Applying for a mortgage can often seem like an exercise in endless jumping through hoops. You can apply online and even see in a matter of minutes what a lender might be prepared to lend you, but you’ll still have to dig up a vast amount of information on your finances once you want to progress an application.
Before you click on any of the many online applications, check out what you might be able to borrow on your income using an eligibility calendar of the type provided by the Money Advice Service.
It makes sense to check your credit rating, too. An adverse credit rating could affect your ability to borrow and even send your credit rating plunging further if a lender turns you down.
Mortgage lenders now work to much stricter criteria when it comes to lending. Since 2014, borrowers have had to undergo mortgage affordability checks that go into greater detail on your income and spending than previously required.
Will you pass the ‘stress test’?
You will also have to pass a “stress test”, designed to demonstrate that you will still be able to cover mortgage repayments if interest rates rise, if you retire while the loan is still outstanding, if you go on maternity leave or if a fixed-term contract ends.
You can start applying for a mortgage online, but at some point you will have to provide concrete proof of everything on your application. Remember those hoops we mentioned? Get ready to start jumping.
The obvious items are details of income, such as pay slips, the P60 that is the annual statement of your income and taxes paid provided by your employer and details of any money you make from other sources, such as freelancing, plus evidence of any savings or assets that are yours.
You will have to provide proof of identity, such as a passport and utility bills.
Explaining those essential monthly outgoings
Then you need to demonstrate your outgoings with at least three months’ worth of bank statements and credit card statements – many of us have opted for online statements and so no longer receive paper notices. Check if your lender will accept copies of statements downloaded and printed by you. Some don’t, so you might have to order copies from the bank.
If you’re self-employed, you’ll need a statement detailing two to three years’ of accounts, a copy of your last two tax returns and bank statements that prove you earn what you say.
Similar rules are in place if you’re remortgaging. Unlike in previous years, lenders will apply the “stress test” to ensure you can make your loan repayments when circumstances change.
Everyone looking for a mortgage has to answer questions about their “lifestyle” – that means you could be explaining monthly outgoings such as gym membership, how much you spend on holidays or cars, what you pay for Amazon Prime or Netflix. Parents might also have to reveal what their monthly childcare outgoings are.
No robots, just good old-fashioned service
That’s a lot of information. Not every lender wants every cough and spit of your outgoings, but be prepared in case you have to reveal the lot. And then you’ll have to wait until the lender does all the eligibility and affordability tests before coming back to you with a definitive yes or no on a loan. That can take several weeks so the sooner you do apply, the better.
Meanwhile, this week it was revealed that price comparison site GoCompare is investing in a “robo-advisor” for mortgages. MortgageGym aims to produce the best option based on computer algorithms with minimal human intervention. Users will spend only 15 minutes filling in the form with the robo-advisor promising results within 60 seconds.
Homeward Legal can arrange conveyancing for buyers, sellers and those remortgaging through its nationwide panel of solicitors. Call our sales team now on 0800 038 6699 to talk through your requirements or start your conveyancing journey with an instant, no-obligation quote.