5 Mistakes People Make Before Applying for a Mortgage

Applying for a mortgage can feel like a big financial milestone, particularly if you’re buying your first home. There are plenty of things to think about, from finding the right property to working out what you can comfortably afford.

What you do in the months leading up to a mortgage application can also make a difference. Some everyday financial decisions may affect how a lender views your application, even when they don’t seem particularly significant at the time.

That doesn’t mean you need to put your finances on hold or avoid making normal life decisions. However, understanding what lenders look at can help you prepare and avoid any unnecessary surprises.

1. Changing jobs without considering the timing

Changing jobs isn’t necessarily a problem when you’re applying for a mortgage. In fact, a new role with a higher salary could potentially improve your affordability.

However, lenders may look at your employment history, income and how long you’ve been in your current role. If you’re moving from a salaried position to self-employment, for example, the way your income is assessed could be different.

If you’re considering a significant change in employment and are also planning to apply for a mortgage, you may want to understand how it could affect your application before making the move.

2. Taking out new credit

Buying a new car, taking out finance for a large purchase or applying for additional credit can all affect your financial position.

Lenders will usually take existing financial commitments into account when assessing affordability. A new monthly repayment could therefore reduce the amount of disposable income available for mortgage payments.

This doesn’t mean that taking out car finance or using credit automatically prevents you from getting a mortgage. It simply means it’s worth considering the wider impact of taking on additional commitments shortly before applying.

3. Missing payments

Your credit history gives lenders an indication of how you’ve managed borrowing in the past. Missed or late payments can therefore be relevant when a lender assesses your application.

If you’re preparing to apply for a mortgage, keeping up with existing credit commitments and household bills can help maintain a consistent financial record.

It’s also worth checking your credit report with credit agencies such as Experian, Equifax or TransUnion, before applying. This can give you an opportunity to identify any errors or outdated information that may need correcting.

4. Making large, unexplained payments or transfers

Mortgage lenders may ask questions about significant transactions appearing in your bank accounts, particularly where they aren’t immediately clear.

For example, a large transfer could represent a gift towards your deposit, money being moved between your own accounts, proceeds from a property sale or something else entirely.

There’s nothing inherently wrong with having large transactions in your account. However, having the relevant paperwork or explanation available can make it easier to demonstrate where the money has come from if your lender asks.

This is particularly important when it comes to your deposit, as lenders may need to establish the source of the funds.

5. Applying to lots of lenders at once

When you’re looking for a mortgage, it can be tempting to approach several lenders independently to see who will offer the most.

However, making multiple applications in a short period can result in multiple credit searches, depending on the lender and type of application. This may leave unnecessary footprints on your credit file.

It can also make the process more confusing, particularly if different lenders use different affordability criteria and produce different borrowing figures.

An Agreement in Principle (AIP), sometimes called a Decision in Principle (DIP), doesn’t necessarily involve a full mortgage application or a hard credit search. However, the process varies between lenders, so it’s worth checking what type of credit search will be carried out before proceeding.

Preparing for your mortgage application

The good news is that preparing for a mortgage doesn’t need to be complicated.

Before applying, you may want to:

• Review your regular income and expenditure.
• Check your credit report for errors.
• Make sure existing commitments are up to date.
• Think carefully about taking on significant new credit.
• Keep records relating to your deposit and any large transactions.
• Understand how changes to your employment could affect affordability.

Perhaps most importantly, don’t assume that one lender’s decision represents the entire mortgage market. As we’ve discussed in ‘Why Does Mortgage Affordability Feel Tougher Now?’, we explain how lenders use different criteria and affordability models, so borrowing capacity can vary considerably between providers.

Keeping things on track

There is no checklist that guarantees a successful mortgage application, and everyone’s circumstances are different.

The purpose of preparing isn’t to make your finances look perfect, but instead it’s about making sure you understand your financial position and are aware of the information a lender may need.

Our mortgage brokers are also experts at guiding borrowers through the various mortgage products, and can help make suggestions ahead of progressing to application.

If you’re planning to buy or remortgage, taking some time to understand the process before making an application may help you approach it with greater confidence and fewer surprises.