Denied a Mortgage
Mortgage application declined?
Buying a home is likely going to be the most expensive purchase of your life and inevitably it will be necessary to apply for a mortgage in order to help pay for your home purchase.
There are a vast number of different mortgage products on the market which change frequently so people can often feel overwhelmed – this is doubly so for first time buyers who have little experience of the home buying procedure.
Help is at hand from mortgage brokers that are able to sift through a large variety of products from different lenders using your specific criteria. Some mortgage lenders will charge you a fee for arranging a mortgage whilst others will take their fee as a referral direct from the mortgage company. As with all financial products, be aware of any fees applicable. This is especially true with mortgages as there are a number of fees that go hand in hand with mortgages such as legal fees, various admin fees, estate agency fees, etc. so make sure that your finances are able to withstand the barrage of fees associated with buying a house.
Why was my mortgage application denied?
Obtaining a mortgage in this current economic climate is very different to the mid-2000’s when lenders were offering mortgages with LTV rates as high as 125%. In today’s market lenders have made mortgage eligibility requirements much tougher on the whole so it is harder to get a mortgage and you will need a higher deposit now when compared to 5 years ago.
Therefore, in order to maximise your chances of getting a mortgage and importantly getting a mortgage on a good deal, you should make sure that you do not succumb to some of the common pitfalls when making an application for a mortgage.
The following reasons can all potentially contribute towards a mortgage application being declined.
- If you have a bad credit score or a lack of credit history it will be hard to be accepted for a mortgage. Lenders used to offer mortgages in some instances to people with less than stellar credit ratings but this so-called “sub-prime” market was a large contributory factor in the recent credit crunch so mortgage lenders now have more stringent credit score requirements. For details on credit scoring see our section on credit reports and also read details on how to improve your credit rating in the section below.
- If a mortgage lender is unable to verify your details as noted in your mortgage application then it is unlikely that a mortgage offer will be forthcoming. Make sure that address details are present and correct, along with all other personal details. The details that go on your application form should ideally match what is held about you on your credit report so it is important that you are familiar with your credit report.
- Your mortgage lender will want to be satisfied that you will be able to make your mortgage repayments and as such they will perform affordability checks which look into everyday spending and when this is added to new mortgage payments, if the lender thinks that you will possibly struggle with repayments your mortgage application will likely be declined.
- Many mortgages have a high LTV (certainly the mortgages with the lower percentage interest rates) and these types of mortgage usually require a high deposit. If you have an insufficient deposit you will be ineligible for a lot of mortgage products.
- As part of a mortgage application the lender will arrange for a valuation survey of the house you wish to purchase. If the valuation returns a price that is lower than the price you have agreed to pay, then the mortgage could be turned down.
- General mistakes on the mortgage application form can scupper a mortgage from being granted.
- If you have applied for a mortgage jointly with a partner and your partner has a bad credit rating then it can cause the application to fail even if the other person has a good credit score.
- If you are self-employed and have not been able to provide tax statements from at least the last 2 years accounts you will find it hard to have a mortgage application accepted.
- If you have recently had a mortgage application fail and you apply again straight away it is very likely that the new application will fail so try to work out why the original application failed and/or re-apply after a reasonable timeframe.
Tips on how to get accepted for a mortgage
Provided that you are prepared to follow recognised guidelines and fulfil mortgage company eligibility requirements there is a good chance that there is a mortgage available that will suit your needs.
Good credit rating – Ensuring that your credit score is in good shape is one of the first things that you as a potential mortgage applicant should look at. This can be done easily by ordering your credit report from Equifax or Experian and there is a little known loophole that we describe here which means that you can actually get your credit report free of charge!
Dot the I’s and cross the T’s – When making the mortgage application make sure that all the details in the application form are true and correct and contain no spelling errors or factual errors.
Your finances – You need to be confident that you have sufficient finances in order to apply. This could mean having a large enough deposit for the mortgage or having a regularly high enough income to be able to cover mortgage repayments. Without sufficient finance in place, your mortgage lender will see you as a risk or outright believe that you cannot afford the mortgage and refuse to grant your application.
Pay off debts – By paying off as many debts as possible prior to application you would be increasing your mortgage affordability which will potentially open up more mortgage products to choose from.
Look for a good mortgage broker – A good mortgage broker will help to cut through the jargon, bureaucracy and theoretically should be able to use their experience to get you one of the best deals on the market. There are a variety of different ways in which a broker will receive their commission so be aware of how this is structured as well as being aware that they can choose from a wide range of mortgage products and not just a narrow selection of preferred providers because some brokers can only select mortgages from a small number of lenders.
Prepare for all the fees associated with home buying – As part of the affordability checks in getting mortgage approval you need to ensure that you have the funds available to pay for the many supplemental searches, legal fees, etc. that are part of the house buying process. A good checklist can be found at http://www.thisismoney.co.uk/money/mortgageshome/article-2271992/First-time-buyers-fees-checklist–costs-need-think-buying-property.html.
Shared ownership schemes – If you believe you would fail the affordability checks when it comes to being accepted for a mortgage you could consider a shared ownership scheme where you would purchase a percentage of the property and pay the remainder as a rental payment. This would mean that a smaller mortgage amount would be needed and might open up some more options in terms of mortgage availability and acceptance.
Mortgage deposit – Often the hardest part of getting a mortgage is raising the deposit. When looking at a £100,000 home purchase with a mortgage using a 75% LTV the applicant would need to raise £25,000 for the deposit. Understandably this can difficult for families or younger first time buyers. If this is providing to be an issue you could consider either:
Guarantor mortgage which means a parent or close relative will “guarantee” the payments on the mortgage. E.g. if you were unable to meet the repayments for whatever reason, the obligation would then fall to the guarantor to pay.
Government grant such as the Help to Buy scheme which is run by the government and works by providing a loan for 20% if you have a 5% deposit yourself. This means you would then be able to apply for mortgages with a 75% LTV. The caveat to this is that the applicant must be a first time buyer and the home being purchased must be a new build home.
Be realistic – After having researched the various mortgage deals, worked out your finances and checked your credit rating you should have a reasonable idea about what type of mortgages to apply for and the maximum amount of the loan, so be realistic and do not apply for mortgages that would overstretch your finances. If you think you will be overstretched, then the mortgage companies will likely think the same and decline your application.
Self-employed – Being self-employed should not present a problem when it comes to getting a mortgage as long as you are organised. The mortgage lender will want to see 2-3 years full tax statements so that regular income can be proved and calculated against the specific mortgage eligibility requirements.
Space out your applications – If you have been denied a mortgage, do not immediately apply for another mortgage straightaway. As part of the initial mortgage decline a credit check will have been made against you and the decline will be recorded in your credit file for other mortgage lenders to see. Therefore, if mortgage lenders were to see multiple failed mortgage attempts within a short space of time on your credit report it will be unfavourable towards your subsequent applications.