We understand how devastating it can be when your mortgage is declined. You’ve found the ideal property, you have all your plans in place and suddenly everything is at a standstill and you’re worried that everything’s going to fall through.
However, there are often things that you can do to turn things around. Our expert team of independent mortgage advisers at PIL Southampton is helping their customers to deal with this situation all the time. Let’s look at why it happens and what you can do about it if you find yourself in this position.
The most common reasons for a mortgage being declined are:
If your credit score is lower than ‘Good’, your lender could turn down your mortgage application. And, if you have made too many applications for credit, it can look like you have money problems. Be aware that an unexpected low credit score could be because of an admin error on your credit file, so ask your lender which of the three main credit rating agencies they use – Equifax, TransUnion and Experian – so that you can contact them, review your file and correct any errors or rectify any issues.
All lenders have a duty of care to ensure that you can afford your mortgage repayments. They will look at your sources of income, (and how stable your income is, so try not to change jobs just before you apply for a mortgage), your outgoings and your lifestyle, to make this judgment call.
If you are self-employed or a contract worker, it can be less straightforward proving that you have a consistent income and are able to consistently pay your monthly mortgage repayments.
Having a lot of other debt is likely to negatively impact your chance of getting a mortgage approved. If you’ve had a payday loan within the last six years this is a potential red flag for a lender as they’re seen as a sign that you might not be reliable with your mortgage repayments.
If you don’t meet the ‘loan to value’ (LTV) criteria because you can’t raise enough funds to meet the minimum deposit threshold, which is commonly 10% but can be as low as 5%, you will be turned down for a mortgage.
Some lenders will not approve your mortgage application if you haven’t lived in the UK for at least three years. Lenders also like to see stability, so try not to move around too much before you apply for a mortgage.
When you apply for your mortgage, your lender will tell you how much they are prepared to let you borrow, based on the information you provide at the time. However, ‘in principle’ doesn’t mean that getting a full mortgage offer is guaranteed.
Between getting your agreement in principle (AIP) and making a full mortgage application, your financial circumstances may have changed, for example:
Alternatively, the lender’s valuation could be the cause of a mortgage application being declined, for one of the following reasons:
Any of these issues can cause the buyer to rethink whether they still want to go ahead with the property purchase.
They might need to negotiate with the seller to rectify the issues, reduce the price or consider whether another lender will accept the property, as some lenders aren’t open to the potential of risk exposure that can come with a quirky property but other lenders might be happy to lend on a more specialist property.
As tempting as it is to re-apply straightaway, as you’re likely to have a property in mind you’d love to buy, and you don’t want to lose it, be careful because too many applications in too short a time – typically six months – can have a negative impact on your credit score.
You’ll be able to find out from your lender why you were declined.
Hopefully, there will be a short-term fix, like correcting any errors in your credit file, registering to vote (this is used to prove your identity and your address) or reducing the amount you are looking to borrow which will improve how favourably your lender views affordability.
Other reasons for you being declined could take longer to rectify, like improving your credit score, saving for a larger deposit, or reducing your debt.
Our friendly team of independent mortgage advisers has a lot of experience in this area. They will guide you through the process after your mortgage has been declined and do their best to help you to be successful with your next application.
Even better, if you work with our team before you apply for your mortgage, they can hopefully minimise the chance of you being turned down in the first place.
You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.