Credit Reports and Mortgage Applications

Home Blog Credit Reports And Mortgage Applications
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: April 9, 2024

Homeownership often begins with understanding two pivotal components: credit reports and mortgages. This introduction to the interconnected world of credit scores and home loans is designed to demystify the process, providing you with the knowledge you need to get close to owning a home.

Credit reports, those detailed records of your financial history, are the bedrock upon which mortgage lenders base their decisions. They tell a story — your story — of reliability, risk, and financial health. Mortgages, on the other hand, are the vehicles that can drive you to the doorstep of your new home, but their accessibility and terms are heavily influenced by your credit report.

In this article, we explore the relationship between credit reports and mortgage approvals. You’ll learn how your credit report affects your ability to secure a mortgage, the impact of your credit score on your mortgage rates, and strategies for optimizing your credit health in preparation for buying a home.

Whether you’re a first-time buyer or looking to remortgage, understanding the synergy between credit reports and mortgages is crucial.

Why does my broker need a credit report?

Every lender in the UK has their own unique criteria regarding who they will accept for a mortgage and who they won’t. The differences in mortgage criteria may sometimes be subtle, yet they can be the determining factor between being accepted for a mortgage and being declined.

All mortgage lenders rely on the information from the credit reference agencies to determine whether or not you fit within their criteria. A good mortgage broker will have a very good understanding of the lending criteria and will want to look through your credit reports in-depth to help them determine which lenders may or may not accept you.

It’s important to bear in mind that different lenders use different credit referencing agencies to base their decisions on. As a general rule, they don’t share their information with each other, which means that some things will appear to one lender that won’t appear to another. Having access to all three would give the broker the best chance of finding you a mortgage and getting you the best deals out there. Looking at your credit reports will allow the mortgage broker to see what the lenders themselves see.

You can download your credit reports to see how your credit record currently looks. If you see anything on the report you’re unsure of it’s worth talking to one of the advisors we work with who can advise you on the best course of action before applying for a mortgage.

Mortgage types and requirements

With many different mortgage types available it’s hard to know how your credit score will impact your eligibility. We’ve listed the most common types below and highlighted the relationship between your credit score and each one.

Fixed-Rate Mortgages

Fixed-rate mortgages offer the reassurance of constant monthly payments, appealing to those with a solid credit history to lock in favourable interest rates.

  • Interest Rate: Fixed for a set period (e.g., 2, 5, or 10 years), then shifts to the lender’s standard variable rate (SVR)
  • Credit Requirements: Typically requires a good credit score to secure the best rates
  • Suitable For: Borrowers looking for payment stability over the initial term

Tracker Mortgages

The rates on a tracker mortgage adjust based on the Bank of England’s base rate. They might initially offer lower rates beneficial for those with lower credit scores, albeit with the risk of future payment increases.

  • Interest Rate: Varied, directly follows the Bank of England’s base rate plus a set margin
  • Credit Requirements: More flexible than fixed-rate, but a reasonable credit score is still beneficial for better deals
  • Suitable For: Those comfortable with rate fluctuations and potentially lower initial rates

Shared Ownership

Shared ownership is a good option if you struggle to meet lenders’ eligibility criteria or one of you has bad credit.

  • Interest Rate: Depends on the mortgage product chosen for the portion of the home being purchased
  • Credit Requirements: Varied, aimed at making homeownership accessible with smaller deposits
  • Suitable For: Buyers unable to afford the mortgage on 100% of a home. They can buy a share of a home (between 25% and 75%) and pay rent on the remaining share

Interest-Only Mortgages

Interest-only mortgages are a good option if you want lower monthly repayments, but you will still have to pay the principal amount off once you’ve repaid the interest. They are harder to get, as you’ll need to remortgage onto a capital repayment vehicle once your loan terms end.

  • Interest Rate: Only the interest on the loan is paid monthly, with the principal due at the end of the term
  • Credit Requirements: Often stringent, with proof of a credible plan to repay the loan at term-end required
  • Suitable For: Those with significant financial resources and a clear repayment strategy (e.g., selling another property)

Buy-to-let Mortgages

Buy-to-let mortgages typically require a higher deposit and good credit score, as lenders assess your creditworthiness and potential rental income to determine your eligibility and the terms of your loan.

  • Interest Rate: Typically higher than residential mortgages
  • Credit Requirements: Higher deposits are required (usually 25% or more), good credit score for the best rates
  • Suitable For: Investors looking to rent out the property. Income from rent is often considered in the application process

Guarantor Mortgages

While obtaining a guarantor mortgage can be more lenient regarding your credit score, the creditworthiness of both you and your guarantor plays a crucial role, as it reassures lenders of the loan’s security and the reliability of repayments.

  • Interest Rate: Varies with lender and product
  • Credit Requirements: Allows a parent or guardian to act as a guarantor, using their savings or their own home as security
  • Suitable For: Buyers with lower incomes or smaller deposits, where a guarantor can help secure the mortgage

Protecting you from damage to your credit file

When a mortgage application is made the lender usually performs a credit search and this usually results in a hard footprint being left on your file. Too many hard footprints on your credit file can harm your credit score and further reduce your chances of getting a mortgage or other finance.

It is best to avoid leaving a hard footprint on your credit file where possible. Looking at your credit reports will not result in any damage to your credit score because it doesn’t register as a full credit search – usually it’s only credit applications that harm your score in this way.

Unfortunately, many inexperienced mortgage brokers will make applications for an agreement in principle without doing their homework first and apply to the wrong lenders that would have never accepted the mortgage, leaving unnecessary searches on customers’ credit files. A good mortgage broker will avoid unnecessary hard footprints on credit files by making sure that customers fit the criteria beforehand.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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