What do mortgage lenders look for?

When you apply for a mortgage, lenders will look closely at your application form, bank statements, and credit history.

They need to make sure you're reliable with money and can afford to make your payments. While each lender has different rules, here are five key things they all want to see.

1. How much of your available credit you're using

Having debt doesn't automatically stop you from getting a mortgage. Lenders care more about what percentage of your available credit you're actually using. This is called your ‘credit utilisation’.

Try to keep your credit utilisation around 25-30% to make lenders happy. Using too much of your available credit warns lenders that you might be struggling with money.

For example:

• If you have three credit cards with a combined limit of £18,000 and you're using £12,000 (66%), lenders may worry.
• If you're only using £3,000 of that £18,000 limit (16%), lenders will see you're not depending on credit.

2. Your debt compared to your income

Even if you have debt, lenders can still approve your application if you earn enough to cover it. They get concerned when your debt-to-income ratio is high.

For instance, if you earn £1,800 a month but spend £1,500 on bills and debt payments, you don't have much left for emergencies or unexpected costs.

To figure out your own debt-to-income ratio:

1. Add up all your monthly payments, e.g. loans, student debt, child support, etc.
2. Include your future mortgage payment in this total
3. Divide this number by your monthly income
4. Multiply by 100 to get a percentage

Using our example: (£1,500 ÷ £1,800) × 100 = 83%

Aim to keep your debt-to-income ratio below 40%. If it's under 20%, lenders will see you as very low-risk (which is a good thing).

3. Your track record of making payments

Lenders want to see that you pay your bills on time. Every missed payment shows up on your credit file where lenders can see it. Even being late can count as a missed payment.

To improve your mortgage chances, build a solid history of making payments on time.

4. Recent applications for credit

Each time you apply for credit, the lender searches your credit file. This can be either a ‘soft search’ (only you can see it) or a ‘hard search’ (anyone checking your file can see it).

Too many hard searches in a short time tells lenders you might be desperately seeking credit. Lenders can view this as you being risky to lend to as it could suggest you may struggle to maintain payments.

Hard searches stay on your file for a year, so avoid applying for credit in the months before applying for a mortgage. If you want to check if you qualify for a credit card, use an eligibility checker first - these only do soft searches that won't hurt your score.

5. Proof that you earn enough

If you have a job, lenders usually want to see at least three months of payslips. Self-employed people typically need to show two years of accounts.

Recently changed jobs? It's best to wait at least three months before applying for a mortgage. Lenders like to see stable income. If you’re in the probation period of a new role, it may be better to wait until this is complete as well.

What checks do mortgage lenders do?

Mortgage lenders run several important checks to decide if they'll approve your application. These checks include:

• Looking at your credit report to see how you've handled money in the past.
• Checking your employment history and current income to make sure you earn enough for the payments.
• Reviewing your bank statements to see your spending habits and check whether you have enough money saved for a deposit.
• Verifying your identity and making sure all the information you've given them is correct.
• Completing affordability checks where they’ll ask about your monthly expenses like food, travel, and entertainment costs.

What do mortgage lenders look for in bank statements?

When lenders look at your bank statements, they're checking several key things.

• They want to see regular income coming in and that you manage your money well.
• They look for any missed payments or returned Direct Debits, which could be warning signs.
• Lenders also check for gambling transactions, as these can cause them to worry about your financial habits.
• They want to see that you're saving money regularly and not living payslip to payslip.
• Large unexplained deposits can raise questions too - lenders need to know where big sums of money come from.
• They'll also look for evidence that you can afford your current bills and still have money left over for mortgage payments.

What debt is considered when applying for a mortgage?

Lenders look at all types of debt when you apply for a mortgage. This includes:

• Credit card balances, personal loans, car finance, student loans, and store cards.
• Ongoing payments like child support, maintenance payments, and hire purchase agreements.
• Buy-now, pay-later schemes like Klarna or Clearpay count as debt too.
• Business loans and overdrafts are also included.
• Even if you're just an additional cardholder on someone else's credit card, lenders might count this debt.

They don't just look at how much you owe - they also care about your monthly payments and whether you make them in full and on time.

How do I know if I can get a mortgage?

You can get a good idea of your mortgage chances by checking a few key things first.

• Start by looking at your credit score - you can get this free from companies like Equifax, Experian or TransUnion.
• Calculate your debt-to-income ratio using the method we explained earlier.
• Check that you have a stable income and at least three months of payslips if you're employed.
• Make sure you have enough saved for a deposit - usually at least 5% of the property price.
• Look at your bank statements like a lender would - are there any red flags?
• Many lenders offer online calculators that give you an idea of how much you might be able to borrow. For a more accurate picture, speak to a mortgage broker or advisor who can check multiple lenders for you without affecting your credit score.

Remember: Check your credit report before applying for any credit. This helps you understand what lenders will see and gives you a chance to fix any problems.