How not to get DECLINE on your mortgage application
Mortgages are supposed to be simple. You have a property in mind that has a certain value, and you apply for a loan that would be secured on that property, so why did the lender decline your mortgage application?
There are many reasons why a lender would reject your mortgage application but there are ways to limit them too! We will look at the most common reasons why a mortgage was declined and the steps you can take to improve your chances of securing the mortgage you need.
1. Not fitting the lending criteria
If the bank or building society has declined your mortgage application, it is most likely that you did not fit their lending criteria.
The mortgage application is assessed against the set of rules that cannot be ignored and if you missed any of the criteria the lender will most likely decline your application.
It could be the length of the mortgage, unsuitable property, for example above a restaurant, you could be on a probation period or any of the reasons below.
Every lender would have specific lending criteria that would apply to all applications and if you do not fit the rules, your mortgage will not be approved.
We have access to all lending criteria in one place and can choose the right lender that fit your circumstances the first time round.
2. Low credit score or adverse credit history
Most applications will be declined based on the credit score. Especially if you had a history of missed payments, defaults or CCJ.
If you had any of those on your credit report in the last 6 years, many lenders will decline your application.
We will ask you to provide a copy of your credit report from CheckMyFile, which has all three credit rating agencies included, to analyse your credit history. If we see anything that will not be acceptable by high street banks, we will recommend and approach a specialist lender.
If you find errors on your credit file, please report it and request to be updated.
We have experience with placing clients with a history of CCJs, defaults and missed payments. Read our blog post on the credit history here.
3. Mortgage affordability
When applying for a mortgage a lender will ask about your monthly outgoings, loans, credit cards debt, childcare costs, and if you have any student loan left to repay to check if you can afford the mortgage.
Before we apply to any lender, we will analyse your affordability. This means looking at your income and outgoings to see how much money is left each month to cover the mortgage payments. The affordability will have calculated in the potential rise in interest rates (called stress rate) and how it would affect your ability to pay. If the mortgage is unaffordable it will be declined.
We will look at several lenders to check their affordability rules and choose one that would fit your requirements. However, sometimes the loan will be simply unaffordable and we would advise you to find a cheaper property.
4. Too much debt
Every lender will want to see how did you manage your debt in the past and what is your debt exposure. For example, if you have numerous loans, car hire purchases, and high credit card debt, it might not be acceptable for certain lenders. It can also affect your affordability (see above).
When it comes to buy-to-let (BTL) properties, some lenders will restrict the borrowing to a certain amount, or an overall debt exposure. Smaller BTL landlords with only a few properties might have a problem remortgaging the portfolio with the same lender as the debt exposure will be not acceptable.
We will assess your situation and advise on the best way to proceed, either by paying off some of the debt, choosing a different lender, or changing a property.
5. Type of income
The type of income is also a big reason why the mortgage application could have been declined. Lenders will need to see the proof of income and that this income is sustainable and acceptable.
Cash-in-hand income most likely incurs the decline and inconsistent monthly payments might ring some alarming bells.
The income needs to be supported by documents, either payslips or self-assessment documents.
There are situations where the income is more complicated, for example, you have several part-time jobs, you are a contractor under an umbrella company or you work on a zero-hour contract. In these situations, we can source a specialist lender who would assess the application on a case by case basis.
6. Deposit amount
It might be an issue if your deposit is not high enough. Even though the government introduced the mortgage deposit guarantee, some lenders are still reluctant to offer 95% mortgages, where your deposit is only 5% of the purchase price.
A mortgage on a new-build property might also require a higher deposit, as the new-build property comes with a premium price. In those circumstances, a Help-To-Buy equity loan might be available for 20%-40% of the property price to fill the gap.
A lower deposit means a higher mortgage amount and therefore affordability might not be reached.
Speak to us even if you have a low deposit to see what options are available for you.
7. Proof of residency
Every lender will require proof of address and residency. If you cannot provide 3 years of address history it might be difficult for you to get a mortgage.
If you are not a British Citizen, there also might be different requirements. If you are on a visa or are an EU citizen with less than 5 years of residency, speak to us in confidence about your options.
8. Not registered to vote
Lenders will check the voting register to confirm the address of all the applicants. If you are not registered to vote, the checks might come negative and additional documents might be needed. We would advise you to register to vote at least 6 months before applying for a mortgage as the voting register is updated only twice a year.
9. Property valuation below the purchase price
We have seen a few of those in the past. During the underwriting process, the lender will arrange a valuation of the property. if the valuation comes below the purchase price, the lender might refuse to offer the full amount of the mortgage. In this case, you would either need to provide a higher deposit or negotiate with the seller a lower purchase price.
If the property has no bathroom or kitchen, the surveyor might assess the property as not suitable for mortgage purposes and the lender will refuse the mortgage altogether. In this circumstance, you might be able to access a development loan or a development bridge loan to develop the property for sale, rent or to live in it. Speak to us to find out more about bridge loans.
10. Inconsistent information on application
When you are doing the mortgage application on your own, you might make mistakes and provide inconsistent information. Lenders might refuse your mortgage application on this basis and not allow you to re-apply.
We will check all the information provided against your documents, e.i. bank statements, payslips and credit report to make sure that the information provided to the lender is correct and accurate.