What do lenders look for in a mortgage application?

While your income and credit score are important factors, they aren’t the only things that lenders consider when deciding whether to approve your mortgage application. They also tend to look at your outgoings, your credit history and your address too. Each company will weigh these factors slightly differently and use their own lending criteria.

1. Credit score

Your credit score helps lenders to get an initial understanding of your financial history, but they’re not as concerned with the number itself as you might think.

This is because your score gives them an indication of your relationship with credit, but it’s not an actual record of your payment history. As such, they’re more interested in your credit report, because that contains many more details, including your credit history.

So, while your credit score is something lenders will look at it, it certainly won’t be the deciding factor. That’s not to say that you shouldn’t try to get your score to the best possible position though.

What is the minimum credit score needed to get a mortgage?

There isn’t a specific minimum credit score required to get a mortgage in the UK. This is because it differs from lender to lender, depending on their appetite for risk.

It’s safe to assume that the higher your credit score, the more likely you are to be approved for a mortgage.

However, as we’ve said, lenders look at a whole host of other factors, too. So, don’t be put off if your credit score is lower than you’d like it to be, as it doesn't automatically mean your application will be rejected.

2. Income

Your level of income affects the amount you can afford to borrow, as does the stability of that income. Lenders want to reduce their risk of not getting their money back.

So, they’re ideally looking for proof of a sufficient and steady income that you’ve been earning for a good amount of time. For this reason, it can be harder to get accepted for a mortgage if you’re self-employed or a contract worker, rather than in full-time, permanent employment.

What is a ‘good’ income in the UK?

What constitutes a ‘good’ income is very much open to interpretation. The average annual pay in the UK is around £30,000 according to the Office for National Statistics in 2020, but this varies enormously across different demographics.

How much can I borrow based on my income?

Lenders tend to multiply your income by approximately 4.5 times to reach an estimate of how much you can borrow. However, this will differ depending on individual circumstances (such as your outgoings, how long you’ve been earning your salary, for example).

Try using an online mortgage calculator to get an estimate of how much you may be able to borrow.

3. Outgoings

Lenders will also look at your outgoings, to assess your ability to pay the monthly mortgage repayments if they were to lend to you. This will include things like:

debt repayments
household bills
childcare payments

They’ll also look at your debt-to-income ratio. This compares how much you earn with how much debt you have. The higher your debt-to-income ratio, the less likely you are to get approved for a mortgage, because having lots of debt could potentially impact your ability to pay your mortgage.

4. Credit history

Lenders will use your credit report to assess your credit history. This will include any forms of credit in your name (or joint names), details of your accounts, your payment history, for example.

Lenders use your payment history to predict your future behaviour. So, if you have lots of missed payments or have any CCJs, bankruptcy rulings or IVA records, you’ll be less likely to be approved for a mortgage. This is because they’re may see you as higher risk.

5. Address history

Lenders will also look at your address history to confirm your identity. So, it’s essential that the address(es) listed on your mortgage application are accurate and match those listed on your credit report.

Why do I have a bad credit score?

There are lots of reasons why you might not have the credit score you want. It’s important to identify what’s lowering your score so you can fix it. Here are some of the main factors that can have an impact:

1. Mistakes on your report

Even the seemingly smallest error on your credit report can affect your credit score. From an incorrect house number to a dormant account, any inaccuracies can make a difference. So, it’s essential to check your credit report and fix any errors as soon as you spot them. You can do this by contacting the relevant credit reference agency.

2. Late and/or missed repayments

If you’ve missed or made a late repayment, this will have lowered your credit score. Unfortunately, this will have an immediate impact, whereas it’ll take time to build it up again. So, it’s really important to make sure you can always make your repayments on time.

3. Numerous credit checks

When you apply for credit, your credit score is temporarily lowered by the credit check carried out by the lender. Afterwards, your score will return to its original position. However, if you continually apply for credit, it will cause more damage and take longer to recover.

4. Thin credit file

While too much credit can lower your score, not having any can do the same. If you’ve never borrowed money or paid it back, your credit report won’t demonstrate your ability to make repayments, which will lower your credit score.

5. Unauthorised borrowing

If you dip into unauthorised overdrafts, or you go overdrawn on your credit card, this will negatively impact your credit score. It may also show as red flags to lenders, as it gives them the impression that you’re heavily reliant on credit.

6. Substantial debt

Getting into large amounts of debt (to the point of bankruptcy, repossession, county court judgements, for example) can seriously harm your credit score, and will take time to repair. Some lenders may refuse you credit if you’ve had any of the above, even if you’ve managed to rebuild your score.

How can you fix your credit score?

Here are some quick and easy ways to improve your credit score.

1. Pay on time, every time

Ensuring you make any credit repayments on time and in full is key to a healthy credit score – and this goes for direct debits, too. Make sure you always have enough money to cover any payments coming out of your account, and when making payments, be sure to do so in good time.

2. Space out credit applications

As we mentioned above, applying for credit temporarily lowers your credit score, so make sure you’re choosing your credit applications carefully. Don’t apply for credit too often.

3. Join the electoral roll

Lenders check the electoral roll to carry out identity checks, so signing up is a good way to increase your credit score. Just register to vote online via the government’s website. It only takes five minutes.

4. Consider getting a credit builder card

Credit building credit cards are designed specifically for people looking to build their credit score. They have higher interest rates and are generally for smaller amounts than mainstream credit cards. However, they’re easier to be approved for if you have bad credit. They help you build your score by spending small amounts and repaying it each month on time.

What other steps can you take to improve your eligibility?

Aside from working on your credit score, there are other ways to improve your eligibility for a mortgage, such as:

increasing the size of your deposit
reducing non-essential outgoings
sticking to your budget
reducing existing debts
ensuring you always make your repayments on time
dissociating yourself from old financial partners with bad credit histories

In a nutshell