Obtaining a mortgage is a significant milestone for many individuals, as it allows them to purchase a home and build equity. Considering rents for new lets have increased by 11.1% in January 2023, it could make financial sense to purchase a home of your own rather than continually forking out for rent.
However, securing a mortgage can be a challenging process, and the current rejection rates for mortgage applications highlight the importance of understanding what lenders look for in potential borrowers.
In this article, we will explore several key strategies that can help improve your chances of getting a mortgage approved.
One of the most effective ways to improve your chances of getting a mortgage is to save for a substantial deposit. Lenders generally prefer borrowers who can provide at least a 20% deposit, as it demonstrates financial stability and reduces the risk associated with the loan.
For example, if you’re purchasing a home worth £250,000, a 20% deposit would amount to £50,000. Saving for a significant deposit not only increases your chances of loan approval but may also result in better interest rates and more favorable mortgage terms.
A strong credit score is crucial when applying for a mortgage. Lenders assess credit scores to evaluate your creditworthiness and determine the level of risk involved in lending to you.
To improve your credit score, focus on paying bills and debts on time, reducing outstanding debt balances and avoiding any late payments or defaults. Regularly reviewing your credit report and addressing any errors or inaccuracies can also help boost your credit score over time.
Working with a mortgage broker can significantly increase your chances of securing a mortgage. Mortgage brokers have extensive knowledge of the lending market and can connect you with lenders that match your financial situation and borrowing needs.
They can help navigate the application process, assess your eligibility and negotiate better terms on your behalf. Their expertise and access to multiple lenders can increase your chances of getting approved for a mortgage that aligns with your requirements.
Prior to applying for a mortgage, it’s essential to avoid taking on high-cost loans, cash advances or accumulating excessive debt. Lenders consider your overall debt-to-income ratio, which is the proportion of your income that goes toward servicing debt payments.
High levels of debt can negatively impact your borrowing capacity and raise concerns about your ability to handle additional financial obligations.
Minimising or eliminating high-cost loans, such as payday loans or credit card debt, can improve your financial profile and enhance your chances of mortgage approval.
Having multiple credit cards, especially those that are rarely used, can negatively impact your mortgage application. Lenders assess your credit utilisation ratio, which is the percentage of available credit that you use.
Closing credit cards you don’t need reduces your available credit limit and improves your credit utilisation ratio. However, be cautious not to close your oldest credit card, as it may have a positive impact on the length of your credit history, which can contribute to a stronger credit profile.
Before applying for a mortgage, consider using eligibility checkers provided by various lenders or comparison websites. These tools allow you to input your financial information and receive an indication of your likelihood of approval.
Eligibility checkers help you understand which lenders may be more inclined to approve your application, minimizing the risk of unnecessary rejections and protecting your credit score.
Securing a mortgage can be a complex and competitive process, but there are steps you can take to improve your chances of approval. There are effective strategies to enhance your mortgage application such as those detailed above.
Remember to carefully evaluate your financial situation, compare mortgage options and seek professional advice when necessary. By implementing these strategies, you can increase your chances of successfully obtaining a mortgage and moving closer to homeownership.