Why Mortgages Can Be Declined

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Why Mortgages Can Be Declined  

Having a mortgage application declined can feel like a huge setback, especially if you’ve set your heart on buying your own home. 

If you apply to another mortgage lender straight away, your application may be rejected again and that will impact your credit score.

So, before you do that, it’s important to examine the reasons why your application was declined in the first place, so you can fix the issues before approaching another lender.  In our guide to why mortgages can be declined, you’ll find some facts, hints and tips that may improve your chances. 

One thing you can do to increase your chances straight away is talk to an experienced
Mortgage Adviser that has good credentials. 

If they are regulated by the Financial Conduct Authority and have an office registered in England, they are qualified to help you apply for your next mortgage with a different lender.  

Common Reasons For Mortgage Application Rejections 

Mortgage lenders want assurance that you’ll be able to afford monthly repayments now and in the future, if interest rates rise. 

Each lender will review your application based on their own lending criteria.  To do this they will find out as much as they can about you before deciding whether or not to approve your application. 

This includes studying your credit report to find out how good you are at paying bills. So, if you have poor credit history, this could be the reason you were refused a mortgage.  First, start by asking the lender why they rejected your application, so you can find out what you need to do to fix it.  Then check the information on your credit files held with credit reference agencies Equifax, Experian and TransUnion.

Here are some of the most common reasons mortgages are declined.

County Court Judgement (CCJ) – You’ve had a CCJ or default in the last six years. 
A CCJ is a court order registered against your name. If you’ve not repaid what you owe within 30 days of receiving a CCJ letter, it will sit on your credit file for six years. Mortgage lenders are wary of applicants with CCJs, so paying it off and checking old CCJs are removed from your file should be your priority.

Missed payments – if you’ve missed or made late payments recently, a lender may think you’ll miss your mortgage payments too. You can prove you’ll be a reliable customer by paying off any outstanding debt and setting up direct debits for all your regular bill payments.

Too many credit applications in the last six months – multiple hard searches recorded on your report.  A ‘hard’ search is where a company carries out a full credit report check to assess whether they should lend to you. Any bad credit will be flagged up. Utility and phone companies also carry out hard checks when you switch suppliers. Hold off applying for credit or switching suppliers at least six months before your next mortgage application.

No Electoral Roll entry – the Electoral Roll (AKA the Electoral Register), is a complete list of people living in the UK who are registered to vote in public elections. Lenders use it to prove your ID and address match your application.  Go to gov.uk to register or update your entry if you’ve moved or changed your name.

Mistakes on your application or credit file – wrong information could be a simple reason your application was declined. Check your original application form and credit file for errors. 

 

Can’t afford repayments – the lender doesn’t think you’ll be able to afford the mortgage repayments based on your income and outgoings. Use a mortgage calculator to find out how much you can afford and adjust the amount you want to borrow.  Prioritise your income stability and reduce your spending to show you can manage your money well.

You’re Self-Employed or a contractor and can’t prove consistent income – a lender will want to see a strong set of accounts, ideally three years’ worth, or at least your latest SA302 HMRC tax form. Work on contract and client continuity so when you next approach a lender, they can see you have a consistent income stream.

Wrong mortgage bracket – You may not fit the demographic profile of the lender or the type of type of mortgage you’ve applied for. Talking to a Mortgage Broker will help you apply to the right type of lender for a mortgage that will suit you.

Payday Loans – Unfortunately a payday loan will sit on your credit file for six years, even if you repaid it on time. Lenders see payday loans as a red flag that your financial situation is unstable. However it may be disregarded if you can give a legitimate reason for having taken one out in the past.

I Had An Agreement In Principle – Why Was I Declined?

An agreement in principle doesn’t guarantee your application will be approved. It’s likely the lender discovered something that didn’t meet their lending criteria when they processed your application. 

Find out the reason, then see what you can do to rectify the issue. Ask a Mortgage Broker to help you with your next application.

Does being declined affect my credit score?
Applying for a mortgage shows up as a ‘hard search’ on your credit file, but doesn’t say whether it was accepted or declined. Having more than one mortgage application on your file will however indicate previous applications were rejected.  

What should I do if I’ve been declined?

  • Ask your lender to explain why you were rejected.  If it’s to do with your credit file, ask them which credit reference company they used so you can check your credit report and find out what you need to fix. Contact creditors to ask them to remove historic information.
  • Prioritise getting the green light on your next mortgage application by going to work on making yourself more appealing to lenders. Clear your debts, reduce your outgoings, and plough any spare money into your deposit fund. This may take some time but it will be worth it in the long run. 
  • Engage a Mortgage Adviser to help you apply for your next mortgage.

How can Better Financial Services Help? 

We always advise our customers to get good advice early on because we can significantly increase your chances of being accepted for the next mortgage you apply for. This will save you time, frustration and heartache when next applying for a mortgage.

We are authorised and regulated by the Financial Conduct Authority and have a registered office in England. This means we’re qualified to advise you on your financial situation, and explain what you need to do to improve your credit file.

Here’s how we can help:

  • Go through your finances with you to calculate how much you can afford
  • Advise what you need to do to boost your borrowing credentials
  • Help you choose from a selection mortgages that would suit you
  • Explain all the costs and features associated with the mortgage we recommend 
  • Complete all the paperwork for you, ensuring it contains everything the lender needs 
  • Submit your application for you and liaise with the lender on your behalf
  • Keep you informed every step of the way

All you need to do is fill in our contact form or give us a call, and we’ll do the rest.

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Think carefully before securing other debts against your home.

Why Mortgages Can Be Declined
Why Mortgages Can Be Declined

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