Keen to apply for a mortgage and get on the property ladder? Which? explains how you can improve your chances of being accepted.
Whether you’re at the beginning of your saving journey or ready to apply for a mortgage, you can always boost your chances of getting approved.
Here, Which? reveals 13 things you can do to help make your dream of home ownership a reality in 2020.
Saving for a mortgage deposit
Saving up enough deposit to get a mortgage may be easier than you think:
1. Work out how much you need to save
Having a concrete savings goal will make your plans feel more real.
You’ll need at least 5% of the property price to be given a mortgage, so investigate how much properties cost in the area you want to buy in, and calculate from there.
- Find out more: our mortgage deposit calculator shows how long it could take you to save enough
2. Consider opening a lifetime Isa
Aimed at those saving for their first home or their retirement, lifetime Isas offer a 25% government top-up on your savings. You can claim the bonus on up to £4,000 of your saving per year, meaning you could get up to £1,000 a year from the government to put towards your deposit.
You’ll need to be aged between 18 and 39 at the time of opening the account, and the property you end up buying must cost £450,000 or less.
The account needs to have been open for at least a year before you withdraw the money and, if you don’t end up putting that money towards a home, you’ll have to pay a hefty withdrawal penalty of 25% on everything you withdraw before the age of 60. Only apply if you’re confident you’ll use the cash to buy a property.
- Find out more: our lifetime Isas guide lists all current providers of these accounts
3. Cut back on bills and everyday spending
It’s easy to fall into paying more than you need to for utilities such as energy and broadband – but it’s also easy to rectify. Services such as Which? Switch allow you to quickly switch energy provider and could end up saving you hundreds of pounds a year.
It’s also worth checking to see whether you’re eligible for a council tax discount – for example, if you live alone.
And using an app-based bank, such as Monzo or Starling, will enable you to categorise your spending. The extra visibility this gives you over your spending habits could help you spot areas you could easily cut back on.
- Find out more: 50 ways to save money
4. Start earning cashback
Sign up to cashback sites, such as Quidco and Topcashback, which enable you to earn a bit of money back when you shop online.
Also, if you trust yourself to pay off the balance in full each month, consider applying for a cashback credit card. These will pay you a percentage of what you spend, sometimes in the form of credits on your bill.
Provided you use them responsibly, credit cards also offer the added benefit of helping to build your credit score, which will be vital when the time comes for you to apply for a mortgage.
- Find out more: compare cashback credit cards with Which? Money Compare
Improving your credit rating
Your credit history will be one of the biggest factors that mortgage lenders take into account when deciding whether to lend to you.
While you’re saving for your deposit, and particularly in the weeks and months leading up to your mortgage application, the following steps could help you boost your chances of getting accepted for a home loan.
5. Check your credit score
There are three main agencies that hold credit files on you – Equifax, Experian and TransUnion – and each will hold slightly different information. This means it’s important that you check all three.
There are two main benefits to checking your credit score: firstly, if the score isn’t great, it gives you a heads-up so you can take steps to improve it (more on this below).
Secondly, it means you can check for any errors. Obviously, if there are serious inaccuracies such as a missed payment that didn’t actually happen, you can contact the relevant company to get it sorted.
But even something as seemingly unimportant as a typo in your address could cause issues when you apply for a mortgage, so checking your credit reports well in advance of applying means you can put things right without panicking.
- Find out more: how to check your credit score for free
6. Get on the electoral roll
The next general election could be as long as half a decade away, but even if there aren’t any upcoming votes it’s important to make sure you’re registered to do so.
That’s because it’s one of the key ways that credit agencies check your current address, which, in turn, impacts your credit score.
7. Pay bills by direct debit
Setting up direct debits to pay off your bills and at least the minimum balance on your credit card each month (although ideally the full sum) will help ensure you don’t miss any payments.
This is really important, because mortgage lenders will be weighing up whether to give you what will probably be the largest loan you’ve ever had – and they need to be able to see you can be trusted to pay your debts on time.
8. Use credit responsibly
On that note, if you don’t already have a credit card, it could be worth taking one out.
If you pay off your bill in full each month, this will be a strong indicator that you can borrow and manage your finances in a responsible manner – a big tick in the box for any mortgage lender.
- Find out more: learn about different types of credit cards and then compare credit cards with Which? Money Compare
9. Use your rent to improve your credit score
If you currently rent your home, the free Rental Exchange Scheme could help boost your credit score.
It means paying your rent to Credit Ladder, which will pass it on to your landlord and report your payment to Experian.
Chat to your landlord if you’re interested in trying this out.
10. Think about your employment situation
Being in a permanent job with a stable income will help prove to mortgage lenders that you’ll be able to meet your repayments each month.
If you’re self-employed, you’ll still have options, but being a long-term employee of a company generally means a greater choice of deals from a wider range of lenders.
- Find out more: getting a mortgage when you’re self-employed
Preparing to apply for a mortgage
The final steps are all about the more practical aspects of mortgages – not a fun subject, but a very important one that could make thousands of pounds of difference.
11. Research mortgage types
These all have pros and cons, and the best type of deal for you will depend on your appetite for risk and what you think is likely to happen to interest rates over the coming months and years.
Get to grips with the basics of each type so you have an idea of what you’re looking for when you start to compare deals.
- Find out more: mortgage types compared
12. Work out what your repayments will look like
Have a look at some currently available deals using a comparison site such as Which? Money Compare, then use an online calculator to get an idea of how much your repayments might be.
The Which? mortgage repayments calculator lets you input how much you want to borrow, how long you want your mortgage to last, and the mortgage rate and fees so you can get a realistic idea of how much a deal would cost you each month.
13. Talk to a mortgage broker
Once you’ve done some basic homework, it’s time to contact a mortgage broker. This is someone who can assess your financial situation, recommend deals and lenders that will work for you, and then apply on your behalf.
Using a broker can save you considerable amounts of stress and time, and also gives you access to more deals than if you were applying on your own.
Make sure you choose a person or company that’s ‘whole-of-market’, as this means they’ll be able to compare every deal on the market rather than just a select few.
The broker you choose should also be on the Financial Services Register.
- Find out more: how to choose a mortgage broker
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Money Compare is a trading name of Which? Financial Services Limited.