As a foreign national living in the UK, there are two main ways that lenders will consider your application. This is applicable if you are a foreign national living and working in the UK and seeking to secure a mortgage.

1. The applicant is qualified based on the length of time in the UK OR
2. Application is qualified based on the length of time left on the current visa

Applicants can apply under rule 1 or rule 2 or as a combination of both rules. Applicants seeking to apply under rule 1 should seek to ensure that their credit history is up-to-date, as this is often the only way to determine if an applicant has been resident in the country.

In the table below, you can see the deposit requirements for different visa types and rule 1 and rule 2 criteria an individual will need to meet. This is only applicable for conventional house purchases, which means for your primary residence. If you are looking for a New Build, shared ownership, shared equity or Help-to-Buy mortgage, contact Niche Mortgage Info for further advice.

** Note that your home purchase must be completed before your visa expires.

To find out more about getting a mortgage while in the UK on a visa, get in touch with Niche Mortgage Info.

Tips For Getting A Mortgage

Homeownership is a goal for many UK adults, but many feel that it is out of their reach. Owning your own home is about more than just being able to paint the walls, update the bathroom or build an extension. 

When you own your home, you are investing in your future. Your monthly payments pay down your principal loan and your interest. This can be an excellent way to save for your retirement, as you can sell the home when it has appreciated in value and move into a smaller property.

Many people wonder if they have any chance of securing a mortgage. The most common reasons that people believe they are ineligible include:

• Poor credit
• Not enough savings
• Self-employed or contract worker

If you’re wondering if you have a chance at getting a mortgage, read on to discover how lenders make decisions and how you can increase your chances of securing a mortgage.

Lending criteria for mortgage

Lenders will look at several factors when considering your mortgage application. By taking into consideration different aspects of your application, they can get a more complete picture of your financial situation. This allows the lender to understand the risk associated with lending to you.

All lenders want to minimise their risk as they lose money when a borrower defaults on a mortgage. It takes time and resources to repossess and sell a home, so they want to lend to the people who are most likely to be able to make their payments on time every month.

Lenders will look at the following factors when making a decision about your mortgage application:

• Your income and employment
• Your monthly expenses
• Your deposit
• Credit score and history
• The property and value

If you fall short in one category, it might not rule you out entirely. Instead, you might find that you are offered a loan at a higher interest rate. This allows lenders to control their risk, as borrowing will cost you more money.

How to increase your chances of getting a mortgage

There are a few red flags that lenders look out for. These include poor money management, evidence of repetitive gambling, a small deposit and sporadic work history. There are steps you can take to make each of these factors less damaging to your application.

When submitting your application, you will need to provide three months of bank statements. This has to be the primary bank account your salary is paid into. For three months, try to take control of your spending and make sure you aren't running low on funds towards the end of the month. You should also avoid borrowing money from friends or family.

Your credit score and history will also be scrutinised. Make sure everything on your credit report is up-to-date and accurate. Close any unused credit accounts so that they no longer appear on your report. You should also avoid making any credit applications in the three months leading up to your mortgage application. Hard credit searches will appear on your report and can put lenders off.

If you are self-employed or work as a contractor, avoid making your application when you are between roles. Lenders want to see stability in your income. If your income fluctuates every month, consider opening a business account and then paying yourself a set “salary” on the same day of every month. 

While you might feel confident in your ability to make payments every month, lenders prefer to see stability and predictable income. This is why mortgages for self-employed buyers often come with increased scrutiny.

What to do if you are rejected for a mortgage

Having a mortgage application declined can knock your confidence, but don’t allow this to derail your plans entirely. Speak to a specialist mortgage advisor or broker to find out what is likely to have gone wrong. You can then create a plan to address the issues.

If your deposit is simply too small, you may need to continue saving or explore the help to buy equity loan scheme. You could also set your sights on a lower value property. This will effectively boost the value of your deposit by making your LTV smaller.

If you are rejected for a mortgage application, wait a few months before trying again. Your mortgage application will appear on your credit report as a hard search so this can be a red flag for other lenders. It is also very unlikely that you will be able to fix any issues with your application in under three months.

Conclusion

A typical mortgage application will look at your income, expenses, deposit and credit history. Lenders may also stress test your finances to see if you will be able to afford the mortgage repayments if your circumstances were to change. If you’re concerned about being accepted for a mortgage, speak to a specialist advisor to explore your options.

Applying for a mortgage can be a daunting process. And if you are rejected, it can put you off trying again for a long time. Some people wrongly believe that they are ineligible for a mortgage after being rejected, but often it’s a case of finding the right lender.

The wider market conditions will also have an impact on your ability to secure a mortgage. The coronavirus pandemic led to a lot of lenders updating their lending criteria and rejecting more applications than usual. So if you suspect the market is to blame, you may simply need to wait until conditions are more favourable. In the meantime, you can continue saving and increase the size of your deposit.

If you’re struggling to secure a mortgage and are wondering how to increase your chances of approval, read on!

Work with a broker

As mentioned above, it is often the case that you simply need to approach the right lender to be able to move forward with your application. Many applicants look to their own bank for a mortgage, but this doesn’t always offer them the best chance at approval or the best rates.

Working with a mortgage broker is particularly helpful if you are not a typical applicant. These include those who are self-employed, those with poor credit, and those with a smaller deposit. A mortgage broker can help to match you with the right lender to increase your chances of success.

Check your credit history

If you’re struggling to secure a mortgage, your credit history could be the culprit. Take a deep dive into all the information available by signing up to all three credit checking agencies. This will give you the best possible chance of identifying the problem.

There are red flags and deal-breakers to be found in your credit history. Bankruptcy and a recent unsatisfied CCJ for a large sum of money are likely to spell the end of your mortgage application. A satisfied CCJ for a small sum that is close to dropping off your credit report will be less of an issue.

