55% of prospective buyers do not check their eligibility before applying for a mortgage amid the excitement of buying a new home, according to Experian.
While applying and being rejected can seem harmless, if a little disappointing, every mortgage application results in a ‘hard search’. This leaves a mark on your credit file. Other lenders will be able to see this and may assume you have unsuccessful applications behind you or successful applications and worry about the amount of credit you’re taking out. This increases your chances of being rejected again.
Checking your eligibility before you apply should be considered a critical step; whether you’re a first-time buyer, are looking to take the next step up the property ladder, or your existing mortgage is coming to an end.
What are hard and soft credit searches?
Both hard and soft credit searches occur when a company looks at the information that’s on your credit report. They do this to understand your financial behaviour, such as how likely you are to default on payments. A range of companies can look at your credit reports, including banks, credit providers, and utility suppliers.
There are two types of credit searches:
Soft credit check: A soft credit check gives companies a snapshot of your credit report. This type of credit check is used to decide how successful your application would be without delving into the finer details. You will be able to see who has performed a soft credit check on your report, but other companies will not.
Hard credit check: A hard credit check is the term used when a complete search is done. These are undertaken when you’re applying for credit. These searches are recorded on your report, usually for a period of 12 months. Too many searches suggest that you’re increasing the amount of credit you have access to or keep being refused; both can indicate financial instability. This affects your credit score until the hard searches are removed.
Why does your credit report and score matter?
When a company carries out a credit check, they’re essentially understanding whether you have a history of paying credit on time. Whether you’re applying to a utility company or for a credit card, the firm wants to see how likely you are to default on payments. As a result, credit reports and your score will form the foundation of any decision.
A poor credit report that’s filled with hard checks can mean your application is instantly dismissed. Alternatively, if it’s accepted, you may find you’re offered less money or higher rates of interest, reflecting how risky you appear to be.
Checking your own credit report is quick and easy. However, the research revealed more than half of Brits have never checked their eligibility when applying for a credit card, loan, or mortgage. Almost a quarter (23%) who have never checked their eligibility didn’t know what the benefits were.
20% also believed checking their score would negatively impact their credit rating; this is untrue, you can check your own credit report as often as you like without any effect.
Your mortgage is likely to be the largest credit application you make. Taking the time to understand how likely you are to be accepted before submitting your application could improve the outcome.
Improving your chances
The mortgage application process can seem complex and lengthy, these five steps can boost your chances of securing the mortgage you want:
1. Improve and maintain your credit score
We’ve already highlighted just how important your credit report and score are. So, checking it and then taking steps to either improve or maintain it should be at the top of your list when applying for a mortgage.
You’ll be able to see if you have any negative factors on your credit report, such as missing bill payments or using too much of your available credit. You can then take the necessary steps to remedy them. Over the months before you apply for a mortgage, keep an eye on your score so you can get the timing right.
2. Have enough deposit
Another key factor in getting approved for a mortgage is the level of deposit you have. In most circumstances, you’ll need at least 5-10% of the property’s value. But having more to put down is a bonus. This is an issue that’s more likely to affect first-time buyers. However, if you want to jump up the property ladder, it’s something you will need to consider too, as well as how the value of your current property has changed.
3. Make sure repayments are affordable
When you’re searching the market for a property, it can be easy to overestimate what your budget is or opt for something that’s right at the top of what you’re offered. However, you need to make sure that your repayments will be affordable.
Using a mortgage calculator can help you understand what your monthly outgoings will be. Interest rates are increasing. So, if you’re opting for a variable rate mortgage, you’ll need to consider the impact this will have too.
4. Have documentation ready and organised
As well as your credit report, lenders will want to look at a range of other documentation, assessing your ability to meet mortgage repayments. Making sure you have all your documents to hand means the application process will be quicker. It can also help to give lenders an accurate overview of your finances.
Among the paperwork you should organise ahead of time are at least three months of payslips, bank statements for your current account covering three to six months, your P60, and utility bills.
5. Read through all eligibility criteria
Before you make an application for a mortgage, check what the eligibility criteria is. If you don’t meet it, you’ll be rejected but a hard credit search is likely to have been conducted. In some cases, it may also be worth checking your eligibility through a tool, that will perform a soft credit search to give you an idea of how likely you are to be accepted. As a result, you can choose to apply for a mortgage that you are confident will be approved.
If you’re preparing to apply for a mortgage and want to increase your chance of securing the mortgage offer you want, talk to us for more information and to make the path to mortgage acceptance easier.