Whether you are applying for your mortgage directly with the lender or using a mortgage broker, you will always face some form of mortgage interview. This will help the bank or building society decide how safe it is to lend to you, how able you are to repay the mortgage, and how generous a deal they are able to offer you. This means that a successful mortgage interview can save you thousands of pounds over the term of your mortgage.
What is a mortgage interview for?
Your potential lender will want to know about your lifestyle and financial situation before they agree to offer you a mortgage (or decide what deals to make available to you). They will ask you how much you want to borrow, along with questions to establish how much you are able to repay each month.
Your mortgage interview also helps the lender make sure your loan is aligned with your plans. For example, if you are planning on having children, then your outgoings are likely to rise in the near future, and at certain key points in time. They will look at your area of work – for example, if your career offers many future opportunities for advancement, this may count in your favour. Ultimately, they are trying to identify all the reasons why they shouldn’t lend to you – and your task is try to put their minds at rest.
Here are the main questions you are likely to be asked by a potential lender during a mortgage interview.
What type of job do you have and how much do you earn?
The type of job you have will help the lender understand the security of your income. A first time buyer who works as a trainee accountant, for example, has a clear progression route with an increasing salary. On the other hand, a freelance artist is at higher risk unreliable earnings, which would make regular monthly repayments more difficult.
You should bring three months’ payslips and your last P60 form to your mortgage interview. Lenders usually base their affordability decisions on a two-year work history, so be sure to have all necessary information with you. If you are self-employed, you will need to show at least two years of accounts, and your choice of mortgage deals will be more limited.
How much are your monthly outgoings?
As well as your salary, the amount of money you spend each month is a key indicator of your ability to make future payments. This includes essential expenses like food, bills, utilities, essential travel and necessities like insurance, as well as what you typically spend on things like hobbies, leisure and personal items. The lender will ask you to bring bank statements for the last three months, so you should expect to answer a few questions about how you spend your money.
Do you have existing debts?
Your existing debts will also be discussed during your mortgage interview. If you are paying them back successfully, your lender will see this as a positive. It shows you are reliable when it comes to managing loans and handling your finances in general. However, if you have maxed out your credit card or overdraft, this will work against you. Common sense very much applies here.
How good is your credit history?
Your credit score also influences how much you can borrow. Your lender will look at your credit file to understand your history of borrowing and repaying debt. Even missing bills by just a few days can affect your credit score.
There are plenty of ways to improve your credit record in the months before your mortgage interview. Paying off debts, paying your bills on time and closing any unused credit cards, direct debits or mobile contracts will all help.
You can check your credit score with a range of credit reference agencies before you apply for a mortgage, but bear this in mind: all the agencies use their own criteria and scoring system, and all lenders do too. There is, therefore, no such thing as your definitive ‘credit score’. So although you may have a poor credit score with one agency or lender, another may consider you a safer prospect. This means it is worth shopping around. However, multiple mortgage rejections will themselves harm your credit score, so ask a mortgage broker first before making any applications.
Do you have any children or dependents?
Children are expensive, and your lender will want to know if they are likely to affect your mortgage payments. In your mortgage interview, you will need to tell the lender about your children or any other dependents you have, such as elderly parents who require financial support. Therefore, go prepared to demonstrate how this will not affect your ability to repay your mortgage, and that you have already budgeted for these costs.
How much is your deposit and how did you get it?
The size of your deposit will have a big effect on your lender’s affordability assessment. For instance, if you have a very high LTV ratio (e.g. a 5 per cent deposit), you’ll most likely face a higher interest rate than if you had a 10 or 15 per cent deposit, which could impact your ability to maintain your payments. It will also mean you pay more money in the long term. The rule of thumb is: the higher your deposit, the cheaper overall your home purchase is likely to be. This is because having a high deposit means the lender is exposed to lower risk.
Where you got your deposit from is also important. Some lenders will view a deposit that you have saved from scratch more positively than one that has been gifted to you or inherited. If you’ve saved it up yourself, therefore, bring along bank statements that demonstrate this, and you may earn a few extra Brownie points.
What is the value of the property you are aiming to purchase?
The final piece of the puzzle is all about the property itself. A potential lender will want to know how much you would need to borrow so that they can calculate their offer. The difference between the value of the property and the size of the loan you need is called the loan-to-value (LTV) ratio, and this will be critical in deciding the interest rate they can offer you.
Your preparation for your mortgage interview is an opportunity to think about how much you can really afford, and how you will afford it, and what this might mean for the other areas of your life. It’s a time to turn your dreams into reality – which means being realistic. So do your homework first and make sure you can give confident, evidence-based answers to all the questions listed here.
Also use your mortgage interview to ask any questions you have, so that you can also be confident in your decisions.
A mortgage broker can be invaluable in helping you prepare for the meeting with the lender (this will be already covered by any mortgage broker fees that apply).
If you found this article useful, you might find our article on the best questions to ask your mortgage broker informative, too.