So if you’re about to apply for one of the competitive deals available now, here’s how to prepare to pass your potential lender’s affordability tests
There’s no way of avoiding this credit scrutiny. There are now strict affordability rules that all lenders have to follow. These are to be sure borrowers can afford to pay their mortgage, now and in the future.
The new rules came about as a result of the Mortgage Market Review (MMR) of 2014 in the wake of the 2008 financial crisis.
Prior to the MMR lenders judged your eligibility for a remortgage by what you could afford to pay back by looking at your income.
The general rule was that you could expect to borrow an amount equal to between three and five times your annual income.
Not any more. These days, lenders do a lot more than just consider your income. They look at your financial health and outgoings too.
Lenders now apply what’s known as a stress test. This estimates your ability to cope with a 3% increase in the mortgage rate above the standard variable rate.
Here are our 7 Top Tips to be remortgage-worthy. Follow these before you apply for your remortgage and you’ll boost your acceptance chances.
1. Check Your Official Credit Score
You have a legal right to check your credit report. Since the new GDPR law came into effect in May 2018, it’s now free. You should always check your credit file for mistakes. Your credit report will list your past credit cards, loans, overdrafts, mortgages and even mobile phone and most utility payments over the past six years. There are three main credit reference agencies you should check as you won’t know which your lender will be using.
2. Get all Your Paperwork Read
You’ll need to show your records for the following:
- Last three months bank statements
- Credit card debt
- Outstanding loans
- Income from employment such as last three months of pay slips
- Proof of any bonuses or commission
- Evidence of any savings you have
- Proof of ID – usually your passport
- Income from other sources such as rental properties
- Child and family maintenance
- School or university fees
- Regular travel expenses
- Regular bills, including council tax, utilities such as gas & electricity, mobile phone contracts, subscriptions and insurance
3. Check How Much of Your Credit You’re Using
Pay off your credit cards regularly and in the run-up to your application, don’t use your cards to the max. If you’re hammering your cards right up to their credit limit, you’ll give the impression you’re having trouble living within your means.
4. Pay off Large Debts before You Apply
If you’ve hefty debts, such as a car or home improvements loan, you’d be wise to use your savings to clear them. The lower your debt-to-income ratio, the more lenders will view you as able to afford your monthly repayments.
5. Make sure You’ve no Missed Payments
Missed payments are a red flag to lenders. Set up direct debits to get all your outgoings covered. If you do miss a payment, sort it out fast. Your promptness to rectify a situation will be better seen by lenders.
6. Take a Hard Look at Your Outgoings
Rein in your spending where you can. Cancel any services or subscriptions you don’t use. This might be the gym you never go to, the video streaming service you hardly use or newspaper or magazine subscriptions. These all add up.
7. Make sure You’re on the Electoral Register
This is non-negotiable. You’ll find it hard to be given a mortgage offer if you’re not as lenders use it as the first step in their identity checks.
Good luck. For more tips, check out our remortgage preparation guide here.