How lenders come to a decision

The amount you can borrow will be based on your annual income and personal circumstances, and on the property you're buying. Ultimately, the amount you can borrow will come down to what the mortgage lender thinks is a sensible amount to lend to you and what you think you can afford.

Before you apply for a mortgage, get all the necessary paperwork together. You’ll need:

  • Details of your income
  • Your bank account details
  • Any existing mortgage or loan details
  • Address details for the last three years
  • Details of any ongoing financial commitments

Information you need to provide

To help your lender make a decision on how much you can borrow, you’ll need to provide information about your finances and the property you want to buy.

Your income
You might need to show payslips and/or bank statements to confirm your income and help make a decision on what size mortgage is sensible for you to take on.

Your outgoings
Even though two people may have exactly the same income, their outgoings can be very different. As well as taking your income into consideration, it’s also important to tell your lender about your other financial commitments, and to discuss what effect possible changes in your personal circumstances and future interest rate rises could have on your finances. This is to help guard against your mortgage becoming unmanageable.

Again, you may be asked to show bank statements and other items showing your outgoings. A mortgage won’t be agreed if there is any indication that you can’t afford the payments.

When considering how much to borrow or how you would like to repay your mortgage, remember that changes to your personal circumstances can alter your financial circumstances as well.

Before you apply for your mortgage, your lender will ask for your permission to search information held about you and your financial situation.

Other banks and financial services companies might have passed personal details about your financial history on to credit reference agencies. This includes records of previous loans, credit and store cards. Virtually all businesses use the information held by these agencies, as well as public information, such as whether you're on the electoral roll, to help them decide whether to lend you money.

If the lender is part of a larger financial services company, then details of any accounts you hold with that company may also be used to help with the lending decision.

When you apply for a mortgage, the amount of money you want to borrow is compared with the value of the property, and often referred to as the loan to value ratio. It is used as a percentage. For example, if you want to borrow £150,000 and the property is worth £200,000, the loan to value is 75% (£150,000 divided by £200,000). This means that you will need to raise a 25% deposit (£50,000) in order to buy the property.

The loan to value (LTV) is one of the key factors a lender will consider before agreeing a mortgage. The lower the percentage, the more favourable your interest rate might be. To do this and get a better rate, you’ll need to reduce the amount you want to borrow by increasing the amount of money you put into buying your home (your deposit).

The lender will often complete a survey to determine the value of the property. Or, they may use existing market information to make their decision. Often, you can ask to have an independent valuation done if you disagree with the lender's valuation of the property you're trying to buy. Either way, you’ll generally have to pay a fee for the valuation.

New-build homes
Some lenders have different lending limits for new build properties. Therefore the maximum loan to value percentage on a newly built home may be lower. In other words, if you're considering a new-build home, you may have to come up with a bigger deposit.


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