Thinking about a mortgage but not sure how banks figure out what they’ll lend you? You’re not alone. Most people assume it’s just about income, but credit score, debt, and even your job stability play a role. This guide breaks down the key factors, shows you where banks look for red flags, and gives practical steps to improve your chances of getting a good bank loan.
First, lenders run a simple math test called the loan‑to‑income ratio. They take your gross annual salary, divide it by your monthly debt payments, and then apply a multiplier – usually between 3 and 5. If you earn £45,000 a year and have £500 in monthly debts, a 4x multiplier could give you a borrowing power of around £150,000.
Credit score is the next big piece. A score above 720 usually unlocks lower interest rates, while anything below 600 can add a hefty surcharge or even lead to a rejection. Banks also look at your employment history; staying with the same employer for at least two years signals stability.
Don’t forget the down payment. Most lenders want you to put down at least 5‑10% of the property price. The larger your deposit, the less risk you pose, and the more likely you’ll secure a better rate.
Start by checking your credit report for errors. A single mistaken entry can drop your score by dozens of points. If you spot a mistake, dispute it right away.
Next, pay down high‑interest credit cards before you apply. Reducing your debt‑to‑income ratio sends a clear signal that you can handle monthly payments.
Gather all required documents early: recent payslips, tax returns, bank statements, and proof of any additional income (like freelance work or rental income). Having a tidy file makes the process smoother and shows the lender you’re organized.
Shop around. Different banks and building societies have varied criteria and may offer special programs for first‑time buyers. Even a small difference in interest rate can save you thousands over the life of the loan.
Finally, consider a mortgage broker. They can match you with lenders that fit your profile and often have access to deals you won’t find on your own. Their fee is usually covered by the lender, so it’s a low‑cost way to boost your odds.
By understanding how lenders calculate limits and taking the right steps to improve your profile, you’ll be in a stronger position to lock in a bank loan that works for your budget and goals.
