I pay my water bill annually: Could this get me rejected for a mortgage? DAVID HOLLINGWORTH replies

I pay my water bill annually, which costs about £500 per year.

This usually works fine for me, but I've recently become concerned about how it affects my credit score.

I've been checking my credit report online as I need to remortgage soon.

I noticed that, as this year's water bill hasn't been sent to me yet, it shows on my credit report as having a £500 debt to the water company.

Could this affect my mortgage application and is there anything I can do about it? My credit score is otherwise good.

I don't have a meter, so am charged based on my home's rateable value rather than the amount of water I use.

David Hollingworth replies: There's a lot to think about when searching for the right mortgage.

Getting the best interest rate is key, but you also need to consider whether you and the property will meet the lender's criteria.

There are several things borrowers need to keep in mind here, including their credit score and any marks on their file which could raise lender eyebrows.

The lender will want to understand your income, and also see a breakdown of your regular financial commitments and everyday outgoings.

Those figures will feed into the lender's affordability calculation to determine the amount of borrowing that is affordable, and the maximum mortgage available to you.

Although all lenders work on similar principles, they will each have their own calculation.

The final amount you are offered will not only depend on income and outgoings, but also how the lender's 'stress test'.

This is when they look at your proposed monthly mortgage payments, and check whether you could still afford them if the rate went up in future.

If you are applying for a longer fixed rate deal, you may be able to borrow more.

Many lenders have also eased back their mortgage stress rates after the regulator made clarifications around the options open to lenders.

The lender will also want to look at your credit profile to see if you are able to borrow responsibly.

Lenders will be able to see your current credit commitments and track record of payments through your credit file, which will be held with an agency such as Experian or Equifax.

They will also generally apply their own credit scoring to the application. There's no exact science to this and each lender will take a different approach.

Having no track record of borrowing and paying it back can be an issue, as well as more obvious issues like late and missing payments.

This is because it is harder for the lender to understand the risk.

Having credit in place is not a bad thing as long as payments are up to date, which will help to demonstrate that you will be a good risk.

A lower credit score could affect whether the lender can offer the level of borrowing required, or even offer lending at all.

Credit reference agencies give easy access to your credit file now, so it's straightforward to be able to see what a lender is looking at for little or no expense.

They may also provide an indicative credit score to give a feel of how you might be seen by a prospective lender.

These don't necessarily tally with exactly the same approach that a lender will take but will give a useful benchmark.

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You say your credit score is good, despite the water bill issue. This should provide you with confidence regarding your mortgage application, albeit no guarantee.

The fact that the water bill is showing on your file is clearly temporary and the lender will be able to understand that it is a utilities bill.

If that appeared to be £500 per month then a lender may have questions about whether it is something that would need to be factored into affordability, but it should be apparent that's not the case here.

Some lenders already factor the average cost of utilities into their affordability modelling.

It's therefore probably unlikely that the water bill will be an issue for you.

However, if you are concerned that affordability is tight, speaking to a mortgage adviser should help to give a better overall picture.

They will be able to look at deals from across the market and compare those to the options from your current lender.

Once you have assessed the options, they can help put the right deal in place.