Having a mortgage application rejected can be frustrating, particularly when you have already found a property you want to buy. However, a declined application does not necessarily mean you cannot get a mortgage.
Different lenders use different affordability calculations and lending criteria. An application rejected by one lender may be acceptable to another, but making several applications without understanding the problem could damage your chances further.
Here are five common reasons mortgage applications are declined and the steps you can take to improve your position.
1. You Do Not Pass the Lender’s Affordability Assessment
Being able to manage the monthly mortgage payment does not automatically mean you will pass a lender’s affordability checks.
Mortgage lenders consider your income alongside your regular financial commitments. These may include:
- Loans and car finance
- Credit card balances
- Childcare costs
- Maintenance payments
- Student loan deductions
- Household bills
- Other mortgages or financial commitments
Lenders may also test whether you could continue to afford the mortgage if interest rates increased. As each lender uses its own calculations, the amount you can borrow may vary considerably between providers.
What can you do?
Review your regular expenditure and outstanding debts before applying. Paying down credit card balances or clearing a loan may improve affordability, although you should avoid using all your savings if this would leave you without an emergency fund.
A mortgage broker can assess your circumstances and approach lenders whose affordability calculations are more likely to work in your favour.
2. Problems With Your Credit History
Your credit report gives lenders an indication of how you have managed borrowing in the past. Missed payments, defaults, County Court Judgments and other credit problems can all affect an application.
However, you do not need to have serious adverse credit to encounter difficulties. A lender may also be concerned by:
- Regular late payments
- High credit card balances
- Frequent use of an overdraft
- Numerous recent credit applications
- Very little borrowing history
- Financial associations with another person
Credit problems do not always make getting a mortgage impossible. Their effect can depend on the type of issue, its value, when it occurred and whether it has since been settled.
What can you do?
Check your credit reports before applying and make sure the information is accurate. Registering on the electoral roll, paying bills on time and reducing credit card balances can all help strengthen your credit profile.
Avoid making several mortgage applications in quick succession. Each full application may leave a search on your credit file, and repeated applications can make lenders more cautious.
If you have experienced credit difficulties, speak openly with your mortgage broker. Trying to conceal a problem is unlikely to work and may result in the application being declined later.
3. Your Income or Employment Does Not Meet the Lender’s Criteria
Not all income is treated equally by mortgage lenders. Applications can become more complicated if you are:
- Self-employed
- A company director
- Working on a fixed-term contract
- Newly employed
- Receiving commission, bonuses or overtime
- Working several jobs
- Relying on irregular or seasonal income
For example, one lender may consider your latest year’s self-employed income, while another may want two or three years of accounts. Lenders can also differ in how they assess retained profits, dividends, overtime and commission.
A recent job change is not necessarily a problem, but it can limit the lenders available, particularly if you are still within a probationary period.
What can you do?
Prepare your documents in advance. Depending on your situation, you may need payslips, bank statements, tax calculations, tax year overviews, business accounts or confirmation of your employment contract.
Do not assume that being self-employed or having an irregular income means you cannot get a mortgage. The key is presenting the income correctly and choosing a lender that understands your circumstances.
4. The Deposit or Property Causes a Problem
Sometimes the issue is not the applicant, but the deposit or property being purchased.
A lender may decline the application if it is not satisfied with the source of the deposit. This can happen when money has recently appeared in an account without a clear explanation or when a gifted deposit has not been properly documented.
The property itself can also cause difficulties. Potential concerns include:
- Significant structural problems
- A short lease
- Non-standard construction
- Certain types of cladding
- A property above commercial premises
- A low valuation
- Extensive renovation work
- Restrictions affecting resale
If the lender’s valuation is lower than the agreed purchase price, you may need a larger deposit or have to renegotiate with the seller.
What can you do?
Keep clear records showing where your deposit came from. If part of it is a gift, tell your mortgage broker at the beginning so the correct paperwork can be prepared.
Your broker should also know about anything unusual concerning the property. This helps them identify lenders that may be willing to consider it before a full application is submitted.
5. Incorrect or Inconsistent Information
Mortgage applications involve detailed checks. Differences between the application, bank statements, payslips and credit report can create questions or result in a decline.
Problems may arise from:
- Incorrect income figures
- Undeclared debts
- An inaccurate address history
- Unexplained bank transactions
- Undisclosed financial commitments
- Different spellings of names or addresses
- Missing supporting documents
Even an innocent mistake can delay an application. More serious discrepancies may cause the lender to question whether the information supplied is reliable.
What can you do?
Check every part of the application carefully and provide complete, accurate information. If there is something unusual on your bank statements or credit report, explain it to your mortgage broker before the application is submitted.
It is far better to deal with a potential concern at the beginning than wait for an underwriter to discover it.
What Should You Do If Your Mortgage Application Has Been Rejected?
Do not immediately apply to several more lenders. First, find out why the application was declined.
The reason may be something that can be corrected, such as missing information or an error on your credit report. Alternatively, the lender’s criteria may simply be unsuitable for your circumstances.
A mortgage broker can review the application, identify the likely issue and advise whether another lender may be more appropriate. In some cases, waiting a little longer, reducing debt or improving your deposit could produce a better result.
Speak to Worths Mortgages Before You Apply Again
Choosing the right lender is about more than finding the lowest advertised interest rate. The lender must also be suitable for your income, credit history, deposit and the property you want to buy.
If you are concerned about being turned down, or a lender has already rejected your application, speak to Worths Mortgages before making another application. We can review your circumstances, explain the available options and help you approach a lender whose criteria are more closely suited to you.
Contact Worths Mortgages today to arrange an initial conversation.
Your home may be repossessed if you do not keep up repayments on your mortgage.
