What Requirements will Mortgage Lenders look for?
Each mortgage provider follows a set of procedures and rules, to ultimately decide whether or not they will agree to provide you with a mortgage to purchase a residential property.
However, different lenders apply different lending criteria - so, the amount which you can borrow of a property’s purchase price will differ between lenders as it is determined solely by the mortgage provider’s requirements.
The mortgage lender will require absolute certainty that you can afford to meet your monthly repayments as they are due; i.e. can the borrower afford to service the loan? Mortgage lenders will be looking at your personal financial incomings and outgoings. Any rent the borrower may be paying will be discounted, but the lender will factor in the potential cost of the monthly mortgage repayment.
The majority of mortgage loans are secured on the value of the property. Therefore, mortgage providers are going to need certainty of the amount which you can contribute towards the cost of the property in your upfront cash payment aka your deposit. Mortgage providers prefer borrowers who can provide large deposit payments. The smaller the loan, the lower the lender’s risk. The larger the deposit, the lower the borrower’s monthly repayments will be. Lower monthly mortgage repayments will reduce your outgoings and improve how the lender will view your affordability criteria. In the current financial climate, most lenders expect borrowers to deposit at least 5% of the property’s purchase price.
Mortgage providers do not lend against the property purchase price, but the value of the property. They will insist on your property being valued by a qualified surveyor to ensure the avoidance of lending more than necessary as this would increase their financial risk.
There are some mortgage lenders who will outright refuse to mortgage certain property types such as any properties being purchased ‘off plan’, through an assisted purchase scheme or a ‘Right to Buy’ scheme, leasehold properties or properties below a certain price.
Mortgage providers generally have a maximum number of years over which they lend and will set a date when the mortgage must be repaid in full.