Eight questions your mortgage lender will ask – and why.
Published 14th August 2017
The mortgage application process can often feel a little invasive. Sharing the innermost details of your finances and future life plans with an almost perfect stranger isn’t anyone’s idea of fun, but there is good reason.
We’ve listed the eight questions you’ll likely hear from lenders and, more importantly, why they need to know the answers.
How much do you earn?
Annual income is a crucial factor for all mortgage lenders as it gives them an estimate of what they can realistically lend. If you work part-time, on shifts or even if you’re self-employed you pose a bigger risk than borrowers on a regular, full-time salary. It’s important to be upfront with the breakdown of what you earn and how, so lenders can give you an accurate assessment.
Do you have any debts?
Debts are acceptable, in fact, in the eyes of a lender it's better to owe money and prove you can borrow and repay, than having never borrowed. The moment it becomes problematic is when borrowers hit a high % usage of available credit (i.e. maximum overdraft or credit card limit), or when the monthly payments are factored in with the potential payments on a new mortgage, the mortgage may be deemed unaffordable. Essentially, lenders want to see that you can be trusted to make regular, on-going payments.
What do you spend your money on?
Historically you could simply tell lenders you spend £100 a month on groceries without having to prove it. More recently, however, lenders have started to check outgoings against bank statements to see for themselves if any significant expenses exist. Spending money on Starbucks and Greggs isn't going to have an impact - lenders won't decline anyone for having one too many steak bakes. But if you’re living a champagne lifestyle and a lender does question your expenditure it’s because they want to understand whether it’s likely to continue and, if so, is a new mortgage going to be affordable under those circumstances.
Where is your source deposit from?
Having a higher deposit is not only a good way to secure a lower interest rate, but they show lenders that you are responsible with money and, therefore, present less risk to them. If the deposit is gifted or inherited some lenders will look at it differently to if you'd worked hard to save it yourself. Some specialist lenders and underwriters favour those who have saved their own deposit, and a small handful will only accept a saved deposit. See our list of accepted source deposits.
Do you have children? Are you likely to want any (more) in the future?
As much as you might love your kids (or the idea of having them!) they come with a hefty price tag. Extra mouths to feed means more outgoings for you and although it may seem your lender is being nosy, they need to be aware to make educated calculations on both your level of risk and ability to meet monthly repayments based on other financially draining, life-long commitments.
Have you ever taken out a payday loan?
The common misconception about payday loans is that they are not necessarily harmful - it is how the borrower has dealt with them that the lender is interested. Wrong. The truth is that even lenders who accept a whole manner of historical adverse credit will flat decline any customer who taken out a pay-day loan. A borrower willing to take emergency funds at extortionate rates essentially shows lenders that they simply can’t manage their finances – just the type of borrower mortgage lenders spend huge sums trying to avoid.
Where is the property?
It may seem like a totally irrelevant question but some lenders restrict borrowing in certain areas.
Have you ever had any adverse credit?
Credit history is one of the main factors lenders will use to decide if are willing to accept your mortgage application. Some lenders decline customers if they’ve missed payments on credit at any point in the last 6 years, whereas others are extremely flexible and will consider even those with extreme credit history issues such as an IVA or bankruptcy.