How is your mortgage decided?

A home is often the biggest purchase we make in our lifetimes. Buying a home can be a complex process, especially if you’re a first time buyer and applying for your first mortgage. In this article we answer the most common questions from prospective first time mortgage customers.

What is mortgage underwriting?

This is the process a lender uses to decide if the risk of offering a mortgage loan to a particular borrower is one they're willing to take. Each lender decides on their own risk criteria and makes their decision based on a number of factors including your income, outgoings, financial background and employment.

Can AI decide the outcome of mortgage applications?

With the rise of AI technology, some lenders are now experimenting with using AI to help with mortgage lending decisions. It was reported that Nottingham Building Society has implemented auto-assisted underwriting technology. They're hoping it will streamline decision-making and improve customer service. It's not likely that all mortgage applications will be AI decided anytime soon though as there are often complex, individual scenarios that still need human intervention.

We asked the Vernon Building Society in Stockport how they handle mortgage applications:

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. 

That said, credit scoring isn't the be all and end all of lending decisions. Each mortgage company has their own criteria to help them decide who to lend to and credit scoring is just one factor. With each lender setting their own conditions, it's very possible that one lender could say no, but another could say yes to the same application. Your personal circumstances, financial history, how much you want to borrow as well as the property you want to buy all play a part in the decision.

How can you improve your chances of getting a mortgage? 

Here are our top tips for getting yourself mortgage ready.

View your credit report

With lenders using your credit score to form a big part of their decision, it's a good idea to check your credit report before you apply for a mortgage. The three agencies to check are:

• Equifax via ClearScore
• Transunion via Intuit Credit Karma
• Experian via Experian’s CreditExpert

Once you’ve got your reports, if you do spot anything you believe is incorrect, contact the credit reference agency. They’ll either be able to make the change, or they’ll ask the lender to review their records to see if they agree to the amendment.

Save a bigger deposit

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).

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). 

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.

Reduce your outstanding debt

Lenders assess your debt-to-income ratio, so paying off credit cards, loans or overdrafts can improve your affordability and increase your chances of approval.

Avoid major financial changes

Try not to switch jobs, take out new credit, or make large financial commitments before applying, as lenders prefer to see financial and employment stability.

Read mortgage customer reviews

Buying your first home is a really exciting time but everything about mortgages and trying to decide which lender to choose can be overwhelming. Reading mortgage lender reviews gives you a valuable insight into what it's really like to be a customer, complementing your wider research.