Lenders will also want to see what other credit applications you have made. Multiple hard searches on your credit report can lead to rejection, so avoid making any credit applications in the months running up to your mortgage application.

Increase your deposit amount

Applying for a mortgage with a small deposit is difficult but not impossible. If you suspect that the size of your deposit is holding you back, you could look into government schemes that will help you to increase your deposit. 

The help to buy equity loan scheme will enable you to borrow 20% of the property value from the government and start repaying this five years after you have purchased your home. This means you would only need a 5% deposit and would secure a 75% LTV. This type of loan can only be used for new build homes that are part of the scheme.

Other ways to boost your deposit size would be to set your sights on a lower value property. A £25,000 deposit would be a 25% deposit for a £100,000 home, but just 10% for a £250,000 home. You could get on the property ladder with an apartment or smaller home and then wait until you have built a larger share of equity in the home before moving on to a larger property.

Address employment concerns

If you’re self employed or work on a contract basis, lenders may subject your application to greater scrutiny as you may have irregular income. Opening a business account and then paying yourself the same amount every month, regardless of how much you earn, is an excellent way to reassure lenders that you have stability.

A mortgage is likely to be the biggest investment you will ever make. Before handing over a large sum of money, lenders will always check to make sure you can afford the repayments. It is in no one’s interest to grant you a mortgage you can’t afford. This is why lenders take steps to probe your finances to make sure you’re not going to struggle.

Affordability checks might feel intrusive, but they are an essential part of the mortgage application process. These checks take into consideration things like your income, spending and your past behaviour with money to give lenders an idea of your level of risk. If the checks reveal you can’t afford the mortgage, you are likely to be rejected, but if they simply reveal that you are higher risk, you might be charged a higher interest rate to cover the increased risk.

In this article, we will look at the various steps in the mortgage affordability checks and what you can do to make yourself a more attractive prospect for lenders.

Your credit score

Lenders will often start with your credit score to reveal how well you have paid back debt in the past. This will include things like credit cards, overdrafts, loans and utility accounts. It will also highlight if you’ve had any CCJs or bankruptcies in the past 6 years. Paying everything on time and avoiding multiple credit applications in the run-up to your mortgage application will help your case.

Your income

For the full-time employees, proving your income is as simple as handing over your P60 or your last few payslips. This will have to be checked against your bank statements to make sure that you earn what you say you earn. Lenders will usually use your income to determine how much you can afford to borrow. You might be offered anything from 4-5 times your annual salary. 

If you’re self-employed, the process of proving your income gets a little more complicated. Lenders will need to see your last three years of accounts. If you can’t provide this, look for a lender that is more accustomed to working with freelancers. They might be happy with just the last year of accounts. Lenders will typically offer a multiple of the average of your last three years of earnings, or they might offer a multiple of the most recent year. This all depends on the lender.

Your expenses

The lender will ask you to outline your monthly expenses, and you must be honest and accurate. They will check these estimates against your last three months of bank statements. So if you state that you only spend £20 a month on takeaway, but your bank statements tell a different story, this could raise some questions.

Other financial activities can make it harder for you to secure a mortgage. If you never get out of your overdraft, or if you have to borrow money from friends and family at the end of the month, this could raise some questions. Likewise for activities like gambling. Lenders don’t want to see gambling websites appear regularly on your bank statements.

In the run-up to your mortgage application, keep your spending in check and don’t make any lavish purchases. Create a budget and then stick to it to show your lender that you are responsible with money.

Closing thoughts

Affordability calculations don’t always rule out your application, sometimes they just make the cost of borrowing more expensive. So while a few missteps on your bank statements might not seem like the end of the world, this could impact the interest rate you are offered, and this could increase the cost of borrowing in the long-term.

There are many factors involved in a mortgage lending decision, not least the status of your personal credit score. It could be that you’ve either had bad credit in the past or, as is sometimes the case, you’ve got no credit history at all. In both senses, if you want to be seriously considered by mortgage companies, this is something that needs to be improved.

The good news is that there are a number of things that can be done to improve your rating. They all take a little time, but the effort will all be worthwhile when that all important mortgage offer comes your way.

Bad Credit Credit Cards

Even though you might not feel like doing so (especially if you’ve had money problems in the past), taking out a Bad Credit credit card, like a Vanquis Bank can really help you boost your score. How you use it is important too, as we’re absolutely not suggesting that you max it out, because this helps no one. You should maintain your balance at around 15-20% of your total available and pay it off each month, on time, without fail. Operate this credit in this way for a number of months and you’ll see some real positive, upward movement of your credit rating.

Savings Based Credit

If credit cards aren’t your thing, then there are other options available. Some people prefer to operate something called a Loqbox, which is a financial product that you pay into each month. Technically speaking, it’s a credit agreement, but it also closely resembles a savings account. You even get all the money back that you’ve paid in at the end of the 12 months and each payment you make, is seen by the credit reference agencies as a regular payment for credit. This is a very popular, low risk method to give your credit score a jump start.

Avoid High Cost Credit

Whilst it can be helpful to obtain credit to improve your rating, the same can’t be said for high cost credit, such as payday loans, text loans and doorstep loans. Even if you pay the money you borrow back on time, every time, it’s not going to have the same effect as doing so with other types of credit. The reason being that high cost credit is seen as an emergency measure that’s indicative of a person who runs their credit erratically. Our advice is to give this type of credit a wide berth, not least because of the horrendous rates of interest you’ll pay.

What mortgage lenders are looking for is a stable set of finances, so whatever you do to improve your credit score, do it steadily and slowly, as you’ll have much more in the way of success.