Before the crisis, it used to be relatively easy to get a mortgage – many providers simply took their income into account. However, when many people got mortgages that they could not afford, new affordability assessments were performed. This is one of the first steps in applying for a mortgage, and takes into account your income, your savings, your regular expenses (such as accounts), your mScore and any credit card debt, finances, overdrafts or loans.
The most important thing that lenders look for when they perform an affordability assessment is that they can comfortably make their mortgage payments. This means that they will assess how well the situation could cope if they lost their job, married or formed a family. The key to this is to show that you can manage your debt by making your payments in full and on time.
How much debt will lower your chances of getting a mortgage?
When considering your mortgage application, many providers will calculate your credit utilization rate to determine if you are a risk. This is based on the amount of debt you have compared to the credit available to you. For example, if you have a credit card limit of € 2000 and have a debt of € 1750, you have a TUC of 87.5% that could mean that you are too dependent on your credit. Since each lender will have a different set of priorities, there is not a single figure that can tell you if your mortgage application will be approved. However, it is generally considered better to keep it below 30% and minimize the amount of credit available to you.
If you find it difficult to make your payments, are in a debt payment plan or declare bankruptcy, you may have difficulties (or may not) get a mortgage. Instead, why not take a few years for your finances to be in a more stable situation?
Improve your chances of approval of a mortgage
When applying for your mortgage, you should ensure that your mScore is good and that you can demonstrate good money management. Therefore, if you borrow money, be sure to return it in full before the payment date.
It is also better to limit the credit requests you make, especially before applying for a mortgage, and to pry any card that you no longer use. Above all, if you can save enough to have a large deposit, you will gain the trust of the suppliers.