Almas Uddin
Founder and Mortgage Advisor
15 Dec 2023
What is Involved in a Mortgage Credit Check?
Credit checks are a part of any mortgage application process, along with affordability assessments. Usually, you might expect to see a short-term drop in your credit score after applying for a mortgage due to the hard credit searches run by your lender.
Here we'll explain how credit scoring works and what you can do if your report makes you ineligible for your selected mortgage.
For more information about bad credit mortgages or proving eligibility, give us a call on 0330 304 3040 or email the Revolution team at [email protected].
How do Mortgage Credit Checks Work?
In short, every mortgage provider will need to run a check on your credit file to offer you a mortgage. Soft checks are basic assessments that aren't recorded, whereas a full credit history analysis is called a hard check.
The lender needs to see your financial history to determine the risk associated with the mortgage you are applying for.
If you already know the content of your credit report and provide full disclosures in your application, you are far more likely to be approved and to streamline the application.
The initial agreement in principle applications usually require a soft check, whereas a full application requires a hard check. It's always worth clarifying, though, as some banks run hard checks even for an initial application.
Mortgage credit checks are usually available instantly to the lender, but they sometimes require a few days to assess the contents.
How Does a Mortgage Application Impact my Credit Report?
If you have a mortgage in place, making regular, on-time payments will help build a healthy credit score. The initial checks, though, can leave a mark.
Soft credit checks are not recorded on your credit report and are not visible to any subsequent lenders. However, it's worth understanding that this means the lender hasn't accessed the entirety of your credit file and might withdraw an agreement in principle if anything further comes to light during the full application.
Hard credit checks will leave a footprint and show who has run a search on your credit history.
Lenders consult credit files in different ways. Most mainstream banks will look immediately at your credit score and make a decision based on that number. Niche lenders tend to be more subjective and examine the content of the file.
Is a Mortgage Credit Check the Same Thing as a Credit Score?
Your credit score is a three-digit score assigned by the credit-referencing agency reliant on your financial activity over the last few years.
Mortgage credit checks assess your financial reliability, although rely on a credit check accessed from the same credit-referencing agency.
Do I Need a Minimum Credit Score to Get a Mortgage?
There isn't a universal minimum, and the credit scoring acceptable to the lender depends on their policies.
Each credit-referencing agency uses a different scoring system, so you'll have three different credit scores with the three primary UK credit-referencing agencies.
It is always wise to check your credit file before applying for a mortgage, so you know exactly what information it contains. The Revolution team always advises this since we can assess the information and make an informed recommendation about which lenders to apply to.
How Does Being Rejected for a Mortgage Affect My Credit History?
Being turned down for a mortgage won't necessarily have any impact. You might find that multiple hard searches are negative, but in some cases, a lender will only have run a soft inquiry that isn't recorded at all.
Most mortgage lenders will run a soft initial check, following a full review when submitting your complete application.
That means most mortgages require two credit reports - one for the agreement in principle and another for the full mortgage offer.
These reports usually look at credit history over the past six years and having an agreement in principle usually has no impact since it typically requires only a soft search.
How Will My Credit Check Impact my Mortgage Eligibility?
Firstly, you need to know what credit issues are on your file and when they occurred. An independent broker can then advise on the best mortgage options.
Attitudes to adverse credit vary substantially between lenders, but below is an indication of the average result:
- A low credit score usually means you will need a niche lender rather than a high street bank, since they assess most of the decision purely on your credit score.
- Late payments on file can usually be accepted, provided they happened over three years ago.
- Defaults similarly depend on the registration date. Most lenders won’t approve a mortgage within 3-6 years of a default, although bad credit lenders can usually help within a month or two.
- CCJs don't prohibit you from getting a mortgage, but again, you will need to wait a set amount of time depending on your preferred mortgage lender.
- Niche lenders can often consider mortgage arrears provided they happened over three years ago, or even one year or less in some cases.
- Being in a Debt Management Plan again depends on the dates. If this were registered some time ago, a niche lender would usually be able to help.
- IVA mortgages are commonly granted after six years, although again, bad credit specialists can offer a mortgage within a year or so, or sometimes even if you are still making IVA repayments.
- Bankruptcy mortgages depend on the discharge date. Most lenders will consider a bankruptcy applicant only after several years, while some will be happy if a year or more has passed.
- If you have had a repossession, a select few lenders will offer a mortgage after three years have passed.
How Do I Know What Mortgage I Will be Approved For?
It's always advisable to get an agreement in principle or guidance from a whole-of-market broker before you start your property search - so you have a good idea about what you might be able to borrow.
Lenders base mortgage decisions based on multiple factors, such as:
- Your annual income - the limit is usually based on 4.5 times your yearly earnings and up to five or six times in the right circumstances.
- The stability of your income - the length of time in your role and whether it is permanent. If you are self-employed, you will commonly be asked for up to three years of trading accounts.
- The deposit value, with minimum deposits on residential properties, usually starting from 5%.
The type of property you choose will also have an impact. If you want to purchase a rental investment, the terms of a buy to let mortgage will be different from a residential property purchase.
Likewise, a unique or unusual property is considered non-standard and usually requires a specialist lender.
Professional Advice with UK Mortgage Credit Checks
If you're thinking about applying for a mortgage and aren't sure what you might be able to borrow or are concerned about being turned down following a credit check, an independent broker is an ideal solution.
Give mortgage brokers a call or drop a message to [email protected]. Our team will help you understand your credit score and advise on the best-suited mortgage for your borrowing needs.
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