Millennial money: how to apply for a mortgage. Will a lender really look at how much avocado on toast I buy?

The rules have got stricter and it's worth saving as much as you can to increase your deposit, so it could be worth laying off the brunch for a few months before applying for a mortgage.
Alamy Stock Photo
Kate Hughes24 January 2018

Gone are the days when you could simply select a mortgage, tell a lender that you can afford it and sit back to wait for the cash to appear in your account.

The financial crisis — when the legacy of a huge number of unaffordable mortgages sparked a chain reaction that brought the global economy to its knees — prompted the complete overhaul of the mortgage application process known as the mortgage market review.

‘Affordability’ is now the watchword. The idea is that the process now protects consumers from being sold loans they can’t afford to repay but it can feel as if they’re there to lock you out of the property game.

If you don’t fit a very specific mould. If you’re self-employed for example, you could quickly end up in a computer says ‘no’ moment. But it’s not a universal process.

Trim everyday costs: cutting your monthly outgoings by just £100 could add £10,000 to your maximum loan 
Alamy Stock Photo

Different lenders interpret your circumstances differently and tolerance of things like unsecured debt on credit cards and overdrafts vary between mortgage providers.

You may also be asked for different evidence of affordability. One lender might ask for three months’ worth of bank statements, another will want six months’ worth.

This is a confusing, time-consuming process that is often difficult to get right.

What are lenders looking for?

You may well be asked about lifestyle costs, such as broadband and subscriptions fees. The lender will also look for red flags like payments to gambling companies and significant one-off payments in general.

But you can take control of the application process.

Money management really comes into its own with the affordability focus on mortgages and you can dramatically improve your chances of being accepted by making changes to the way you spend your cash.

The most important advice from mortgage advisers is to reduce any debts as quickly as possible.

Get in the black: unsecured debt on credit or store cards should be paid off or significantly reduced
Alamy Stock Photo

Unsecured debt on credit and store cards needs to be paid off or significantly reduced and if you’re one of the millions of people who permanently live in their overdraft, now is the time to get back into the black.

Your student loan may be treated differently by various lenders, so double check with your lender or mortgage adviser.

Meanwhile, trim everyday costs where possible.

Shop around for cheaper energy deals, broadband, mobile contracts and it could all have an effect.

Anecdotal evidence suggests that cutting your monthly outgoings by just £100 could add £10,000 to your maximum loan with certain providers.

Lifestyle costs: you may well be asked about regular payments on services such as broadband and subscriptions fees

At the same time, a boost to your income would be very welcome in time for your loan application.

One of the changes in lending attitudes as a result of the mortgage market review is that a lender is unlikely to take future prospects into account. Saying you should get a payrise next year won’t carry much weight. Securing that increase now will.

It’s vital to have a close eye on your credit score throughout the preparation, application and buying process particularly in case of any errors that could scupper your perfect score. These days you shouldn’t have to pay a fee for the privilege.

Finally, and above all, the size of that deposit is key. The larger the loan to value you need, the more difficult and expensive to obtain.

Keeping slotting away that cash as fast and hard as you can.

Create a FREE account to continue reading

eros

Registration is a free and easy way to support our journalism.

Join our community where you can: comment on stories; sign up to newsletters; enter competitions and access content on our app.

Your email address

Must be at least 6 characters, include an upper and lower case character and a number

You must be at least 18 years old to create an account

* Required fields

Already have an account? SIGN IN

By clicking Create Account you confirm that your data has been entered correctly and you have read and agree to our Terms of use , Cookie policy and Privacy policy .

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in