Understanding Mortgage Eligibility And Suitability
12th July 2017
When it comes to getting a mortgage, it’s important to understand the difference between mortgage eligibility and suitability. Eligibility is determined by the mortgage lender, who will carry out checks to assess whether or not they can lend to you. Suitability is determined by the mortgage broker, who will recommend the most suitable mortgage deal for your personal and financial circumstances.
Here at Trussle, we break down the mortgage recommendation process into three steps:
Based on your income, outgoings, and property, could you afford a mortgage?
Based on your Loan to Value, personal details, and property, which mortgages are you eligible for?
Based on your preferences and future plans, which mortgage that you’re eligible for do we think is most suitable for you?
Lenders take on risk by lending to you and need to establish whether you’re likely to be able to honour your repayment commitments before agreeing to lend to you. They’ll also want to establish whether the home you want to buy meets their own requirements, such as needing structural repair. This is where eligibility checks come in.
Affordability checks form part of your eligibility assessment. These checks look at your income, outgoings, and property to determine whether you could afford a mortgage.
However, when looking at your outgoings, lenders will only take into account those that will continue over your mortgage term. They’ll also look at any future financial commitments.
Eligibility rules vary by lender. The amount you can borrow will come down to what your lender thinks is a sensible amount to lend you. A lender’s definition of ‘sensible’ will include what’s affordable and sustainable for you.
Lenders will take a number of things into account before making a decision, including your spending habits, current loans, and your credit history. While lenders will review your current spending habits and outgoings on credit cards and loans, they’ll be more interested in the payments that will continue over your mortgage term.
Your credit history will affect the mortgage deals you’ll be eligible for. Lenders will be more willing to lend to if you have a high credit score as they’ll consider you more trustworthy when it comes to making repayments. Although bad credit can make getting a mortgage harder, there are lenders who specialise in mortgages for those with low credit scores.
Trussle mortgage adviser Turon explains how mortgage eligibility works in practice.
‘There’s more to eligibility than simply recommending a mortgage deal - it’s important to look at all the angles. Two first-time buyers might both have a 10% deposit and a good income, but they won’t necessarily be eligible for the same mortgage deal if they’re buying two different types of property.’
Eligibility criteria and affordability checks
The Mortgage Market Review (MMR) was launched in 2014 to change the regulatory rules around lending for mortgages. Lenders now have to undertake more stringent eligibility checks. Agreeing to a mortgage based purely on your salary is no longer possible - lenders now want to build up an idea of your financial situation by assessing your spending habits through affordability assessments. Lenders will ask more questions about your future plans as they want to make sure you’ll be able to continue to afford your mortgage payments if your financial situation changes, or if interest rates increase.
Generally, lenders’ checks will be based around:
Expected retirement age
Credit commitments, such as loans, credit cards, hire purchases, and student loans (current and future loans, as opposed to previous). When lenders carry out a credit search they look at your previous upkeep of loans or credit too.
The property value
Buy to let eligibility
The eligibility criteria is different for buy-to-let properties. Most lenders insist upon you meeting certain requirements that you wouldn’t have to meet for a residential mortgage. Most will prefer you to have a residential property, although there are some lenders who will review your application regardless.
While lenders will look to see if you have a certain level of stable income, they’ll be more interested in checking whether the rental income can support the mortgage if interest rates were to rise. This is known as a rental stress test.
A mortgage broker will look at your mortgage suitability to recommend a deal that you’re both eligible for and that suits your circumstances.
Trussle mortgage adviser Turon explains how suitability works.
‘Mortgage suitability is like marrying your requirements to the lender’s criteria. Your adviser will look at your information and see which deals you’re eligible for. They’ll then take your situation into account to see if you’re in a position to go with one lender, or if another might suit your needs better. It’s all about finding the balance between the two parties, as no two cases are the same.’
Using a mortgage broker will ensure you find a mortgage you’re both eligible for and that suits your unique circumstances.