Why Could Your Mortgage Application be Declined?

So, you’ve got your eyes set on that charming house with the white picket fence, but then bam, you hit a roadblock – your mortgage application gets declined. Fear not! In this blog, we’re diving into the common reasons why that might happen.

If you’ve had your mortgage application declined recently, remember, it’s not the end of the world, just a little detour on your journey. If you want to avoid this happening in the future. buckle up, and let’s explore the factors that could stand between you and your mortgage deal!

Affordability Checks: Crunching Those Numbers

You know how you check your bank balance before indulging in a shopping spree? Lenders do a similar thing, but on a grander scale. They want to ensure you can afford the mortgage you’re applying for and how much of your income the mortgage will take up. If your monthly income doesn’t match with the potential monthly payments being made, that’s like trying to fit a square peg into a round hole – it just won’t work.

The Dreaded Deposit Dilemma

A larger deposit can be your golden ticket to mortgage approval. If your deposit is on the leaner side, lenders might raise their eyebrows. A bigger deposit can show your commitment and lower the lender’s risk. Remember, it’s like putting down a solid foundation before building your dream home – the stronger, the better! In the UK a 5% deposit is accepted for some products, but a 10% deposit is more common.

Credit Where Credit’s Due… or Not

Your credit report is like your financial report card. If it’s got red flags waving all over the place, that can affect your chances of getting a mortgage.   It’s not always apparent in advance what credit score you need to get a mortgage as lenders often use their own credit score, bad credit history with missed payments, too much debt, or payday loans lurking in your history can make lenders wary. Lenders will also look at your potential future debt so if you have credit cards with high spending limits, consider closing them and don’t make too many new applications for credit before or during the application process. Just think of your credit report as a character reference – you want it to shine! Interestingly, if you have no credit history at all, that can also go against you as you have no proof of being able to manage debt. In this instance it may be a good idea to take out a credit card and pay it off in full each month.

The Balance of Employment and Income

Lenders want to know you’ve got a stable source of income. Being self-employed is fantastic, but if you can’t prove your income, you will find it hard to get a mortgage. Lenders may accept 3 months payslips from a job but want to see up to 3 years accounts for a self-employed applicant. Also, hopping jobs like a kangaroo might make lenders nervous. They like a stable income and if you have recently moved jobs, you might find you have a bigger selection of products if you wait a while before you apply for a mortgage, but a broker will be able to advise more on this.

Property Predicaments

The property itself can sometimes be a thorn in your mortgage dreams. If it’s undervalued, unique, or located in a risky neighborhood, lenders might hesitate. They want to make sure their investment is as safe as your dream home should be. It’s like buying a car – you wouldn’t pay top dollar for a vehicle with a history of engine trouble. Your surveyor can also undervalue the property, in which case you will need to prove that the work they suggest is not as urgent or can be done for a lower cost than estimated. If the property isn’t a normal construction a lender may not approve an application, in which case it would be worth consulting a specialist lender. If your future home sits on a flood plain, for example, has issues with damp, or needs extensive renovation, it might be harder to get a good deal on the mortgage. To the lender, there’s too big a risk of something going wrong with the building for them to put up the money. In this situation you might only have access to mortgages that need a larger deposit or a higher interest rate.

The Maze of Administrative Mysteries

Sometimes, it’s not your fault at all. Administrative errors, like mistakes on your application or not being registered to vote on the electoral roll, can put a kink in your mortgage plans. This is where having a broker to do a lot of the paperwork helps!

Too many applications

Multiple applications appear when lenders search your credit history, which the lender might see as a sign of risk and too many applications can be a red flag for lenders. 

Finding Your Way Back to “Approved”

Don’t let a declined mortgage application bring you down! There are steps you can take to increase your chances of getting that magical “approved” stamp:

1. Check your credit report, fix any errors, and work on improving your credit rating. 
2. If the deposit is an issue, save a little longer. And hey, if you’re feeling a bit lost, a mortgage broker can be your guiding star.
3. Consult with a broker to weigh up your best options for your personal circumstance

Remember, just because one lender says “no,” it doesn’t mean they all will. Different lenders have different criteria, so your mortgage journey might just be one match away. So, keep your chin up, learn from the hiccups, and get back on that mortgage horse!

Remember that every bump in the road is just part of your adventure to get there. Happy house hunting!