You will be asked to provide

·      Proof of ID and address,

·      deposit evidence,

·      credit report,

·      Proof of Income

Further to this you will be asked for documents depending on your employment status –

·      Employed – Last 3 months’ payslips, latest P60, 3-6 months’ bank statements

·      Self-employed – last 2-3 years’ SA302s and tax year overviews (on HMRC account) and business bank account statements.

6.        Loan terms & Mortgage type

Finally, lenders will consider the type of loan term and the economic conditions

·      Is the term that’s been chosen fixed or variable and is it over a term that 15, 25 or 30+ years

·      Lenders will look at Economic factors. What are the current market risks, are house prices in that area stable? Is inflation increasing? And could interest rates rise?

In short, getting a mortgage is all about showing lenders that you can borrow responsibly and afford your repayments with ease. By keeping your finances organised, maintaining a good credit score, and saving a healthy deposit, you’ll be in a strong position to secure the home you want — and the peace of mind that comes with it.

As always, TS Mortgage Specialists are here to advise, support and keep you informed so that at any stage you may feel you need assistance regarding your mortgage you can contact info@tsmortgagespecialist.co.uk