If your mortgage application has been declined it’s important to try and discover why, so that you can try and make a successful application in the future. Some of the most common reasons for an unsuccessful application is having a mortgage declined because of bad credit, although there are also other reasons.
So why might your mortgage application be rejected, and what can you do to reduce the risk of it happening?
1. Missed loan or card payments
As already highlighted, many of the reasons that a mortgage application may be turned down are connected to your credit history. If you have had adverse credit in the past you may find that your application is declined even if you feel you are more than capable of meeting your mortgage repayments. While there is little you can do about you past financial behaviour, once you have decided to apply for a mortgage you should avoid certain types of behaviour that will be a red flag to lenders.
One of the most important things that you should do is to avoid missing any payments on loans or existing mortgages. This is a major factor that lenders take into account when assessing your application. Even if you have an agreement in principle (AIP) or a mortgage offer, if you subsequently miss payments you may find that your mortgage falls through.
2. Taking out a payday loan
Along with not missing payments on loans or mortgages, you should also avoid taking out any additional short-term or ‘payday’ loans, particularly once you have started the application process.
3. You change your job
If you have received a mortgage offer the lender will have made their calculations based on your employment status at the start of the application. If you change your job before you complete your property purchase you may well find that your application is then rejected. Similarly if you are self-employed you should avoid changing the status of your business, for example moving from being a sole trader to operating as a limited company for the same reasons.
4. Financial associations on your credit history have a negative impact
Financial associations on a credit report refers to anyone with whom you have had a financial relationship. Typically, these are partners or family with whom you have say taken out a loan, or had a joint mortgage with. When they have a poor credit history this will impact upon the way in which lenders view your ability to service a mortgage.
However, while there is little you can do about financial associations which are still current, it is worth checking to ensure that your credit report does not still hold the details of financial associations with whom you no longer have any relationship. Often this will be ex-partners whose financial activity is still affecting your credit score. If this is the case with you, you can approach credit reference agencies and request that the association is removed
5. The way you earn your income is unacceptable
If you are a full-time employee you will find it much more straightforward to find a mortgage than if you are self-employed. You may have a reasonably comfortable income and complete a mortgage application thinking that you shouldn’t have much trouble having your application approved, only to find yourself turned down before even getting through the pre-approval stage.
This could be because you are self-employed as it can be more difficult to prove the level or stability of your income. Understanding what documents lenders will want to see, and how you can access these, as well as knowing which lenders are more sympathetic to the self-employed, can help you complete a successful application.
6. How your income is composed
Even if you are an employee, if a significant proportion of your income is made up of, for example, commission or overtime payments, you again may find your application rejected. The solution to this is similar to that for self-employed people, namely that you should try to find a lender who understands more irregular types of salary.
7. You only have a small deposit
If you only have a small amount of cash to put toward your this may limit the number of lenders who will accept your application, and so your application could be rejected at a relatively early stage. There are two ways around this.
Either you can try and see if you can raise a larger deposit, which is easier said than done. Alternatively, you could approach a lender who offers high loan-to-value (LTV) mortgages, which require a smaller deposit.
8. You’ve concealed adverse credit
We’ve seen that many of the reasons for a mortgage application being turned down are connected to having previous poor credit. For this reason, some borrowers attempt to hide previous adverse credit from lenders. This is never advisable. The chances are the adverse credit will be uncovered as the application progresses, and you will find that you have been turned down for a mortgage. Honesty is always the best policy
9. The property is made of an unusual material
Having your mortgage application declined because of how a property is constructed can happen quite late in the process. As part of the application process the lender will send a surveyor to make a valuation of the property. This may highlight problems with the property, such as being a prefab or having a thatched roof, which the lender was not previously aware of, and they may subsequently decide that they are no longer willing to lend to you.
There are lenders however who are comfortable lending on properties made with non-traditional materials, so if you think this may be an issue. It’s worth seeking them out.
10. You can’t afford to make repayments
When lenders look at your mortgage application, they will assess whether they think you will be able to make the repayments on your loan. While some of the factors affecting this calculation may be beyond your control there may be steps you can take to demonstrate that you can afford a mortgage.
This could include ensuring that you correctly represent your income, particularly if you are self-employed or a company director, or if you receive income from more than one source. Accurately completing your application is also important, as in addition to the possibility that you are underrepresenting your income, applications can be rejected purely because they have been filled in incorrectly.
While it might be difficult to identify precisely why your mortgage application has been turned down, it’s definitely worth taking the time to think about what could have gone wrong. Many of the problems above can be solved by making your application through a professional mortgage broker. Not only will they ensure that all your paperwork is complete and accurate, they will also understand how to find a lender who is the best fit for your circumstances. If you have had poor credit history in the past this is particularly important.
Whatever you do, don’t give up.