Introduction

A successful mortgage application relies on a combination of important factors, each of which can be directly influenced by your actions. A successful mortgage application does not rely on luck but on skill and knowledge and the ability to prepare yourself fully to give you the best possible chance. We offer a number of helpful hints and tips to enable you to understand some of the important factors that a lender may consider in deciding whether to offer you a mortgage when you apply.

1. Offer A Larger Deposit

This seems quite an obvious tip but during the late nineties and into the new millennium borrowers have become used to cheap 100% or even 120% mortgages. Traditionally this hasn’t always been the case. If you can offer a deposit of between 10 & 20% then your chances of obtaining a mortgage will increase. This is simply because banks and other mortgage lenders will view you as a lower risk because you are committing a substantial deposit and also because it lowers their potential losses and thus their exposure to risky lending if something goes wrong at a later point.

A larger deposit also suggests that the borrower is less likely to be reckless with their commitment to a new mortgage because they will suffer a greater loss if they default on mortgage repayments. In essence the risk of lending you is more equally shared unlike a 100% or 120% mortgage where the mortgage lender takes most of the risk upon themselves.

2. Good Credit Rating

Having a god credit rating is important. You do not need an outstanding credit history but if you are aware of serious debt problems in the recent past then you should consider carefully whether it is right to make a mortgage application at this time because your chances of success are likely to be greatly reduced.

Bankruptcy, Individual Voluntary Arrangements, missed payments for mortgages, loans, credit cards, store cards, car finance or any other loan or credit agreement between you and another organisation. In addition lots of recent credit applications appearing on your credit report can effect your credit rating as it could suggest to a mortgage lender that you are desperate to get credit, which may suggest an underlying financial problem.

Positive effects include; good payment history, never having been in arrears and a credit trail from credit cards or utility bills and other loans.

Consider checking your credit rating with either Experian, Equifax or Call Credit who are three of the largest credit reference and information solutions companies in the United Kingdom. It is likely to cost you are £3 to do this or if you sign up for a 12 month contract with Experian you get your first month free!

3. Income to Loan Ratio

If the property you intend to purchase is three times or less your income then this is likely to lead a successful mortgage application and lenders may view your application more favourably. The average is around five times the income, so anything less than this is considered positive. It basically suggests that you are less likely to overstretch yourself financially and as such you may be less at risk of defaulting on mortgage payments. The sub prime market in the United States and the United Kingdom that triggered the credit crunch and then the global recession was essentially borrowers being sold mortgages that they could not realistically afford.

4. Investment Potential

It is a popular word but all it means is that you need to consider the merits of a property and the long term potential it has before you apply for a mortgage. This feature is likely to have a significant influence upon making a successful mortgage application because applying for a mortgage on a property in a serious flood risk zone is likely to be less successful because of the long term risks of damage to the structure and fabric of the property. It could also potentially lead to the property being devalued and this in turn could lead to negative equity, a situation where your property is worth less than the actual mortgage that you have taken out on it. Mortgages lenders are acutely sensitive to concerns such as these, but this can be avoided by doing some simple research prior to making your mortgage application.

5. Lower Your Expectations

Another may to increase your chances of making a successful mortgage application is to lower your personal expectations. Consider whether you could still afford mortgage repayments if they increased by at least 2-3%. Leave yourself a financial cushion and delay getting your dream property until you are in a stronger financial position. It is better to slowly climb the property ladder than to topple off it too quickly. Think about what you need rather than what you want!

6. Use A Mortgage broker

Not only can mortgage brokers help you save money by comparing the whole market for mortgage rates and products but they also have intimate knowledge of the inner workings of mortgage lenders. They may have a better understanding of lending criteria which can help you in making a successful mortgage application.

7. Good Loan to Value Ratio

Loan to value ratios are important when undertaking a remortgage. It is simply a value that is calculated by examining the current value of your property with how much loan you need to borrow and is normally expressed as a percentage I.e. 70% LTV. The problem comes when you have bought a property ten months ago for £100,000 but the value has fallen to say £90,000. This means that the bank would need to lend you more money to buy out your current mortgage loan then the house is worth. If you are remortgaging then making a successful mortgage application could depend on having a good loan to value ratio. The lower the ratio the better.

Read More Money Saving Tips

Check out some of our other free money saving articles and guides;

Debt Related: