Mortgage lenders have always been hot on asking applicants to fill in reams of paperwork, and completing it is one of the biggest challenges for anyone wanting a mortgage.
Yes, it can be dull, but ensuring the correct paperwork has been lined up is essential. There's no way around it.
What to do you need for a mortgage application
Most people start by tracking down their latest bank statements and payslips, which will need to go back three months. These can be paper copies or PDFs.
If you can’t find any statements then most banks will send over a replacement set (sometimes for a fee), or they can be printed off via a bank's online service. And if any payslips are missing then most Human Resources departments will email replacements over.
Care should be taken when using your bank account during the three months before you make a mortgage application
Some lenders will go through your bank statements line-by-line checking for anything that suggests unusual behaviour.
This can include unexplained cash deposits or payments, the use of gambling websites, evidence of paying back a payday loan and being overdrawn for long periods.
But these aren't the only hurdles that a borrower must clear in order to get accepted for a loan. It's time to get looking for...
Photo ID
UK passport or photocard or
EU photo-card driving licence or
Firearms licence
Proof of address (one of these)
Latest utility bill
Bank or Building Society statements less than three months old.
Latest Council Tax bill.
TV licence renewal letter.
Your latest HMRC Tax demand.
Proof of income
Two of your most recent P60 documents from past two years.
Payslips from past three months.
Details of any other income such as Working Tax Credits, other benefits or secondary income.
Details of outgoings
Loan repayment plans, statements or other documentation that shows any existing loan, credit card, car finance or overdraft payments.
Details of any insurance policies you hold – life, car, home or critical illness, for example.
Proof of employment
When someone is applying for a mortgage the lender will ask them for their employer’s contact details.
The lender will then phone or email the employer and ask to verify the applicant’s claimed salary and other financial details including bonuses.
The lender will also ask the employer to verify how long the applicant has worked there, their position and how secure their position is at the company.
If someone has been in their job for less than two years, most lenders will ask for detail of previous employers too.
Why would you be refused a mortgage?
Read more: Find out why mortgage applications are rejected
Proof of deposit
A bank statement showing the funds are in an account.
A statement showing you have investments/bank account to the value of the deposit required.
If a friend or member of you family is paying the deposit or gifting it to you at a later date, you'll need a letter from them confirming this
What's an Agreement in Principle?
All this paperwork gathering takes place after someone has applied for an 'agreement in principle' (AiP) or 'decision in principle (DiP).
To get an AiP or DiP, the borrower tells the lender how much money they need to borrow, how much their deposit is and outline their income and monthly incomings and outgoings.
It's essential to do this because it indicates whether someone will be accepted for a mortgage and how much they are likely to be lent.
If you don't know how much you can afford to borrow then there are plenty of online mortgage estimators/calculators that are free to use. CreditLadder offers one which, after a few minutes, will tell you how much you could borrow.
Most banks and other lender offer an online AiP tool that takes minutes to complete, but don't apply willy-nilly with lots of lenders; doing too many of them can damage your credit score.
Why all the questions and forms to fill in?
In the old days when people went to their local bank manager for a mortgage, it was all much simpler. The bank manager knew the mortgage applicant and the decision was often based on their recommendation, rather than complicated financial algorithms.
That has all changed. Most mortgage lenders operate out of large processing centres and local bank managers rarely if ever get involved. Large tracts of the application process are automated and decisions are made against pre-set criteria.
But the main reason why there's so much information to provide is down to the politicians. After the credit crunch in the late noughties, the Financial Conduct Authority (which regulates mortgages) reviewed the mortgage market and decided to tighten up how people are lent such huge sums.
The emphasis is on affordability now. That is why applicants are now asked so many details questions about their monthly outgoings.
Read more about getting on the property ladder:
CreditLadder can help you improve your credit score
If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.
CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.
Remember the information provided in this article is for information purposes only and should not be considered as advice.
