What is Mortgage Underwriting?

No matter how straightforward getting a mortgage seems to be, there is no doubt that you will feel stressed or frustrated by the mortgage process at some point.

From delays with processing an application, conveyancing issues or providing additional documentation – it can seem like a never-ending saga. One issue that can crop up is the mortgage underwriting process. 

Don’t worry though, this guide will give you all the information you need about mortgage underwriting as well as helpful tips in case things go awry. Let’s dig deeper!

Mortgage Underwriting Overview

You may have heard about underwriting in the context of insurance. Mortgage underwriting works in a similar way and is essentially a way for lenders to assess the risk of lending on each mortgage.

The mortgage interest rate offered by lenders will typically reflect a low risk.

For example, if a bank offers a headline rate of 4%, this will be for their lowest risk mortgages.

The interest rate on a mortgage reflects the risk of the case and sometimes after the underwriting process you might find the mortgage offer has a higher interest rate – or worse, the application is declined outright.

A mortgage underwriter will consider a number of factors when they decide what interest rate to offer or whether you can get the mortgage altogether.

They look at:

  • Credit history and current credit score.
  • The property you’re looking to borrow money against.
  • The affordability of the mortgage.
  • Whether you fit their standard lending criteria.
  • Regulatory checks.

We will examine each of these in more detail shortly.

What is an Underwriter and What Do They Do?

An underwriter is normally an employee of the lender and evaluates the risk of each mortgage for them. They have a checklist to consider and guidelines to follow to ensure that you’re offered a mortgage that reflects your circumstances.

Your mortgage broker will be able to discuss your case with the underwriter and help answer any questions you may have during the underwriting process. 

If you’re not using a mortgage broker, it is unlikely you will have much contact with the mortgage underwriter unless they specifically request additional information from you.

Many mortgage applications are completed behind the scenes and because most lenders have a high volume of cases to deal with, they tend not to contact applicants unless it is necessary.

Instead, you will find out at the end of the process whether your application has been accepted or declined.

Using a mortgage broker can be advantageous as they will keep you in the loop about how your mortgage application is progressing during the process.

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What Things Are Checked During the Underwriting Process?

Below we outline the key aspects checked during the underwriting process.

Credit History and Current Credit Score

First and foremost, a lender will want to check that you will pay back the mortgage.

Contrary to popular belief, banks aren’t keen on lending money if they think you will default on payments even if they can repossess and sell the property.

This is because property repossession is a lengthy and costly process.

Properties that are repossessed are normally sold at auction and it is not uncommon for lenders to sell properties at reduced value and even make losses in the process.

In short, a lender wants to avoid hassle. They want to check you’re a good borrower who takes your financial commitments seriously and will pay back the money you owe on time.

Checking a credit history will give them a fairly good idea of how responsible you are as a borrower.

Credit checks can be conducted in a few ways.

When you get an agreement in principle or a decision in principle a lender will normally conduct a soft credit check.

When you make a full mortgage application most lenders will conduct a hard credit check.

Soft Credit Checks – These don’t show up on your credit record and provide lenders with your credit history and score.

Hard Credit Checks – When a lender performs a hard credit check it will show up on your credit record. This means other lenders can see if you have applied for a mortgage elsewhere. 

Multiple hard credit checks can negatively impact your credit score, it is a good idea to ask your broker whether the lender will use a hard or soft credit check.

Checking the Property

When you buy a house, a mortgage provider will have a strict set of guidelines about the condition and type of property. 

For example, most lenders require that the property is of standard construction with brick walls and a tile roof.

That means if you’re looking to buy a property with a thatched roof or with some other non-standard construction material you will need to discuss this with your mortgage broker to look at lenders’ guidelines.

Lenders will likely want a survey conducted of the property to ensure it meets their guidelines.

In cases where the survey finds issues, or the property doesn’t meet the guidelines an underwriter might offer a different product or decline the mortgage altogether.

Another thing a mortgage lender will check is the actual value of the property.

This can cause problems if you’re buying a property that has been overpriced by the seller or estate agent as a lender will have more risk. 

Unfortunately, this last problem is quite common – estate agents tend to make commissions on the total sale price and sellers often try to get as much money as possible.

In these cases, lenders might find there isn’t enough equity, and it presents them with a major risk when lending.

For example, if you’re looking to buy a house for £100,000 with a 10% deposit of £10,000 and the valuation comes back at £80,000 – the lender would immediately be in negative equity on the mortgage – and in all likelihood would decline to lend.

Affordability

You’re probably aware about affordability in basic terms and most people think lenders will allow borrowers to borrow 4.5 times their annual salary.

Basic affordability checks vary from lender to lender and some offer more or less than the often cited 4.5 times.

But affordability goes much deeper than just a multiple of your annual salary. An underwriter will look at all sorts of things when it comes to evaluating whether you can afford a mortgage.

These are some of the most problematic areas for borrowers:

  • Any available overdrafts and monthly overdraft usage.
  • Existing loans such as car finance and monthly obligations to repay those.
  • Ongoing childcare costs.
  • Credit card and store card balances.

