You expect a mortgage lender to do some checks and investigations when you first approach them. It makes sense to vet new borrowers.
But surely once you have been given the mortgage offer, it’s time to sit back and relax?
Why would a mortgage lender want to do a final credit check before completion?
Many of them do. In this article we explain what the final credit checks are, what the lender is looking for and how to prepare for them.
The mortgage application process
Let’s first look at what happens when you apply for a mortgage, then we’ll move on to the final checks.
Before you make a full application to a lender you may have submitted a Decision in Principle (DIP). This involves some basic checks and a soft credit search.
If all looks good then you can move on to making a full mortgage application.
Here you will be required to provide all details regarding your employment, income, debts and your property.
The mortgage lender will use a Credit Reference Agency to conduct a full search of your credit file. This will show the last six years of credit history.
It will enable them to assess your mortgage affordability and credit worthiness.
But these checks are only valid at the point they are done.
Anything could happen afterwards, and changes in circ*mstances could mean that your mortgage affordability decreases, or you become ineligible for the mortgage.
So lender’s reserve the right to conduct further checks prior to the mortgage actually starting. (even though you may have received a mortgage offer)
What credit score is needed for a mortgage?
If you’re thinking of applying for a mortgage in the UK, you may be wondering what credit score you need in order to be approved for a loan. We take a look at what credit score is needed for a mortgage in the UK, and we’ll offer some tips on how you can improve your credit score if it’s not quite where you want it to be.
read more
Final credit checks explained
When you initially apply for a new mortgage there’s lots of checks that need to take place.
For most people, these final checks will just confirm what the lender already knows.
If you are moving home then this process can take many months, and a lot can happen since you first applied for the mortgage.
The lender just wants to check that nothing material has happened (that they don’t like).
Often you won’t even know that they are doing any checks.
You might find this useful: How long does a mortgage offer last?
What the lender is looking for
They are looking for any changes that could negatively affect your ability to pay back the mortgage.
It may have been some months since your application, so the lender will want to see that everything is still OK.
Primarily this will involve looking at your credit report and credit score, to identify any additional borrowing.
When are these checks done?
The final credit checks are done just before your mortgage officially starts.
Your conveyancing solicitor will make a request to the lender to send them the mortgage funds. If you are moving house this will happen a few days before completion is due.
At this point, before the mortgage money is handed over, the lender will carry out the final checks. Making sure everything is as it should be.
If they’re not 100% happy, they won’t release the money.
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What do the final credit checks involve?
The final checks on a mortgage can happen at any time, even after you have exchanged contracts.
The conveyancing solicitor will carry out a last minute bankruptcy search. You’ll probably already know if this is going to cause an issue.
Just before releasing the money the lender will re-check your credit file.
They will want to see how much you owe, to whom and whether your payments are up to date.
It’s likely that they will re-run the Debt to Income (DTI) checks, to make sure your affordability hasn’t changed. And also re-calculate your credit utilisation ratio. Basically, how much of your credit limit you are actually using.
Any increase in debts, credit commitments or DTI will cause them concern.
How to improve your chances
When a lenders assesses a new mortgage application they are looking for evidence that you will be a responsible borrower who can afford the monthly repayments.
If they are happy with your application then they will issue the mortgage offer.
It’s important to maintain the status quo between making the mortgage application and when the mortgage actually starts (on completion).
So you shouldn’t be making any fundamental changes that would give them cause for concern.
Try to avoid:
- Taking on new credit: Don’t apply for any new credit or loans and don’t increase any credit limits.
- Borrowing more: Try to keep your credit balances around the same amount.
- Missing payments: These can show up on your credit report.
- Changing jobs: Lenders don’t like this at all.
What happens if the offer is withdrawn?
If the final checks reveal new information that the lender is not happy with then they have the right to withdraw the mortgage offer.
This means that your mortgage cannot proceed any further.
Reach out to your mortgage broker for more information. Often they can speak with the lender to see what has gone wrong.
New credit agreements are often to blame. They will show up on your credit report and adversely affect the lenders affordability calculations.
If the issue cannot be resolved then you will need to apply to a new lender.
How a broker can help
An experienced broker can help you to pass the checks in the first place, and match you with the right lender.
Most brokers will want to see your credit report before they suggest which deal or lender to approach.
It’s the only way to be certain of what the lender will see.
And if the final checks do fail your broker can investigate and try to put things right.
They can assess whether it’s worth appealing, or if it’s time to try elsewhere.
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