The mortgage process can be long and frustrating, so the last thing anyone wants is to have their mortgage application turned down.
From severe bad credit to not passing affordability checks, there are many things that can lead to your mortgage application being denied. Whether you’re in the process of applying for a mortgage, or want to find out why you haven’t been accepted previously, we’re going to explore the reasons you might not be accepted for a mortgage.
1. Affordability checks: can you afford the mortgage?
If you’ve previously had a mortgage ‘declined on affordability’, it means the mortgage lender thinks there is a risk you won’t be able to keep up with mortgage repayments. One of the key ways lenders will assess this is by applying an income multiplier to your annual earnings.
Most lenders cap their lending to 4.5x your income, some will go as high as 5 or 6 times in the right situation; this would mean if you’re looking for a mortgage of £250,000, all people applying for the mortgage would need to have a combined earnings of £42-55K plus deposit.
However, lender’s will then reduce this total borrowing amount in line with the monthly payments you make for other debts and the general cost of living, to ensure that you can still live comfortably once the mortgage is in place. Different lenders calculate this in different ways, so some may be more generous than others.
2. You have too much outstanding debt
Receiving a mortgage loan is likely the largest loan you’ll ever take out in your life, so lenders want to be sure you don’t have too much outstanding debt to deal with already. You may be earning enough to meet the affordability checks, but if your outstanding debt is too high, this may be what stops you getting a mortgage. Lenders will measure this with something called a debt-to-income ratio.
If they think you wouldn’t be able to handle a mortgage on top of your existing debt, you’ll likely be denied a mortgage. If possible, try to pay off any existing credit cards and loans, or reduce them where you can before starting your mortgage application.
3. You have poor credit
Bad credit can be a reason you are stopped from getting a mortgage, but it’s especially likely if you have a severe credit issue, such as a repossession or a bankruptcy.
The likelihood of being accepted for a mortgage will depend mainly on the type of poor credit you have; when assessing an applicant with poor credit, most lenders will base their decision on factors like age, severity and reason for the bad credit. You may find that some lenders will decline your application immediately if they think your credit issues make you too much of a risk, which can further harm your credit score and be even more difficult to secure a different mortgage in the future.
Generally, lenders who accept applications from borrowers with poor credit will charge higher fees and higher interest rates. It’s important to shop around thoroughly or use a whole-of-market mortgage broker to get the best deals available.
4. You have no credit history, or mistakes on your credit report
Poor credit can seriously affect your likelihood of being approved for a mortgage, but having absolutely no credit at all can stop you getting a mortgage too. If you have no direct debits and no loans/debts, it may be worth considering taking out a low-amount credit card, and using a bit each month that you immediately pay back to quickly build up a positive credit rating.
Additionally, a mistake on your credit report can be what stops you getting a mortgage. If someone else’s debt is in your name, and your report says you failed to pay a bill, this can be a red flag to lenders looking to approve your mortgage application.
5. You’ve recently moved jobs, or you move jobs frequently
You may think that securing a new, stable job will be something lenders look at favourably. Actually, lenders prefer stability and predictability, and a new job leaves doors open for being let go, or losing your job. You may be more likely to be accepted for a mortgage if you wait at least 3 months after starting a new job as some lenders may insist on seeing three payslips. However, other lenders are more flexible and will even consider your application if you haven’t yet started your new job – as long as you have a contract of employment in place or a letter confirming your start date.
6. If you’re self-employed with no proof of income
The main issue self-employed people who are submitting a mortgage application will come across is proof of income, specifically if you’re lacking it. Nearly all lenders will ask you to submit two or three years worth of accounts to prove you are stable enough for them to give a mortgage to.
If you’re newly self-employed, or don’t have the correct financial documentation, you might be stopped from getting a mortgage. That said, a small number of lenders will help if you’ve only been self-employed for a shorter period of time so long as your accounts are up to date. If you’re self-employed and have questions about how to secure a mortgage, speak to our dedicated self-employed mortgage advisers.
7. Issues with the property, or the property is worth less than the mortgage you’re applying for
You may be submitting a mortgage application on an old house that needs a lot of renovation – or potentially a house in a high-flood-risk area. These can be deal-breakers for some lenders as they will deem your property unmortgageable due to the risks that come alongside it.
As part of the house buying process, you can choose to have a valuation of the property, but lenders will also perform their own checks which may not line up with what your estate agent has valued the property at. If the surveyor decides the house is worth less than the mortgage you’re applying for, your mortgage application may be ‘declined by the underwriter after valuation’.
8. Error on your application, or applying too many times
Mortgage applications are detailed documents that take time to fill in and process. If you’ve not been diligent, and have either missed information or got a detail wrong, you may find your application denied.
Similarly, if you’ve been denied and denied, and keep applying, this will hurt your chances of being accepted again in the future. Applications don’t harm your credit score, but they will appear when lenders search your credit history, so if they see you have been denied multiple times in the past, this may be what can stop you getting a mortgage.
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If you have questions or concerns about what might stop you from getting a mortgage, get in touch with us today for bespoke advice tailored to your specific situation.
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