How do you get a mortgage approval?
Recent data released by the Bank of England has revealed that mortgage approval has dropped and continues to drop as well as the number of new mortgage borrowing. The main reason for this? The economic crisis. A significant downturn in the UK economy, combined with the fallout of the covid-19 pandemic, the war in Ukraine, and the mismanagement of the government in 2022 have all contributed to this. With lenders increasing interest rates and becoming more strict and stringent on who they lend to and how much.
Mortgage Approval Falls
According to the Bank of England, this recent period of the last two months is the lowest level of mortgage approvals and lending on record, if the Covid-19 pandemic period isn’t counted. The bank claims that gross lending decreased from £19.7 billion in March 2023 to £17.0 billion in April 2023, and gross repayments decreased to £18.5 billion in April 2023.
From the data released by the Bank of England, we can see that residential mortgage approvals fell from 51,500 in March 2023 to 48,700 in April 2023 meaning that at least 2,800 loans that would have previously been granted were rejected in that one month period alone. Loan approvals for remortgaging and switching lenders did increase however, from 32,200 to 32,500 from March to April 2023.
A silver lining to the clouds of the last few months, and a positive for people looking to switch to a better lender and rate in the near future. Remortgage applications can be started 6-months in advance of your fixed product coming to an end, so give our team of advisor a call if this is something that you are interested in exploring.
How Do I Get a Mortgage Approved?
The most important thing to know is that lenders are still wanting to lend. Despite these figures released by the bank, mortgages are still available and mortgage lenders still want to do business. They are just being cautious. In our opinion perhaps too cautious, but it is nothing that a qualified mortgage advisor can’t help you with.
The best piece of advice that we can give to any of our clients is to be prepared and organised. There is no such thing as being too prepared when it comes to mortgage applications. To increase your chances of being accepted for a mortgage, you need to make sure that you have everything in place and ready to cover any questions or queries that lenders might have for you.
Bank Statements
Lenders will generally need at least 3 months bank statements from you to see that your financial conduct is ok (no large monthly debts, frequent gambling, payday loans etc.) If you bank statements show anything like this, you risk having your application rejected. They will also look at your bank statements to check that your regular income from employment or self employment is what you claim it is and that it is consistent. This is to ensure that you aren’t inflating your income and that you are receiving a regular income to pay back the mortgage.
With bank statements, a lender may request more than 3 if they need to do further checks, so it is advisable to have easy access to more than three statements, just in case this crops up at mortgage application stage.
Proof Of Income
This is perhaps one of the most important parts of a mortgage application, and can often be a stumbling block if you aren’t prepared. For employed people, lenders will generally need 3 months pay slips as proof of income. If you have been in your job for less than 3 months, this can still be acceptable but you may also need to provide your contract of employment as extra proof.
So it is good to have a copy of this too, just in case. When it comes to jobs that are heavily reliant on bonus income, commission income, or overtime/extra hours, a lender will normally want to see more payslips (sometimes up to 12 months) and a P60 to evidence the extra income. So make sure you have these to hand if this is you.
For self employed people, things CAN be a bit more tricky. If you are a sole trader or a director of a limited company, you generally need to have completed two full years at least. Some lenders will allow 1 full year of being self employed, but the options are limited. For sole traders, you will need to provide 2 full years tax overview documents and 2 full years tax calculation documents.
For directors of limited companies, you will need to provide 2 full years audited accounts for the business. The lender will then normally work on an average of the 2-years net profit figures for sole traders or a 2-year average of the salary & dividend figures received. For full guidance on what the lender might need from you as a self employed person, please give our team a call or drop us an email.
Proof of Identification
If you are a British citizen living in the UK, this is pretty simple. A lender will need either a UK driving licence or British passport from every applicant and a bank statement showing your name and current UK address. If you are not a British citizen or don’t live in the UK, the lender may ask for more documentation from you.
They will still need ID but as a non British citizen, they will also need some proof of residential rights if you live in the UK such as a visa or a residency card. If it is due to expire within the next year, this could be an issue so it is always best to make sure that there is plenty of time left. Most UK mortgage lenders (high street banks) won’t accept standard residential or buy to let mortgages for people not living in the country, but some will. It is always best to discuss requirements with a mortgage advisor, so you know exactly what you need to provide.
Deposit
If you are looking to get a mortgage approval on a house purchase through as quickly as possible, a good way of doing this is by making sure that your deposit source is clear and well presented, so that lenders do not delay the process by asking more questions. Most lenders will accept savings and a family gift as a deposit source. In both cases, they will need to see at least 3 months savings statements as proof of the deposit. A gifted deposit will also need a letter from the gifter, explaining that the money is a non refundable gift and not a loan. These are very important documents to make sure that you have to hand.
Be Realistic and Understand How Much Your Income Can Get You
An issue that crops up with a lot of people is being unrealistic with how much they can borrow. Yes, you may be paying more for your rent per month than your mortgage will cost you, so you feel like you could borrow much more as a mortgage. But unfortunately, most lenders will lend you between 4X and 5X annual income, with some lenders going up to 5.5X in specific cases.
That means that if you earn £50,000 a year, you could potentially borrow somewhere between £200,000 and £250,000. If you have any major credit commitments such as loans (including student loan), hire purchase, outstanding credit cards or buy now pay later agreements, this can reduce the amount that you can borrow. Dependent relatives such as children will also decrease your maximum lending figure. So always be conscious about the realistic amount that you can borrow. Your mortgage advisor can help you to determine this right at the first stage of the mortgage process, so always check with them first. A lot of mortgage approval is slowed or rejected because of affordability issues, so don’t fall victim to this.
Speak To a Mortgage Advisor Today To Stand The Best Chance Of Getting Your Mortgage Approved
The final thing to say is don’t go it alone. People often think that they will stand the best chance of getting their mortgage approved by going direct to a bank, but that simply isn’t the case. Aside from the fact that you are severely limiting your mortgage options by going to one bank, trying to get a mortgage without the guidance of an advisor will significantly increase your chance of being rejected for a mortgage. A qualified mortgage advisor will be able to help you get all of your documents together, provide them to the lender for you, and push your application through to approval stage. Something that you won’t get any help from the bank with.
