Why Mortgages get Declined
Why Mortgages get Declined
Being refused a mortgage can be a horrible experience, but before rushing into the next application you should make sure you understand why that lender turned you down and what you can do to improve your chances with the next one.
Here are some of the more common problems people come up against when applying for a mortgage, together with some ideas of how to deal with them.
Poor Credit History
Poor credit history doesn’t necessarily mean bad credit history.
It can mean too little or even no credit history. It can also mean missed payments on credit agreements, county court judgments, or bankruptcy.
The causes behind a poor credit history are too many to list but as many lenders use a credit scoring process that leaves no room for explanations or discussion, this is an area where the “computer say no” system of underwriting can be especially frustrating.
Lenders rely on credit reference agencies to provide them with your credit score.
Ideally, you should get a copy of your file before you make an application. That way you can see exactly what is being said about you before your chosen lender does.
If any information in your credit report is wrong, you have the right to take steps to put it right. It won’t be a fast process, remember the credit agency is only a repository for the information it is given by the companies you have had credit dealings with in the past.
In order to correct any information held about you, you will need to go back to the company who has provided the information and persuade them to put it right. This can be a slow process, which is why you should start as soon as possible.
You Are Not On The Electoral Register
This is a pretty straightforward one to fix! Every lender will want to confirm your address before they start processing your application. If you are not registered to vote, then even the most perfect of mortgage applications will fall at the first hurdle. To get on the register visit the Government’s website and follow the simple steps.
Too Much Debt
You may think that the debt you have is manageable and within your personal comfort zone.
Lenders may think differently, and different lenders may think differently to each other.
If you are servicing existing debt then lenders will take into account how much you owe and how much you are spending each month on repaying it. It doesn’t just include credit card debt and personal loans either. Every credit agreement you have will be taken into account when assessing your application. This includes phone contracts, TV subscriptions, and car finance.
If you have been turned down for this reason, you should take a cold look at the debts you have and see if they can be repaid, or even restructured, in order to give you a better chance of success next time.
Most lenders will decline applications when a recent payday loan shows on the credit check.
More than a few will even decline if they show in your credit history at all over the last six years.
Any payday loan taken in the last 6 years will show on your file. It can count against you because lenders might think you won’t be able to manage the financial responsibility of a mortgage.
Although having a payday loan as part of your credit history will limit you considerably when it comes to choice, there are still lenders that will accept your application, it will depend though on factors such as how many you have had, how frequently, and how recently. It will also depend on your credit history away from the payday loans.
Too many credit applications
If you have little or no credit history then this could be a red flag for your lender. The same could be said if you have loads of credit applications, which even if you haven’t taken them up, will leave lots of footprints over your file, setting alarm bells off.
Ideally, a lender will be looking for you to have a well managed history of credit.
As a rule of thumb, before applying for a mortgage, try not to make any new credit applications for about six months.
If you think that it has been your credit footprint that has caused your problem (or your chosen lender has actually told you that) then you should be talking to a qualified, independent broker who is experienced in dealing with these problems. If you would like to be put in touch with one of our selected partners who knows how to deal with these situations just fill out our enquiry form
To be fair, this should have been picked up in the very early stages when you are first enquiring. However, it is possible to be declined due to insufficient income being shown to support the amount of mortgage applied for.
One of the most common issues that can cause this is the way your income is viewed.
You may have an income that consists of a basic salary, bonuses, shift allowances, commission, and all manner of other elements, all of which you regard as being your salary. Lenders may view each element differently and may not even take some into account at all.
Before applying again, you should make it absolutely clear how your income is made up.
Yes, administration errors can happen. Assessing a mortgage application is a task that can involve a lot of people; applicants, underwriters, solicitors, admin staff, as well as outside parties such as your accountant or employer who may be needed to verify your income. Your application depends on everybody doing their particular bit accurately, and in the majority of cases they do. However, we are all human and as such mistakes can happen.
If you suspect that there has been a mistake regarding your application, ask for it to be double checked, check things yourself and ask your broker, if you are using one, to recheck everything. It really doesn’t happen that often, but it does happen.
While the above are some of the most common reasons for a lender declining your mortgage application, there can be others.
Length of residency, short term contracts, benefit income, and pension income are a few more that can trip a mortgage or remortgage up.
It should also be said that the reason for refusing a mortgage may not be anything to do with you as the applicant at all. It may be the property you are trying to buy or remortgage.
Problems with property can range from the valuation not being what you want it to be resulting in an offer of a much lower amount, to the construction not being acceptable or the location being on a flood plain or to close too a cliff.
Obviously, if it is the property rather than you that is the problem, then you will have to decide how badly you want that particular property before trying to find one.
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