Having your mortgage application declined can seem like the end of your chances of buying a home. However, not all hope is lost as there are several things you can do to improve the likelihood of being approved next time.
The worse thing you can do is apply for a new mortgage straight away as this new application could show up on your credit file and hurt your chances even more.
What you can do is try to understand why you’ve been refused, check you’ve got all the basics in order and talk to a professional advisor. Most of all, don’t panic.
Common financial reasons why mortgage application get declined
Usually, a mortgage application is declined due to a fairly basic reason. It could as simple as the size of your deposit, poor credit history or you haven’t joined the electoral register.
Your deposit is too small
While it’s possible to find mortgage deals which only require a 5% deposit, you might end up paying more in the long run.
If a small deposit is holding you back, then there’s plenty of ideas you can try to grow it. Here are a few. You could freelance on top of your day job, start an eBay business, sell your crafts using Etsy.
Stuck for ideas? Start with our list of Inventive Deposit Saving Ideas.
If you’ve saved up a decent deposit yet your monthly income is small, you might be rejected even if you can currently afford the mortgage. Lender will assess whether you can still afford the mortgage if rates rise.
There are a few things you can do to improve your income. Firstly ask for a raise or apply for a better job. Can you use your talents to start a small business on the side, which could help bulk up your income?
You might consider taking a step back and building your deposit up. This will enable you to apply for a smaller mortgage.
Poor credit history
If you have missed a payment or are subject to a CCJ, you’ll have a poor credit history. There are no shortcuts to rebuilding your credit score other than consistently paying bills on time.
It’s worth setting up direct debits for all of your bills, loans and credit cards as this stops any credit commitment from being even one day late. Even if you’re late by 24 hours, it is often recorded on your credit file as missed.
If you find a mistake, then call the lender or your bank and ask for them to correct the record. Granted, this can be frustrating, but well worth it in the end.
Too much debt
No lender in their right mind will offer to lend you a penny if they can see your bad at managing debt. Luckily, there’s plenty of free and confidential advice available from charities such as CAP to help you get on top of your finances.
You’ve taken out a payday loans
Payday loans are a kiss of death, even if you’ve paid them off in full and on time. Any payday loan you’ve had over the last 6 years will be listed on your file.
This is likely to be a red flag to any lender as they could assume you won’t be able to manage having a mortgage. However, each lender is different, it may not affect their decision to decline your mortgage application.
Reasons why mortgage lenders decline applications
Lenders aren’t perfect and need you to work with them for your application to be approved. There are a few ways you can improve your chances by ensuring all the paperwork is correct.
Not registered to vote
Lenders use the open electoral register to confirm your identity and address. By not being on it, a lender might struggle to confirm these key pieces of information and so will decline your mortgage application.
It takes a few minutes to register to vote and is well worth joining now!
Too many credit applications
Your credit file is likely to be viewed when you apply for a loan, a new phone or even a job, to check your suitability. Unfortunately, most of these searches are recorded and leave a footprint on your credit history.
If you repeatedly apply for credit, you could be seen to have a debt problem. This can be a big red flag to lenders. So, it’s a good idea to avoid taking out new credit deals for at least 12 months before you start applying for a mortgage.
Errors happen, it’s a sad fact of life. Lenders may be copying details from your application into a computer using the paperwork. A mistake or error can easily creep in and may lead to the lender viewing the wrong credit file.
As lenders are unlikely to tell you exactly why you’re applicaion failed, other than an issue with your credit file, you could be left confused. If this does happen, then ask for the lender to provide you with the details of the credit reference agency they used.
Not fitting the lender’s profile
One of the most common reasons why your mortgage application was declined is lending profiles. For example, your high street bank is likely to be more comfortable with lending on a 3-bed semi than a farmhouse on a few acres with letting cottages.
The best way to avoid this mistake is to use an independent whole of market mortgage broker. They’ll be able to find and match you with the right lender for your property purchase.
Mortgage declined after agreement in principle
Getting agreement in principle in place before you start house hunting can be useful to prove to estate agent’s you’re serious and can help to define your budget.
However, this doesn’t guarantee that your full mortgage application will be accepted. When the lender conducts a full search of your information, you might have failed to meet all of their criteria. In this situation ask the lender why and consider using a mortgage broker.
Situational reasons why your application was declined
Your situation can have a massive impact on your mortgage application and that’s why it’s important to choose your lender carefully.
Are you self-employed or a contract worker?
Running a small business is hard work and your income can be, at best, unpredictable. Most lenders will want to see both tax returns and business accounts for at least three years.
They might want to look at a business plan for the next 2 or 3 years or view copies of any work contracts you have secured for the future.
Lived in the UK for less than three years?
Typically, most lenders want you to have lived here for at least three years. However, there are some which will lend to new arrivals.
A lender will want to see your employment contract and a visa, which proves you have permission to live and work in the UK.
Mortgage application declined? Don’t panic
Before panicking, giving up completely or applying to any mortgage lender, take a step back.
Firstly, check that you’re not affected by any of the reasons listed above. If you are, you should have an idea of how to solve any issues.
Next, talk to a professional mortgage broker as they should be able to diagnose what went wrong and help you fix any issues. They will be able to suggest who is the ideal lender for your situation and help you to apply.