If you’re thinking about buying a house, you’ve no doubt wondered whether you’ll be eligible for a mortgage.
You’re also likely wondering how much you can borrow based on your current earnings and the types of mortgage you’re eligible for. Well, don’t worry. Our guide to mortgage eligibility tells you everything you need to know—from what affects mortgage eligibility to the documents you’ll need to apply for a mortgage.
We’ll also explain why Adjoin Homes provides the perfect solution to working professionals who need a hand with getting on the property ladder.
What affects mortgage eligibility?
When you apply for a mortgage, the lender or mortgage broker will ask you a few questions to determine your mortgage eligibility and affordability. This is to make sure that you can afford to pay your mortgage.
Generally, they’ll ask you for proof of income including three to six months’ worth of payslips, as well as information about any government benefits you receive including child maintenance. They’ll also ask to see your recent bank statements so they can get a feel for your regular bills and spending habits. In addition, they’ll also want to know about any outstanding credit card debt and loans including store cards and car finance.
Based on this information, brokers, banks and lenders will be able to evaluate your affordability. They’ll also take into account whether you’ll still be able to afford your mortgage if circumstances change—say, you go on maternity leave or interest rates increase, for example.
Your mortgage broker or lender will also consider:
- The size of mortgage you want to take out
- The amount of deposit you’ve saved up
- Your credit rating (any recently missed payments will have a detrimental effect)
- Your employment status and how long you’ve been at the company (the longer, the better)
- The type of property you’re looking to buy (lenders are less likely to approve mortgages on high-rise flats and apartments above shops and restaurants, for example)
- Any other outstanding debts
What types of mortgages can you get?
There are many different types of mortgages and the best one depends on your circumstances and how much risk you’re willing to take. For example, interest rates may rise at any point, which can increase your monthly repayments. Certain deals, like fixed-rate mortgages, help to minimise this risk.
Here are the main types of mortgages available:
Fixed-rate: With fixed-rate mortgages, the interest rate stays the same for the length of the deal. This is great if you’re risk-averse as you’ll always know how much interest you’ll pay on your mortgage. That said, if interest rates were to fall, you won’t feel the benefit.
Variable rate: Variable-rate mortgages take the Bank of England’s base rate or the lender’s standard variable rate (SVR) and charge an interest rate that’s at least a few basis points higher. This is slightly more risky as if interest rates were to rise, you won’t be protected and your monthly payments will increase.
Typically, variable-rate mortgages fall into the following two categories:
- Discounted: Discounted mortgages are linked to the lender’s SVR but with a discount applied for a set period of time (usually, 2-5 years). These are usually some of the cheapest deals but if the lender’s SVR rises, so does your mortgage rate. Discounted mortgages can therefore be unpredictable.
- Tracker: Tracker mortgages are linked to a nominated interest rate (usually the Bank of England’s base rate) and add a set percentage. If the base rate increases, your rate rises accordingly. And if it falls, it decreases. Usually, there’s a minimum rate below which your interest rate will never drop, but there’s rarely an upper limit.
Offset: Offset mortgages let you use your savings to offset your mortgage debt so that you essentially pay less interest. This type of mortgage can be fixed or variable and is particularly popular among those with fluctuating income but substantial savings (self-employed people who are putting aside their tax money, for example).
What documents do you need to apply for a mortgage?
As we mentioned above, you’ll need to provide documentation and proof of income when applying for a mortgage. This is so that the lender, bank or mortgage broker knows that you are who you say you are and that you’ll be able to afford your mortgage.
Different lenders sometimes ask for different documentation. But in general, you’ll need to provide:
Proof of ID: As well as providing a valid photo passport or driver’s license, you’ll need to provide recent utility bills and a bank statement or credit card bill from the last 3 months. Your name and address will need to match up on each of these documents.
Proof of income: If you’re in PAYE employment, you’ll need to provide payslips from the last 3 months detailing your employer’s name, net pay and gross pay. Meanwhile, self-employed people usually need to provide two years of SA302 self-assessed tax return forms and corresponding tax overviews. You’ll also need to provide proof of any other additional income including overtime work and bonuses, child benefits, pensions and fostering income.
Proof of expenses: You’ll need to provide your recent bank statements so that the mortgage broker or lender can get a feel for your regular spending. They’ll take into account everything from travel fees and household bills to holiday spending and recreational purchases. Your lender is required to keep this information completely confidential.
When providing your paperwork, always make sure that the names and addresses on your utility bills and IDs match and are up to date.
How much can you borrow?
Based on your income and outgoings, mortgage brokers and lenders will calculate how much you can afford to borrow. The higher your income and the lower your expenditure, the more money you’ll be able to borrow. Other variables that will be taken into account include the amount you can put down as a deposit, the length of your mortgage term and the value of the property itself.
There are many mortgage calculator tools online, where you can get a good idea of how much you can borrow. But as a rough guide, on a 25-year repayment mortgage, you can expect to borrow 4.5 times as much as your joint household income.
How Adjoin Homes can help
In today’s world, where house price rises are outstripping wage growth, mortgage eligibility can sometimes be a concern. But Adjoin Homes offers the perfect solution.
If you’re looking at an area that you can’t afford to buy in, a rent-to-own scheme from Adjoin Homes bridges the gap between buying and renting. We help working professionals with relatively high salaries overcome the issue of the UK’s soaring house prices and get onto the property ladder now.
We offer tailored packages that let you choose a payment plan that suits you and your circumstances. At any time during the agreement and for up to 12 years, you can choose to purchase the property or walk away if you change your mind.
There are many variables that affect your mortgage eligibility and affordability. These include your monthly earnings and expenditure, your credit rating, the type of property you’re looking to buy, the length of the mortgage term and how much you need to borrow.
In certain areas, like London for example, average house prices are outstripping wage growth. As a result, working professionals on relatively high salaries are struggling to buy in the areas they want to live. Adjoin Homes offers the perfect solution, with our rent-to-own schemes bridging the gap between renting and buying.
If your mortgage eligibility isn’t good enough to buy in your dream area, Adjoin Homes can help.
We make it possible to get into your dream home now…