Mortgage Eligibility Criteria

Before a lender signs off on your mortgage, you’ll have to meet their eligibility criteria. Simply put, this is a list of requirements that help them decide whether or not to lend to you.

In this comprehensive guide, we explain everything you need to know about mortgage eligibility, including the factors that make you eligible, how requirements vary between lenders, and what to do if you don’t fit the standard criteria.

Read on for more information or jump to the section that’s relevant to you via the links below…

What is the eligibility criteria for a mortgage?

In general, most lenders will use the following criteria to decide whether or not you’re eligible for a mortgage:

Deposit amount

Your deposit is the amount of money you put down upfront when buying a house or flat. Generally speaking, the larger your deposit, the greater the chance you’ll have of getting your mortgage approved and the lower your interest rate will be. This is because lenders will consider you a less risky borrower the more of your own money you have invested in the property.

These days, you typically need a deposit of at least 10% to be approved for a mortgage. Some lenders may accept 5% but you’ll have a wider choice of deals if you can put more cash down.

A small minority of lenders may offer you a 100% loan-to-value mortgage – in other words, a mortgage with no deposit – however, these tend to come with strict caveats and are not widely available.

Deposit source can also be a factor as you might find it more difficult if your funds have ‘non-standard’ origins, such as coming from an overseas account or cryptocurrency proceeds.

Credit history

Lenders will look at your credit reports to establish how good you’ve been at paying back loans in the past and whether or not you’re a reliable borrower.

Credit reports contain detailed information about your loan history including past credit cards, overdrafts, mortgages and mobile phone agreements. They record how much credit you were given and how efficient you were at making repayments.

They also contain a credit score, which can go up and down based on your lending behaviour. You don’t have a universal score. Different rating agencies will score you differently.

You can still get a mortgage if you have black marks on your credit reports. This may, however, impact the range of deals available to you. If you have particularly bad credit, there are brokers who specialise in securing loans for people with adverse credit.

Age

Most lenders require residential mortgage applicants to be at least 18 years old. They also tend to have a maximum age limit too. This can either be the age you are when you take out the mortgage (typically the maximum is 75 or 80) or the age you’ll be when your mortgage term ends (this tends to range from 75 to 95).

Your employment status

Lenders will want to know about your employment type to help them determine how much and how regularly you’re paid.

Borrowers who are employed, receive a regular salary and meet all other lending criteria, shouldn’t usually have much trouble getting approved. If, however, they’re in what’s deemed ‘non standard’ employment – for example they’re self-employed, work part-time or they’re a contractor – it could be trickier, but not impossible, to get approved.

The length of time you’ve been in your job can also have an impact as some lenders want to see a strong track record of steady improvement spanning 2-3 years, for example.

Property type

Non-standard properties – such as flats above shops, houses with thatched roofs, or barn conversions – are potential red flags for lenders because of concerns over resale potential if they have to repossess the property in the future.

That’s not to say you can’t get a mortgage if you’re purchasing a non-standard property. You may just have a more limited choice of lender.

Any issues detected with the property during the surveys or valuation may also affect the mortgage provider’s appetite to lend.

How requirements can vary between lenders

Every lender has its own set of criteria when it comes to eligibility and will place different emphases on the above factors.

Most mainstream lenders, for example, have no minimum age limit. However, some challenger brands and specialist lenders, such as Aldermore and Pepper Money, won’t accept applications from anyone under the age of 21.

In a similar vein, many lenders including big names such as HSBC, Natwest and Nationwide, will accept zero hours contracts as an acceptable source of income. However, many of the building societies, including Leeds and Newcastle, won’t.

Equally, some lenders, including Halifax, Barclays and Metro Bank, will consider retained profits as an allowable income type for self-employed applicants, while others, such as HSBC, Santander and Tandem Bank, won’t.

What to do if you think you don’t fit the criteria

If you’re worried you don’t meet some of the criteria mentioned above, don’t panic. While one lender may reject you, there’s still the chance another will approve your application.

There are also specialist lenders dedicated to providing loans to borrowers with unique circumstances. For example, there are specialist lenders who deal predominantly with borrowers who have severe bad credit and others who help borrowers with low deposits.

The best course of action is to seek advice from a specialist broker who’ll be able to assess your situation and recommend lenders to approach. Remember, getting turned down for a mortgage can negatively affect your credit record, so it’s best to avoid making multiple applications at the same time.

Need help finding a broker who can help with your mortgage application? Get in touch today and we’ll match you with one of the specialists in our network.

Lending criteria for self-employed applicants

If you’re self-employed, lenders will want to know two main things: how long you’ve been self-employed for and how much money you bring in a month.

Some lenders will only consider your application if you can provide at least two or three years of accounts. However, there are a handful of specialists who’ll lend to you if you’ve been in business for just 12 months.

Typically speaking, if you’ve been in business for several years, and can prove that you bring in a regular and healthy profit, you should have plenty of options from several lenders. However, if you’re recently self employed and don’t yet bring in a regular amount of money each month, getting approved could be more challenging.

How buy-to-let mortgages are assessed

Lenders tend to take a more cautious approach when it comes to buy-to-let borrowers. This is because they’re deemed higher risk as there may be instances when a landlord isn’t bringing in any rental income to cover their mortgage payments because a) they’re between tenants so the property is empty, or b) the tenant defaults on their rent.

To balance out this risk, they typically require fairly hefty deposits of at least 20-25% and want the proposed rental income to cover mortgage payments, usually by 125%-140%. They’ll also scrutinise applicants’ credit reports and non-rental income closely.

How affordability is assessed

In addition to meeting lenders’ eligibility criteria, you’ll also have to pass their affordability assessment. This is how the lender determines how much they’re willing to let you borrow and whether they think you’ll be able to keep up with your repayments.

The majority of lenders will initially use an income multiple to work out how much they’ll lend to you. Most will offer 4-4.5x your annual income. However, some will stretch to 5 and a handful in the specialist lender space as much as 6.

Following this a lender will look more in-depth, comparing your income versus your outgoings. They’ll then try to predict future affordability by applying stress tests (for example, having a baby or redundancy) to make sure you’d still be able to meet your repayments throughout the term of the mortgage. Stress tests can be more stringent for buy-to-let mortgages.

It’s important to emphasise that affordability and eligibility are two important – and separate – factors in getting a mortgage. You could afford a mortgage – using the calculations above – without being eligible for one.

So, for example, if you earned £50,000 per annum, using the standard 4x income multiple, most lenders would allow you to borrow £200,000 for a mortgage. But, if you had a string of severe credit issues registered on your credit report (CCJs, bankruptcy etc) then you wouldn’t be eligible in the majority of cases.

Get matched with the right mortgage broker

It’s important to determine your mortgage eligibility before you make any applications so that you avoid the stress and complications of being turned down by a lender. This is especially important if your situation is even slightly complex, for example, you’re self-employed or have bad credit, as you may have fewer lender options available to you.

An experienced broker who specialises in your specific situation is best placed to help you secure the most competitive deal. We have a range of brokers in our network and can match you with an expert to suit your needs.

Give us a call on 0808 189 0463 or make an enquiry to arrange a free initial conversation.