Four mortgage application checks to make ‘ASAP’ to boost chances of approval

Mortgage approval rates rose for the first time in March following five months of decline, however, net borrowing of mortgage debt presents a slightly different picture.

Figures indicated a sharp decline from £2billion to £0.7billion in February, which according to Alice Haine, personal finance analyst at Bestinvest, is a reflection of buyers downsizing their target homes to meet affordability criteria.

Securing a mortgage from a lender in general is a lengthy process that involves a thorough analysis of a person’s personal finances, from credit reports to bank transactions, so it’s important people check that these are up to scratch before applying to boost their chances of getting accepted.

To help people cover all bases, Express.co.uk spoke to Deby Herring, TSB’s head of mortgages to find out the key application checks people should make before applying for a mortgage.

Credit score errors could impact how much can be borrowed

Even things that may seem small, like a misspelt name or old address, can impact how much a person can borrow and the mortgage rate they’ll get, according to Ms Herring.

READ MORE: Mortgage warning as homeowners face downsizing as repayments soar

She said: “Before you apply for a mortgage, it’s a good idea to review your credit score as soon as possible.

“Check your credit score regularly using free websites like Experian or Equifax to ensure there are no mistakes on your report such as a misspelt name, old contact information or an unpaid bill that’s not yours, as this could affect your score, and as a result, what you’re able to borrow.”

If there are mistakes, people can contact the credit referencing agency as soon as possible to correct the error.

Mr Herring added: “If you have no credit history or have poor credit, you will need to take some time to work on improving your score.”

Mortgage lenders use your credit report to build a picture of a person’s past borrowing habits and get an understanding of their financial situation.

Tim Chong, co-founder of Yonder told Express.co.uk : “This insight helps them decide how much you can afford to borrow, and from this, they can judge whether you can be trusted to pay back your loan. They’re looking to check whether you’re a responsible spender and borrower, and want to ensure that you have a low debt-to-income ratio as this demonstrates you’re suitable to lend to.

“Mortgage lenders will be looking for evidence of your ‘creditworthiness’, which includes making payments on bills, credit cards and loans on time every month.”

Debt can make a difference to the rate offered

Ms Herring said: “Do you need to buy items via Buy Now Pay Later? Pay off any credit card balances in full if you can before applying [for a mortgage].”

When applying for a mortgage, people have to go through a “hard credit check” which will be marked on their credit file.

Ms Herring said: “Mortgage lenders will be assessing what is affordable to you and if you’ll be able to meet future repayments. Any indication of debt – be it a credit card balance, student loan or regular use of Buy Now Pay Later – could impact what you are able to borrow and the rate you are offered.”

While a person might not be able to clear all their debt before applying for a mortgage, Ms Herring said the following small changes could help secure a better rate:

• Pay off credit cards by making regular minimum monthly payments on time
• Avoid late payments or missed payments – this will have a negative impact on credit scores
• Avoid opening new credit card accounts or taking out new loans
• Avoid using an overdraft, even if an overdraft is arranged with the bank

Mr Chong suggested closing joint accounts, as these create a financial link between people and can have an adverse effect on someone’s credit score. He also suggested people could put rent payments on their credit reports.

He said: “Many people make regular rent payments on time and these are not reflected in their credit report.

“If you’re a renter you can opt into the free Rental Exchange Initiative which records rental payments on your credit file. Contact your estate agent or landlord and request that your rent payments are noted in The Rental Exchange scheme and this information will appear on your credit score.”

Lenders will look at spending habits to ensure what they lend is affordable

Ms Herring suggested cutting out any unnecessary spending in the run-up to applying for a mortgage to maximise the chances of getting approved.

She said: “Lenders will review up to six months’ worth of bank statements (both current accounts and credit card cards). In the checking process, it is important that lenders have a clear sight of how much money is coming in and leaving your account, how frequently and where it is going, to decide what mortgage repayments will be affordable.

“To make things easier for the lender (and prevent any questions about your spending), ensure all your payments are traceable – if you’re transferring money to someone, include a payment reference.”

For those who are self-employed or have a second job that typically involves cash-in-hand, Ms Herring suggested people ask for payments to be made into bank accounts instead of as cash in the run-up to applying.

Finally, Ms Herring added: “Try to cut out or reduce any luxury or unnecessary spending for a period. This could boost how much you are able to borrow.”

Mortgages in principle are only valid for a specific window of time

It’s important people know the time period for their mortgage in principle to avoid delays and potential rate rises when they come to make a formal application.

Ms Herring said: “Before you make an offer or get a mortgage, you could consider getting a mortgage in principle, also known as a decision in principle. A mortgage in principle involves a lender agreeing ‘in principle’ to give you a mortgage – subject to final checks and approval of the property you intend to buy.

“This is a quick way of establishing how much you are likely to be able to borrow, although it doesn’t guarantee that you’ll be offered a mortgage.”

According to Ms Herring, it can also show estate agents and sellers that a person is serious about being able to buy. It doesn’t involve a full credit check so won’t appear on a credit record.

Ms Herring said: “A MIP or DIP is usually only valid for a fixed period of 60 to 90 days. If you need more time, you’ll need to apply for a new ‘in principle’ mortgage, which could slow down your application or mean you incur different, and sometimes higher, interest rates.”