Mortgages come in all shapes and sizes, and not every option is suitable for everyone. To make sure that borrowers get a suitable mortgage they can afford, lenders set a list of rules that need to be met. These are called eligibility criteria and can include basic elements like having a certain deposit amount as well as more specific things like an apartment being situated below the 10th floor. Only borrowers that meet the lender’s mortgage eligibility criteria will be considered.
Each lender sets its own eligibility criteria, which can vary between mortgage products. So you’ll want to make sure you read their criteria carefully before applying for a mortgage – even if you’re eligible for another of the lender’s products. When you apply for a mortgage, the lender will ask for certain documents and may send a surveyor to your property to confirm eligibility.
Types of mortgage eligibility criteria
- Borrowing amount
- Deposit size
- Property type and location
- Your employment status
- Your income and outgoings
- Your credit rating
For example, the lender might require a buyer to borrow less than £750,000. Or they might need a first-time buyer to provide a deposit of at least 10%. Or they might require the property to be made of standard construction materials – excluding thatched cottages, for example.
Proving your eligibility for a mortgage
You’ll be able to find mortgage eligibility criteria on the lender’s website. Or, if you’re using a mortgage broker, they’ll filter out products you’re ineligible for on your behalf.
When applying for the mortgage, the lender will ask to see copies of certain documents for each applicant’s eligibility. These often include:
- three to six months of recent payslips
- two years of accounts (if you’re self-employed)
- your most recent P60
- three months of bank statements (showing general living costs and loan repayments)
- any benefits you receive
Additionally, the lender will run a credit check against all applicants. They may also send a surveyor to inspect your property or use an electronic conveyancing service that checks various data records to assess the value and condition of the property.
Checking your eligibility for a mortgage can take anywhere from 24 hours to a week, depending on the lender.
Mortgage affordability
One of the main reasons lenders set eligibility criteria is to make sure that the person taking out the mortgage will be able to afford it. This includes meeting their regular monthly payments and being able to afford the interest going up in the future.
An interest rate (and therefore a borrower’s monthly payments) could go up if:
- the borrower lapses onto the lender’s Standard Variable Rate (SVR) at the end of the initial term
- the mortgage has a variable interest rate which can go up or down at any time
Lenders are also required by the UK’s financial regulator to ‘stress test’ a borrower’s mortgage affordability should the interest rate increase by 3%. So if you’re considering taking out a mortgage with a 2% interest rate, the lender will check your ability to pay a 5% interest rate.
An Example
The following table shows how a lender might stress test a borrower’s mortgage application for a loan over 25 years.
If the borrower’s finances don’t absorb the extra cost, the loan won’t be approved.
Borrowing amount | Interest rate | Monthly payments | Stress tested rate | Stress tested monthly payments |
£300,000 | 1% | £1,130 | 4% | £1,583 |
£300,000 | 2% | £1,272 | 5% | £1,754 |
£300,000 | 3% | £1,422 | 6% | £1,933 |
Online mortgages and eligibility criteria
Getting a mortgage online is one of the quickest and simplest ways to get a mortgage. But it can also present a challenge for those unfamiliar with mortgages, should the online lender or broker not provide clear information.
If you’re looking at online mortgages, make sure to search for the lender’s mortgage eligibility criteria. On some sites, this will be clearly presented in the main navigation bar at the top of the page. On others, you may have to search the footer or elsewhere on the site.
Thankfully, online mortgage providers often have an online chat function that allows you to speak with a member of their team. So you can speak to someone if you have questions about your eligibility for a mortgage if you need.
Ultimately, mortgage eligibility is designed to protect borrowers from taking on a larger loan than they can afford to repay. So if you’re looking at online mortgages to see if you’re able to get a mortgage, you can rest assured that precautionary measures are in place to guide you towards a suitable and affordable mortgage.
