If you thinking about taking on mortgage loan you are probably aware that you will have to pass so-called mortgage affordability test. These tests have been introduced in 2014 to ensure fewer people default on their mortgages.
As you can see lenders take things seriously and you need to be careful with your answers if you want to pass your affordability test. Failing with mortgage application decreases your chances of successful application in future.
Below you will find few tips how you can pass your affordability test.
Pay off your debt
There is a popular believe that in order to increase your chances of getting the mortgage you need to have the credit card(s). This is partially true. Having credit cards helps to build your credit history. However having significant debt on your credit cards ruins your credit score and negatively affects your chances of a successful mortgage application.
Same is with any other debt you may have. Poor credit score is a road to rejected mortgage application.
You need to make sure before you apply for your mortgage you pay off or reduce your debt. To be extra careful steer clear of overdrawn as well. Your bank statements will be carefully checked. Most lenders require you to provide statements from the last three months but some lenders go as far as six months back.
Keep your expenditures under control
Lenders can ask you detailed questions about your monthly spend to check if you are able to pay back the loan. You may be asked about the amount of money you spend on pets, clothes or dental care. Even more likely you will be asked about child care expenditure, plans of a career change or monthly bills.
As I mentioned before – your will need to produce bank statements which will be checked. Unless you pay for your extravagant expenses by cash you won’t be able to hide them.
The best way to increase chances of passing affordability test is to reduce your expenditure for 6 months before mortgage application. Naturally, there are expenses you simply cannot avoid such as child care. You can, however, resign from that expensive holidays, frequent restaurant visits and crazy night in nightclubs.
Stop saving money (sort of)
While naturally saving money is responsible and wise there are savings which increase your chances of having the mortgage approved but some saving may be seen as a commitment.
A good example of saving which in fact is your monthly commitment is the money you pay towards your pension.
What lenders like to see is money saved for a mortgage deposit. Stopping or reducing pension savings will affect your future pension. I guess it is all about finding a balance between pension and mortgage. After all owning a house can be considered a sound investment which may benefit you in your older age.
Some lenders may have their affordability rules more relaxed than others. If you are not sure you will successfully pass mortgage affordability test compare offers from different lenders.
Each lender has the website with affordability calculator on it – you can check it there. The best way is simply to visit a mortgage broker who looks into the whole market. It is a responsibility of your mortgage to suggest mortgage option and value which is really affordable. A mortgage broker is legally bonded to provide the best possible advice (unless it is clearly stated only information is being provided).
Stay at the same job
While it may be tempting to change your job especially if there is an offer of bigger salary in sight it is not always wise to change your employer when applying for a mortgage.
While there is little risk with changing the job in the same industry, especially if it increases your monthly income, starting a new career is something you may want to postpone in time.
Your new career path is a risk to a lender as you are more likely to lose the job failing the probation period.
You probably want to postpone your plans of starting a new business. Unless your new business venture is something that can’t wait (some great opportunity) pause your plans for a moment until you have a mortgage approved. Just as changing career starting a new business is risky – especially from lender’s perspective. Remember – lender wants to see steady monthly income.
Affordability test may seem to be strict but it makes sense from lender’s point of view. It makes lots of sense from your perspective as well. Failing affordability test may indicate that in fact, you can’t afford to make monthly payments.
Pushing your way through mortgage application is not always the best solution. However, for many families mortgage is the best protection against ever raising prices of rent.