A mortgage application takes a lot of time and energy, so having it turned down can be frustrating.
Whether you’re about to apply for a mortgage or want to find out why you haven’t been accepted, here’s a list of things that might stand in your way. Maybe you’ll be able to avoid some common mistakes and give your application the best chance of success. Let’s go.
1. Money: proving you can afford the mortgage
If you’ve had “mortgage declined on affordability,” it means your potential lender decided that there is a risk that you wouldn’t be able to make your mortgage repayments. This can happen even if you have a mortgage in principle (because an MIP doesn’t involve a credit check).
Your mortgage can be declined on affordability for different reasons:
You fail the affordability checks
Lenders make affordability checks to make sure you’re going to be able to make your mortgage repayments. They’re interested in how much of your income the mortgage will take up, and whether you could continue to make your repayments if your situation changed.
You have too much debt
A mortgage is a big debt and lenders want to know they aren’t adding to an already existing pile. Lenders don’t just consider your current debt but also your potential future debt. If you have a lot of credit cards with a high spending limit, you should consider closing them before you make your mortgage application.
You don’t have a large enough deposit
The size of the deposit you'll have to pay depends on the property, your circumstances, and your credit history. You might be able to find a 5% mortgage, but at least a 10% mortgage is more common.
2. Credit: proving you can make repayments reliably
Mortgage lenders are very interested in your credit score. It’s a number based on your borrowing and repayment habits. The higher your score, the more likely you’ll be accepted for a wider variety of mortgages. You can read more about improving your credit score here.
Poor credit score
If you have a poor or very poor credit score, you’ll find it harder to get a mortgage, especially without going through a mortgage broker like Habito. This is especially true if you have CCJs (county court judgements), IVAs (individual voluntary agreements) or bankruptcies against your name.
Too many applications for credit
Applying for a lot of credit from different places tells lenders that you might struggle to make your mortgage payments. Especially if you’ve tried to borrow a lot in the months before you make your mortgage application.
Mistakes on your credit report
Mistakes happen, and it might be that someone else’s debt is attached to your name or that your credit report says that you failed to pay a bill you paid on time. You can call your providers to correct these errors and update your report.
No credit history
You might think it’s great to show your lender that you have no debts, but having no credit history can be as bad as having a poor one. For some people it might be a good idea to take out a credit card, borrow each month and repay in full so that you can start building up a good history.
3. Employment: proving you have a stable income
Your lender wants to learn more about your job before they let you borrow, and there are plenty of ways that your employment situation can block your application from being accepted.
These are the main ones:
You can’t prove your income
This one is a headache for self-employed people and contract workers in particular. If you work in conventional employment, mortgage lenders might only need to see 3 months of bank statements or payslips to prove your income. However, if you’re self-employed, you might need to show financial statements covering up to 3 years.
You can find our complete guide to mortgages for self-employed people here.
You move jobs frequently
Buying a new home when you start a new job seems to make sense. You might have a higher salary or be moving to a new area. But lenders like things to be predictable, and their definition of stability does not include big life changes. You might find you have a bigger selection of deals to choose from if you wait 6-12 months after starting a new job before you apply for a mortgage.
4. The property: proving it’s worth the lender’s investment
Some of the things that can prevent you from getting a mortgage have nothing to do with you. If you hear that your mortgage was “declined by the underwriter after valuation,” the property was the problem.
As part of the house buying process, an estate agent will have valued the property you want to purchase. But once you’ve made an offer, the lender will do their own checks to make sure that they agree - these checks can sometimes derail your mortgage application.
The surveyor decides that the property is worth less
The surveyor can decide that the property is worth less than the mortgage amount you’re applying for. If the surveyor undervalues the place because they think home improvements are needed, you do have the chance to show that the work they see as essential can wait or be done at a lower cost than they claim.
The property is unique
It’s harder to get mortgages for homes with ‘unusual construction’. In the UK, this usually means that the house wasn’t built with bricks and mortar. Even if a property is modern, efficient, or architecturally important, conventional lenders sometimes prefer to steer clear. In this situation, it's worth trying to find a specialist provider.
The location is a risk
If your future home sits on a flood plain, has issues with damp, or needs extensive renovation, it might be harder to get a good deal on the mortgage. To the lender, there’s too big a risk of something going wrong with the building for them to put up the money. In this situation you might only have access to mortgages that need a larger deposit or a higher interest rate.
5. Other factors that can prevent you from getting a mortgage
If you’re a very young first-time buyer, you might have issues with your mortgage because you haven’t built up a credit history. At the other end of the scale, if you’re an older buyer who plans to retire soon, you might have limited options. Don’t worry, there are specialist lenders who can help.
Mortgage applications come with a lot of hoops to jump through, but you need to make sure you’re dotting the ‘i’s and crossing the ‘t’s or else your application might be rejected on the spot.
Too many applications
Making a few mortgage applications at once is stressful, and it can also harm your chances of being accepted. Multiple applications don’t take points off your credit score but they do appear when lenders search your credit history. Most lenders would read multiple rejected applications as a sign of risk.
6. And finally, choosing the right lender for you
There are dozens of lenders in the UK, and not all of them will have the perfect mortgage for you. Lots of the issues above can be prevented if you take the time to find a lender who specialises in customers in your situation – whether you’re self-employed, have poor credit, recently returned from living abroad, are divorced, or want to convert a listed building. Being turned down means that you don’t fit that lender’s criteria, not all lenders’ criteria.
You don’t have to go it alone and, if you’ve already had an application rejected, it’s probably time to speak to a mortgage broker. Habito can save you time by finding the best possible deal for your circumstances. Try our free mortgage calculator today and see what might be possible.