How a lender assesses you
Mortgage lenders will take your credit history into account as well as your incomings. They are particularly interested in how often you have defaulted on other payments, your existing credit agreements, if you have any County Court Judgments or if you have been declared bankrupt.
If your credit rating is poor, you may be able to get a Sub Prime Mortgage deal where you'll probably pay a higher mortgage rate. Alternatively, you could wait until your credit record has improved. With mortgage lenders tightening their criteria, 'risky' borrowers will unfortunately find it increasingly difficult to obtain finance.
It's possible to check your credit reference file with the UK's main credit reference agencies: Experian, Equifax or Callcredit. Access to your file only costs a few pounds. If you see anything that's wrong you can challenge its validity.
If you are self employed you'll probably have to show the lender income from your business for at least two years and if you are a contract worker, you'll have to prove to the lender that your earnings will continue.
For couples, the lender will look at both incomes. Some lenders will consider groups of up to four people buying together. Think carefully before you buy with friends because each of you will be "jointly and severally liable" meaning you will have to pay the mortgage if one of the others doesn't pay their share.
If you can prove your income is about to increase substantially - perhaps you'll soon qualify as a doctor - some lenders may be prepared to lend more.
While a lender will happily work out what they think you can afford, remember you need to be comfortable too. Make sure you will be able to deal with unexpected extras that crop up. Key questions to ask yourself are:
Can I continue to live the lifestyle I want if I were to take on this mortgage? What if my circumstances change, for example if I want to take a career break to study, have a child or have to look after a sick relative? What would happen if I lost my job? What would happen if interest rates went up? If any or all of these things happen could I still keep up the mortgage repayments?
Budget for rises in interest rates - for example, for every 1% increase in the interest rate on a £100,000 mortgage the interest payment alone jumps by around £83 each month.