But be sensible with the debts you do have
On the flip side, just because lenders like to see your skills at money management, it doesn’t mean you should start maxing out your credit cards. They key detail is in how you manage your debts – not how much you can juggle without your bills collapsing on you. As a general rule, if you want to take out a mortgage you should be using less than half of the credit that’s available to you. For example, if you have £5,000 worth of credit available then you should be using less than £2,500 of it. If you can, try and pay off any small outstanding debts you have to try and minimise what you owe.
Have some savings
Chances are, you’ll already have some money saved for a deposit if you’re buying for the first time but the more you can save – the better. As obvious as it sounds, the more money you have saved – the more favourable lenders will be towards your application. A bigger deposit will also open more doors for you in terms of better interest rate options.
Don’t apply for credit just before you apply for a mortgage
Take a break from borrowing before you apply for a mortgage. Each time you apply for credit, it’s noted on your credit file even if you don’t actually take it out. If lenders see that you’ve asked about credit lots of times just before you ask for a mortgage, they’ll start to wonder if you’re desperate for cash and it’ll set their alarm bells ringing.
Spend only on what you really need. Lenders will ask you to provide several months’ worth of bank statements so they can see for themselves whether you have the means to meet your repayments. That means you may need to think twice about any weekly treats or expensive non essentials. But it’s a good opportunity to have a financial detox – so that gym membership bought with good intentions but has never been used – cancel it.
Sort it out
As well as detoxing your finances, you’ll need to straighten out your paperwork. Lenders will want to see evidence of your income and outgoings so you’ll probably be asked to provide three months’ worth of bank statements and payslips and your last P60. If you sort it out before you apply, it’ll save you from scrabbling around trying to remember where you stashed them.
Be accurate and honest
Always state your finances as accurately as possible. Don’t embellish or try and hide that expensive impulse buy – you’ll be found out and your lender might start thinking about what else you’ve hidden.
Choose a suitable property
Lenders don’t like surprises when it comes to mortgaging houses and they tend to be conservative in what they’ll approve an application for. So you might want to live in a grand design underground or on stilts but your mortgage lender probably won’t share your passion. You may also need to be careful about properties with certain types of tenure too – flying freeholds (where part of the property is built over land that doesn’t belong to it) or properties with short leaseholds might be off putting to some lenders.
Find your perfect match
Not all lenders are the same and approval criteria will differ from lender to lender. Think of your mortgage application as a pick ‘n’ mix selection, lenders will have a look and focus on the applications that take their fancy. If you’ve used the services of a mortgage broker or independent financial advisor, they’ll be able to steer you towards lenders who are likely to be more favourable to the type of borrower you are.