Martin Lewis shares unexpected need-to-knows when applying for a mortgage

Even if you’ve run the numbers, checked your eligibility and saved up a healthy deposit, a lender can still reject your mortgage application — and they aren’t always forthcoming about why.

In the latest edition of his newsletter, Martin Lewis shared a video to demystify the criteria, detailing three ‘big things’ loan acceptance hinges on: affordability, property type and credit.

While prospective homeowners should be au fait with these three key factors already, the Money Saving Expert founder included a few extra nuggets of wisdom you might not be aware of.

So if you want to make it through the ‘mortgage maze’ and buy your dream home, this is what to keep in mind.

Spending

Martin calls affordability the ‘most important’ part of a mortgage application decision.

Sounds obvious? That’s because it is. But many people don’t realise how this is worked out, expecting a statistical calculation like those used by credit cards and loan providers.

When it comes to mortgages, the process is far more thorough, as the lender needs to ‘stress test’ to ensure you can make repayments even if interest rates go up — and that means your recent bank statements being rigorously analysed.

Although the odd trip to Greggs is unlikely to stop you becoming a homeowner, if you’re ‘close to the brink’, Martin says it’s vital to be as frugal as possible in the run-up to applying (ideally at least three to six months).

This extra wiggle room between your income and outgoings could make all the difference.

The type of property

Certain properties – which Martin described as ‘counter-normal’ – are considered too risky for some lenders, so it’s worth doing your homework on what’s problematic before you put an offer in.

Alongside homes with short leases, potentially flammable cladding or specific restrictions in the title deed, studio flats can be difficult to get a mortgage on, ‘particularly if they’re less than 35 square metres or not in “prime” location.’

This is because smaller units may be harder to sell or rent out in future, with different lenders having different rules on what they consider an acceptable size.

It’s a similar story for high-rise homes; exact stipulations vary, but lenders can be reluctant about anything above the fourth storey or in a building without a lift. In some cases, you may end up needing a bigger upront deposit or a specialist mortgage.

Perhaps the most surprising thing that could lead to a rejection is the home being above (or sometimes even just near) a commercial premises.

‘Whether it’s shops or restaurants or even an office, that can affect you getting a mortgage,’ Martin explains, adding that his former colleague was refused because the property he was trying to buy had a Nando’s downstairs — a location any chicken fan would think is perfect.

Credit

While many believe this to be the main thing lenders look at, Martin claims creditworthiness is in fact the least important factor overall.

The bank will likely focus on specific elements such as whether you’ve defaulted in the past or you have any county court judgements against you, meaning a ‘really bad credit history’ can stop you getting a mortgage.

However, the financial guru says: ‘If you’ve done well on the affordability score and it’s a good property, this probably won’t totally kibosh things.’

So although he recommends looking at your credit file to see where you can make improvements before you put in a mortgage application, remember it’s not the be all and end all you probably assumed.

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