How to proceed if your mortgage is declined

The last thing you want to hear when you’re looking forward to buying a property is that your mortgage application has been declined. If this happens to you, don’t panic — there are many reasons why your application may not have been approved and each lender has its own criteria. Once you know what the reason is for being refused a mortgage, you can take steps to improve your chances of success before you reapply.

Why have you been rejected for a mortgage?

The lender assesses your application against their criteria to confirm you can afford to meet the mortgage repayments. The most common reasons to be refused for a mortgage are:

• You are not registered on the electoral roll to vote
• You have a poor credit rating
• There is a mistake on your credit file
• An excessive number of credit applications have been made
• You have too much debt
• You have taken out a payday loan
• You haven’t passed the lender’s affordability checks
• You are self-employed or a contractor
• You don’t meet the lender’s loan-to-value requirement
• There are mistakes on your application form

What you can do if your mortgage application is declined

Every lender has its own lending criteria so just because you’ve been rejected by one, it doesn’t mean that another lender won’t agree to give you a mortgage. Some lenders, for example, won’t agree to give you a loan if you’ve had your current job for less than a year. Others won’t have an issue with this. Some lenders may insist on seeing a few months’ bank statements while others may only require one month’s statement. Some lenders won’t offer you a mortgage if you have an irregular income. Other lenders won’t grant mortgages on particular properties, such as a flat in a high-rise block.

If your mortgage application is declined, ask the lender what the reason is before you do anything else. Some reasons can be quick to fix while you may need help finding solutions for other issues. It’s best to speak with a mortgage broker who can check your application and advise you on how to improve your chances for a successful outcome.

Don’t apply to multiple lenders

Whatever the reason for your application being denied, it’s important not to rush to apply to other lenders. When a lender carries out a credit check on you – called a hard search – it’s recorded on your credit file. This in itself doesn’t harm your credit score. However, if multiple hard searches are carried out by lenders in a short space of time, your score will be negatively affected. This lowers your chances of being accepted for a mortgage. Again, this is where a mortgage broker can help you. As well as ensuring your application has been completed correctly, a mortgage specialist will know the different lenders’ criteria so can approach the lender most likely to approve your application.

Increase your chances of success

There are ways to address the common rejection reasons listed above so that you have a stronger chance of being approved for a mortgage.

You are not registered to vote

Lenders check the electoral roll to confirm your identity. This is an easy fix and you should really ensure that you’re registered on the electoral roll as early as possible before you apply for a mortgage to allow for the registration processing time. It’s free and simple to register online.

You have a poor credit rating

To increase your credit score, ensure that your bills are paid on time, remove links on your credit file with people you no longer have a financial connection with and reduce any unnecessary spending.

A mistake on your credit file

Obtain a copy of your credit report from one of the main credit reference agencies: TransUnion, Equifax and Experian. Ensure all of the information is correct and, if not, ask them to amend your credit file.

Excessive credit applications

Every time you apply for credit, a search is recorded on your file. Too many applications for credit in a short space of time looks as though you cannot handle your finances. Avoid applying for credit in the 6 months leading up to your mortgage application.

You have too much debt

Try to reduce as much of your debt as possible before you submit your mortgage application. The higher your ratio of debt to income, the lower your ability to repay your mortgage from a lender’s point of view. Keep your credit cards as low as possible, clear any existing loans and stop any unnecessary spending. For example, if you have a gym membership in Bexleyheath that you hardly ever use, just cancel it.

You have taken out a payday loan

If you’ve taken out a payday loan in the last 6 years, it will show on your credit file. Depending on the lender, how recently you took out the loan and whether you repaid it on time will determine whether this affects your application. Don’t contemplate using a payday loan to clear your existing debts. Not only will this harm your credit score but it will signal to lenders that you can’t handle your finances sufficiently.

You have failed the affordability checks

Once the lender has looked at your paperwork, they may decide that you cannot afford the repayments. In this instance, you need to look back over your finances and re-evaluate what you can comfortably afford for your mortgage. As well as the property price, you need to take other costs into account. For example, stamp duty, your solicitor’s fees, moving costs, new furniture and any building works that may be needed.

You are self-employed or a contractor

Some lenders are more flexible than others when it comes to having an irregular income. When you’re self-employed or a contractor, it’s best to apply for your mortgage via a mortgage broker. A broker will have access to specialist lenders with more flexible lending criteria. They can also ensure that your application is tailor-made to secure the optimum mortgage deal.

You may not meet the loan-to-value requirement

The loan-to-value (LTV) ratio is the amount you want to borrow compared with the property’s value. Some lenders have specific LTV brackets that you need to meet in order for them to offer you a mortgage.

You may want to buy a property in Bexley that’s on the market for £300,000, for example. You have a 10% deposit of £30,000 so need a 90% LTV mortgage for £270,000. The lender, however, may only be willing to offer 85% LTV mortgages. This means you would either have to find an extra £15,000 to pay a 15% deposit or look for properties at a much lower value.

A mortgage broker can advise you on the government-backed schemes available if you only have a small deposit or on ways you can save for a bigger deposit.

There are mistakes on your application form

The information on your application form must match your documents so it’s important to check for accuracy before submitting it. For example, check that all addresses are correct and don’t round up your salary if this amount doesn’t exactly match your payslips.

Speak to a mortgage broker if your application has been declined

If your mortgage application has been declined by a lender, it’s best to seek help from a mortgage broker. To start with, your expert broker in Kent, London or Edinburgh will review your application to pinpoint exactly why it was rejected by the lender. Once the necessary steps have been taken to remedy this, your mortgage broker will ensure that your application is completed to the required standard.

Professional brokers have extensive experience in the mortgage market and understand the different criteria between lenders. Therefore, when applying for Welling or Pimlico mortgages on your behalf, your broker will use this knowledge to select the lender that’s the best match for your circumstances. In this way, your mortgage application has a much better chance of being approved.