When looking to get a mortgage – whether your first, your second, or more – there’s always a level of anxiety around whether or not your applications will be accepted. The process of applying for mortgages can be overwhelming and waiting for answers can be even more so.
Did you know that, according to the Intermediary Mortgage Lenders Association, three out of four borrowers are accepted for a mortgage? But, sometimes, even if you’ve done everything you’ve been told to secure a great mortgage rate, there is always a chance something may have gone amiss and you may be declined.
So why might this happen? Here are the most common reasons why your mortgage might get declined…
1. You’re not registered to vote
Mortgage lenders need to be able to confirm your identity, who you are and where you live, and one way they do this is by checking the electoral register, so make sure you’re registered to vote at your current address.
2. You have too much debt (or high debt-to-income ratio)
This is quite a well-known fact but having a lot of debt shows lenders that you have trouble repaying credit payments, and is a worrying sign to mortgage lenders.
If you’re having trouble with debt, take a look at debt charity StepChange or contact us to find out how we can help.
3. You’ve taken out payday loans
In a way this comes hand in hand with having a high level of debt – any payday loans you may have taken out in the last 6 years are listed on your files, even if you paid them back on time. This, like having debt and credit applications, shows lenders that you may struggle with financial responsibility, especially one as big as a mortgage.
4. You have a poor credit history, or a low credit score
You’ve most likely been told how important it is to have a good credit score for applying for big loans like mortgages, and it’s true. This is one of the best and often easiest ways to boost your chances to be approved for loans, and the easiest way to keep an eye on your credit score is to download free credit checking apps like ClearScore, or to use credit reference agencies like Experian or Equifax. It’s worth noting that if any of the information on your credit score is definitely incorrect, don’t panic – it can be fixed.
5. You’ve had too many credit applications
Whenever you apply for credit with any organisation, this will show on your credit report and could also affect your credit score. Try to ensure you’re not applying for any new credit at least 12 months before applying for a mortgage to avoid this becoming an issue.
6. Administration errors
Just like there may be mistakes on your credit score, lenders can make mistakes (they’re only human!). Sometimes there may be errors in the information they put into systems, or credit score mistakes could transfer over into their assessments. Unfortunately, lenders aren’t likely to give you a specific reason why your application for a mortgage may have failed, but if the issue relates to your credit file, the lender should provide you with the details of the credit reference agency they have used, and it is worth checking with the agency.
7. You’re not earning enough
An unfortunate truth of applying for mortgages is that, even if you are able to pay regular higher rent payments with what you’re currently earning, if you’re not earning as much as lenders have in their profiles, you may be declined.
To find out what kind of mortgage you may be able to apply for, check out the Money Advice Service’s Mortgage Affordability Calculator.
Alternatively, if you’re declined based on this issue, you may be able to ask for a smaller mortgage or see if you qualify for shared ownership or help to buy schemes.
8. Your deposit is too small
For a while, especially in the past year, lenders have asked for higher deposits, and this could be unattainable for many people.
The good news is that the government have brought in the Mortgage Guarantee Scheme in April, which will bring back 5% deposits for mortgages up to £600k, and this could change the game, especially for many first-time buyers. For more information on the scheme and other latest mortgage news, check out our blog post on recent mortgage news.
9. You’re self-employed or contract worker
It is more common now than before that you will be accepted for a mortgage even if you are self-employed or a contract worker, however still less likely than others.
The reason for this is that lenders want to know that you will have steady income and be able to pay back the loan as agreed, so the best way to get around this as a self-employed or contract worker is to show your tax statements and business accounts for at least the last two years, and it also helps to have proof that you have work secured long-term in the future.
What can you do if your mortgage gets declined?
The first step to take is to discuss it with your mortgage broker or financial adviser who will advise you on your next steps, or even discuss the matter with the lenders directly. This should show you the right next steps for your situation specifically, and they will be able to give you their expert advice on how to improve your chances on your next application.
If you’re thinking about getting a mortgage in the near future, or even are in the process and want some more advice, get in touch with one of our mortgage experts today by calling us on 01258 886622, or using the information on our Contact Us page.