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Published on 26th August 2016

How is your mortgage decided?

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Last updated: 20th December 2018

A home is often the biggest purchase we make in our lifetimes. Buying a home can also be a complex process, especially if you’re a first time buyer and in need of a mortgage. In this post we’ll look into some of the key questions prospective mortgage customers want to know.

How is a mortgage actually decided?

What makes one lender say yes and another say no?

What can I do to improve my chances of being accepted?

Not every mortgage lenders application process is the same, so we’ll start by looking at the two key approaches in the mortgage market: automated versus human mortgage underwriting.

What is mortgage underwriting? It’s the process a lender uses to determine if the risk (especially the risk that the borrower will default) of offering a mortgage loan to a particular borrower is acceptable. The definition of "acceptable" will be defined by a number of things, including a lender's risk appetite (how much risk the lender is prepared to take on).

Automated underwriting: Computer says yes…or no

Large-volume lenders (think Halifax mortgages or Santander mortgages) have developed largely automated decision-making processes based on credit scoring. Automated underwriting doesn’t necessarily mean that you won’t see a person (your application may still be handled face to face). It just means that the final decision will be automated…a real life computer says no (or yes) moment.

Human underwriting: A more holistic approach?

In a nutshell, human underwriting allows for a wide range of circumstances to be individually considered. This approach is particularly useful if you’ve got ‘non-standard’ or complex circumstances - for example, if you're in the armed forces, or if you're over a certain age.

With building societies accounting for around 30% of all mortgage loans (Q2 2016), and most building societies adopting the human underwriting approach, we asked the Vernon Building Society in Stockport how they handle mortgage applications and what makes them different as a mortgage lender:

Ian Keeling, Head of Sales and Marketing at the Vernon, said "With mortgage advisers in every branch, we are able to provide potential borrowers with a single point of contact, which enables our human (not computer!) underwriters to make a well-informed and common sense lending decision based on the individual's circumstances and rich local knowledge. It is not uncommon for larger lenders to automatically reject individuals based on their credit score alone, without fully understanding the individual's situation."

What makes one lender say yes and another say no?

Credit scoring plays an important part in the mortgage application process, as it’s often the starting point for a mortgage lender assessing your application.

In the UK there are three credit reference agencies that provide credit scoring data about you to mortgage lenders: ExperianEquifax and Noddle. Many other financial decisions are made with the help of credit scoring, from current account overdrafts to credit card applications, so staying on top of your credit score is important. Different credit reference agencies assess your "creditworthiness" in different ways.

There are other internal factors that will influence lenders' decisions, such as how many mortgages they want to complete and the type and location of your property.

What can I do to improve my chances of being accepted? 5 top tips:

1. View your credit report

There’s just no getting away from this one! Find out what your score is, and what you can do to improve it (ClearScore and Noddle offer a free service that uses the credit scoring data of Equifax and Callcredit respectively). If you notice any errors, make sure you contract the relevant credit reference agency to try and get your credit file corrected.

2. Pay your bills on time

Talk to house builders and the one common problem they’ll talk about are unpaid or late payments of mobile phone bills, so staying on top of contracts like these and your other bills is keen to being.

3. Save a little more!

The higher your deposit (as a % of the property price), the better mortgage loan rate you’re likely to receive, as your mortgage loan will be deemed lower risk. You’ll also be more attractive to a larger pool of mortgage lenders (increasing your chances of being accepted).

4. Make sure that you can afford the repayments

Before applying for a mortgage think about what level of mortgage repayments you can handle on a monthly basis. Since 2014, mortgage lenders have to complete a mandatory affordability assessment to make sure you’re not borrowing more than you can pay back. 

They’ll need to be satisfied that you can handle the repayments now, and will likely stress test this against future scenarios (e.g. if interest rates go up and your payments increase). 

Mortgage buyers should fill in an income and expenditure assessment using a lender's online form to check how affordable their repayments will be. Remember when detailing your outgoings that many lenders will ask to see these as part of the application process.

5. Register to vote

Electoral roll data plays an important part in the identity checks carried out by mortgage lenders, so registering to vote can be a quick win to help improve your chances of getting accepted.

Want to see what mortgage customers have to say? You can read some of our mortgage reviews here.

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