What is mortgage underwriting and how does the process work?

You’ve found your dream home, you’ve received your initial mortgage decision and you’ve applied for a mortgage - you’ve heard from your advisor at Extend Finance that now is the time for mortgage underwriting and the decision of the bank’s underwriter will determine whether you’ll be able to pick up the keys to your new home in just a few weeks’ time. In writing this article, we want to introduce you to a topic that is surprisingly rarely talked about, which is surprising given the importance of underwriting in the whole application process. So let’s find out what bank analysts do.

What is mortgage underwriting?

Mortgage underwriting is the process of analysing the risks involved in providing a mortgage to a particular person in order to determine whether the bank should engage with that person. It is on the basis of the outcome of this assessment that you will receive a positive or negative credit decision. A number of factors are taken into account, such as your age, financial situation, the property you have chosen as well as your previous history of commitments.

What is mortgage underwriting?

In a sense, mortgage underwriting somewhat resembles the decision-in-principle process, but the analysis is incomparably more detailed, which also means that it takes much longer and has much more legal force.

How does underwriting work?

At the outset, we must point out that although the underwriting process is quite similar in each of the UK banks that we are familiar with, there may be subtle differences between institutions, for example in terms of the time taken to process an application or the period from which income is analysed.

Gathering of documents

The first step basically always remains the same - your mortgage broker or bank employee will collect all the necessary documents, including:

• Your payslips or tax returns so that your income can be determined;

• Your account statements, from which your household expenses will be estimated;

• Old electricity bills or your tenancy agreement, to trace your residence history;

• Loan or mortgage agreements, if any, to estimate your recurring expenses.

Assessment of your financial situation

The mortgage underwriter will check your identity, analyse your credit report and, most importantly, accurately calculate your affordability. The credit score, however, is not calculated by the bank. Instead, it is provided by one of the three main credit rating agencies - TransUnion, Equifax and Experian. The stability of your living situation, both professionally and personally, is also assessed.

How does underwriting work?

The assessment of the borrower’s financial situation is, of course, intended to ascertain whether the applicant(s) will be able to repay the property purchased. In addition, the probability of this happening is estimated - the lower it is, the better. For this reason, older borrowers may find it difficult to obtain financing, especially for a longer term.

Valuation of real estate and analysis of its legal status

If you, as a mortgage applicant, have passed a creditworthiness analysis, the underwriter takes a look at the property you want to buy. In addition to looking at the valuation of the house, the analyst will also check the future projections - it can be very difficult to obtain a mortgage for a property located near a planned motorway, in an area contaminated with asbestos or requiring major structural repairs in the future, as the bank’s risk is increased in such situations. As an aside, let us add that a professionally carried out conveyancing will give you a quicker overview of the legal status of the building, which will significantly reduce the risk of your mortgage application being rejected.

If everything goes your way, the bank will contact you informing you of the positive outcome of the underwriting.

Does a mortgage application always involve underwriting?

As a rule, no bank wants to take unnecessary risks, which is why underwriters are virtually always involved in the mortgage process. Some banks use external companies. Although these are only our guesses, we assume that some of the mortgage applications may be at least to some extent analysed by computers rather than humans. What is certain, however, is that if a bank comes across a more complicated case, it will almost certainly be analysed by an underwriter and often even several specialists in the field.

Does a mortgage application always involve underwriting?

How long does it take for a mortgage decision to be made in the UK?

Well, it depends. Mortgage underwriting can take as long as a week or as long as a month, it all depends on the current interest in the offer from the bank in question. Your situation is also important - a model borrower who has no additional financial commitments, earns above average and is buying a new property while paying a high deposit will wait for a mortgage decision for up to a couple of days, while someone who occasionally misses an electricity bill, earns relatively little and has decided to buy a property at auction will have to be more patient.

What if my mortgage application is rejected?

One in five mortgage applications in the UK are rejected at the underwriting stage and it’s worth being aware that this situation can happen to pretty much anyone. Of course, many situations involve insufficiently high earnings or irregularities in the repayment of past debts, but a surprisingly high proportion of applications end up being refused due to errors in documentation!

What if my mortgage application is rejected?

As a licensed mortgage broker with over seven years’ experience in the market, we can assurance you that when you apply for a mortgage with our help you reduce the risk of making a mistake at the application stage. Our advisers will also find the bank with the best possible offer and therefore potentially lower instalments, so you also increase your chances of a positive assessment from the underwriters. We cannot guarantee you will get a mortgage, but it is certainly much more likely if we work together.

If you have applied for a mortgage and have been refused, the situation is not as bad as you might think. For this reason, it’s worth taking the necessary steps quickly and implementing a contingency plan as soon as possible. Here is what it might look like:

• Contact us and describe the whole situation - your assigned mortgage advisor will review your documents and assess the reason behind the rejection;

• Choose a favourable offer, which we will find together - by choosing an offer with a lower interest rate, you become more creditworthy, which increases your chances of passing the financial health test;

• Review your credit report with us - together we will see if there are elements you can still work on to improve your image in the eyes of the banks;

• Apply for a mortgage again - you will do so with much more peace of mind knowing that you have done everything you can to finally realise the dream of owning your own home.

What can be done to increase the chances of a positive underwriting outcome?

Above all, don’t treat the bank as your adversary - this institution also cares about giving you a mortgage, because this is how it will make money from you.

It may be the case that a banking analyst contacts you to clarify issues of concern - if your credit report shows that your current financial situation is materially better than it was just a few months ago, the specialist’s assessment of the situation may speak in your favour. On the other hand, attempts to artificially raise your average earnings, understate your expenses or ostensibly raise your credit score will most likely be exposed.

To add once again, engaging with a mortgage adviser can also help you to get a mortgage. The broker’s fee is a fraction of the value of the property you are buying, and the savings generated from choosing more favourable mortgage terms can be many times higher.