Stricter affordability tests were applied to standard mortgages earlier this year, and it has recently been announced that they will be applied to buy-to-let mortgages too. Since lenders understandably like to err on the side of caution, even if you are able to comfortably keep up with repayments you may find it hard to get a mortgage if certain criteria are against you.
To improve your chances of getting past the affordability tests, there are a number of steps that you can take:
Improve Your Credit Score
Lenders put a lot of stock in the information on your credit report, so a good report can make a big difference. You should also make sure to look at a copy of your report for yourself, so that any outright mistakes can be identified and corrected. Your credit report can be obtained online for as little as £2 or if you planning to apply for a mortgage it might be worth getting a subscription service at a small monthly cost to keep an eye on any changes to your credit file. Remember there are a number of quick steps you can take to improve your credit report – such as cancelling old credit cards.
Pay Off Loans
Loans and other debts that you have will be taken into account by mortgage lenders as they assess your ability to afford repayments on a mortgage. If possible, pay off any debts you have before you make your application for a mortgage. This will entirely remove one factor that was counting against you from the equation and put you in a stronger financial position in the eyes of the banks.
Spend Less
The new affordability tests aim to look at you as an individual in order to assess your ability to reliably meet repayments on a mortgage. For this reason, your spending habits are taken into account as well as factors that lenders more commonly look into such as income. This is done in quite a lot of detail, including things like food shopping, bill payments or just about anything they will be able to see from your bank statements. Simply reigning in your spending can increase your chances of success. The earlier you do so the better, because many will go over your past statements, covering a period of up to six months prior to your application, very closely.
Save Less
This is perhaps the most surprising step you can take. Obviously this doesn’t mean you should keep less of the money you earn – which would contradict the previous step and certainly count against you – but rather that you should avoid certain types of saving. Regular payments into a pension fund or similar saving product are seen by some lenders as a financial commitment. Suspending them for six months while you apply for a mortgage can improve your chances of passing affordability tests, but make sure you check what impact this will have under the terms of the product.
Good luck!