When you complete your mortgage application you may be shocked at how detailed the questions are about your expenditure.

This information is required for an underwriter to get a good understanding of your financial situation.

The affordability check isn’t always doom and gloom.

A lender may also look at positive aspects of your financial situation such as upcoming pay rises or any imminent payments that may boost your affordability profile.

Standard Lending Criteria

A lender will have a few basic requirements for their mortgages. These are normally:

  • Being within their defined age range to borrow money.
  • Being a UK resident with the right to reside in the UK.
  • A deposit that comes from a source that is approved on their criteria.

Although these seem like fairly straightforward things, they can be stumbling blocks, especially if you haven’t got evidence of where the money has come from for your deposit.

You should make sure you have collected documentation for your deposit before you apply for a mortgage such as a statement of your savings account.

If your deposit has been gifted from friends and family, they may also need to sign a letter saying the deposit is a gift. They don’t get a free pass with regards to the source of the money either and will likely need to provide some evidence of where the money has come from for the lender.

Regulatory Checks

The main reason a lender requires you to provide evidence of where your deposit has come from is to make sure the money isn’t laundered.

In the UK there are strict Anti-Money Laundering checks all lenders must complete in order to make sure they’re lending in accordance with the law. This means you will have to document everything for the lender so you can pass these checks and obtain the mortgage.

Aside from money laundering, a lender will also want to satisfy themselves that the property being purchased isn’t being used to commit fraud.

What Part of the Mortgage Process is Underwriting?

Typically, the underwriting process itself will begin when you make a full mortgage application.

There are however a few checks that are done before this stage such as a soft credit check when applying for an agreement in principle.

Your mortgage broker will also go through a detailed fact-finding process in advance of a mortgage application to ensure they not only apply to the right lender, but also gather an overview to evidence an application to the lender.

Once you have applied for your mortgage, the underwriting process will begin in full.

How Long Does Underwriting Take?

This depends on the type of mortgage you’re applying for and the lender you’re applying to.

Product Transfer with the same lender – this is normally an expedited underwriting process as some of the checks will have been completed by the lender when the original mortgage application was made.

Underwriting in these cases will normally revolve around any changes to your personal circumstances between you taking the original mortgage deal and the product transfer.

You can complete a remortgage with the same lender in as little as 24 hours.

Remortgaging with a new lender – You may notice that the new lender wants to know who your current lender is.

This is because they will be broadly aware of the lending criteria of your existing lender, and it will make underwriting the remortgage easier. 

Again, they will check you meet their criteria and look for any changes in your circumstances.

Underwriting in these cases can be done in as little as 48 hours.

New Mortgages – When making a mortgage application on a property for the first time, the lender will need to complete the full underwriting process outlined above.

Many of the processes are automated and when they’re not, lenders are very good at processing applications in a timely fashion.

Underwriting in new mortgage cases normally takes around a week to complete.

Specialised Mortgages or Unusual Cases – As you might have guessed, if you’re looking to buy an unusual property or there are more complicated personal circumstances an underwriting process can take a lot longer.

If you have difficulty finding or providing information during the underwriting process it can delay things further.

Underwriting in these circumstances will be completed as soon as an underwriter has collected all the information they need to make a decision.

They can take many weeks to complete.

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What Happens if a Mortgage is Declined During Underwriting?

If a mortgage application is declined the lender will normally provide a brief summary of why it has been declined.

Unfortunately, sometimes this is as simple as saying that you don’t meet their lending criteria or that the property doesn’t meet their lending guidelines.

This can be incredibly frustrating as you might be left in the dark as to what exactly caused the overall decline.

Sometimes a lender will highlight key reasons why the application has been declined.

This isn’t a common practice though as it is time consuming for lenders to provide these reports to applicants.

If you’re using a broker, they will be able to communicate directly with the underwriter who worked on your application and relay the exact reasons for the decline in most cases.

Why Might My Mortgage Be Declined?

The reason for a decline normally falls into three categories.

  • Your personal circumstances have changed during the application process.
  • You haven’t passed the affordability checks needed to get the mortgage.
  • The property doesn’t meet the lender’s criteria.

Of course, with such a complex underwriting process to go through, there could be any number of things that cause a mortgage to decline so you should discuss this with your broker in the first instance.

Your broker will be able to advise you on how to proceed forward, normally looking at other lenders which have different criteria.

In rare cases they may try and appeal on your behalf to the lender – especially if they feel the underwriter has made a mistake.

Conclusion

Mortgage underwriting is a process that allows lenders to evaluate the overall risk of lending to you.

It has many aspects and can take a while to complete especially in unusual cases.

Using a broker like Boon Brokers can help you understand your particular mortgage application in a more in-depth way.

Boon Brokers is a whole of market UK mortgage, insurance and equity release broker.

If you have questions about underwriting or have had your mortgage application declined for any reason, contact Boon Brokers today for your FREE, no obligation mortgage advice.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.