Since the 2008 financial crisis, greater legal restrictions on mortgage lenders have made it considerably harder to apply for a mortgage loan. No longer is it possible simply to walk into a bank with your most recent payslips and expect approval.
These days, you need to go to more considerable lengths to not only prove that you have the funds for a deposit, but also the income and character traits to meet your mortgage payments – even in the event of an economic downturn, or change in your personal situation.
In many ways, these extra “stress tests” are a good thing. They help to prevent the kind of irresponsible lending which facilitated the 2008 financial crisis. On the other hand, it does mean that ordinary people have more hoops to jump through when trying to get on the housing ladder.
In light of this, we at Cedar House wanted to offer a list of 10 questions you are likely to face at your mortgage interview. This content is intended to inform and inspire your thinking as you prepare. This article should not be taken as financial advice. To receive regulated, tailored financial advice into your own financial goals and situation, we recommend that you consult an independent financial adviser.
#1 “Where is your deposit coming from?”
This is not always asked, but it is likely to come up. Lenders will often want proof not only that you have the necessary deposit, but also evidence of its origins.
So, if you have saved for your deposit it’s a good idea to bring the relevant statements for that bank account. If you are receiving the money from a loved one (e.g. a parent), then have a signed letter proving the gift, ready at hand.
#2 “Can you explain X to me, regarding your credit history?”
Your prospective lender will, of course, conduct a review of your credit history before your meeting. So it’s a good idea to have a thorough grasp of it yourself and to be ready to answer any questions they might ask you on this subject. If at all possible, check your credit history well in advance of any potential mortgage meetings and consider taking steps to improve it.
#3 “Do you have children and are you planning any?”
This might feel like an intrusive question, but children add a considerable expense to a couple. These expenses mean less money which is potentially available to meet your future mortgage payments, so it’s important that your lender understands your plans and is confident that these meet their financial “stress tests”.
#4 “At any point, have you taken a payday loan?”
If you have taken a payday loan in the last 12 months, then this is likely to count strongly against your application. Mortgage lenders typically see this as evidence that you cannot keep on top of your finances, which means you might be more likely to default on your mortgage.
#5 “Are you planning a career move?”
Your present income might allow you to comfortably meet the monthly payments proposed by your prospective lender. However, a change in your job could mean a reduced salary or less stable income (e.g. if you set up a business). Your lender will want to know about your plans in this respect, and it’s important to be completely honest at the outset.
#6 “Do you gamble?”
Again, this can be a red flag for lenders depending on the nature of the gambling habit. If you simply spend a few pounds every now and then on an occasional bet, then this is unlikely to be a cause for concern. However, any sign that you spend excessive amounts on gambling is likely to count against you, particularly if you go into debt when gambling.
#7 “How much do you spend on essentials?”
All of us have to pay for things like home repairs, basic leisure items (e.g. TV licence) and household goods. The fact that you have expenses should not, in itself, count against your application. However, excessive spending on particular items might be seen as a risk that you are in danger of living outside of your means, which increases the risk of mortgage default.
#8 “Do you have any repayments or other commitments?”
It might be that you have a personal loan which you are slowly paying off. Or, perhaps you have child maintenance costs to uphold. Whatever your situation, it is important that you are transparent about these financial commitments and that you bring supporting evidence with you to the meeting.
#9 “Do you expect your ongoing expenses to go up?”
Your income and expenditure balance might look fairly healthy right now, but there is always the chance that the latter might go up in the future. For instance, perhaps you currently lack a car but are planning to lease one in the next few years, following your successful mortgage application. Plans such as these must be disclosed to your lender. Finance agreements such as these can add hundreds to your monthly expenditure, and your lender must have the confidence that your finances still stand up to their stress tests should your plans transpire.
#10 “What are your pension arrangements?”
This question is most likely to come up if you are between 60 and 68 years old. Most lenders will not grant a mortgage to someone who has fully retired, but sometimes there are exceptions. In these situations, you will typically be asked about your plans for generating an income in retirement (e.g. annuity and income drawdown). It’s important that you can demonstrate your financial reliability with supporting evidence, if you hope to take out a mortgage towards the end, or after, your career.