Top Reasons Your Mortgage Might Be Declined (And What To Do About It)
29th June 2017
Your mortgage application may be declined because your credit record isn’t perfect, you don’t meet the lender’s affordability criteria, or your income or deposit isn’t high enough. It may also be declined simply because you’re not in the lender’s target demographic.
Why has my mortgage application been declined?
Lending requirements have become stricter during the last few years. Mortgage lenders are now required by law to make sure that you could afford to make repayments even if your financial situation changes or interest rates increase.
There are many reasons why your mortgage application might be turned down, and the lender won’t always tell you why you’ve been refused. We’ve listed some of the most common reasons that mortgage applications are declined, below.
Credit history issues
When you apply for a mortgage, the lender will check your credit score and credit history. Your credit history is a record of how you’ve dealt with credit in the past. This and other information is used to calculate your credit score, which is an indicator of your financial health.
If you have a poor credit score or there’s something in your credit history that concerns the lender, your mortgage application may be refused. This could be because the mortgage lender judges that you have too much existing debt, or you’ve made several applications for credit recently, for example.
If your mortgage application is declined because of an issue with your credit history, you should wait before making a mortgage application with a different lender - lots of credit checks over a short period of time can negatively impact your score.
Instead, it’s a good idea to request your credit report from one of the major credit rating agencies - Callcredit, Equifax, Experian - so that you can get to grips with your credit score and start taking action to improve it.
See our article Getting A Mortgage With Bad Credit for more information.
Your income is too low
Your mortgage application may be declined because the lender believes your income is too low, relative to the amount of money you want to borrow.
Remember that each mortgage lender has their own way of making calculations, and different lenders have different approaches to things like overtime and joint incomes.
If your mortgage application has been declined because you’re not earning enough money, you may have to save for a larger deposit or consider cheaper properties so that you can apply for a lower mortgage amount. You could also consider one of the government’s Help to Buy or shared ownership schemes.
Note: We’re working towards supporting government schemes including Help to Buy and shared ownership, but are unable to provide this service just yet. For now, we’re focusing on one thing at a time in our effort to deliver the best possible mortgage experience for everyone. Follow us on Facebook, LinkedIn, or Twitter to be the first to know when we support this service.
See our article How Your Salary Affects Your Mortgage Amount for more information.
Your deposit is too small
Your loan-to-value (LTV) ratio is the percentage of the total property value that’s paid for by the mortgage. You’ll usually need a deposit of at least 5%, and therefore an LTV of at most 95%, to get a mortgage. This means that if you want to buy a home worth £200,000, for example, you’ll likely need a deposit of at least £10,000.
However, different mortgage lenders have different LTV requirements, and you may find that your mortgage application is declined because your deposit isn’t large enough. In this case, you can try finding a mortgage lender with different LTV requirements, or wait until you’ve saved a larger deposit. A larger deposit can also mean access to better rates.
See our article How Your Deposit Affects Your Mortgage Rate for more information.
You don’t meet the affordability criteria
It’s not just your credit score, deposit size, and income that mortgage lenders take into account when assessing your mortgage application.
Mortgage lenders will also make sure that you meet their affordability criteria - your ability to repay your mortgage given your other outgoings and financial commitments. They’ll also want to ensure that there’s room in your budget to keep paying your mortgage if interest rates increased or your financial situation changed.
If your mortgage application has been declined because you’ve failed affordability checks, you’ll probably need to make some changes to your spending habits. If you can cut back on your spending for a few months and show that you have enough money each month to make mortgage repayments, you may be able to pass the affordability checks the next time you apply.
You don’t match the lender’s profile
Each mortgage lender has a target demographic that they prefer to lend to - this is usually based on mortgage size, location, or creditworthiness. If you don’t fit their profile, your application may be turned down.
Although this can be really frustrating, it highlights the importance of finding the right lender for your needs. Remember that lots of mortgage applications can damage your credit rating, so it’s worth using a mortgage broker to find the right lender for your needs.
Other reasons that your mortgage application may be declined
You’re not registered to vote
Lenders use information from the electoral register to confirm your identity and address, so your application may be declined if you’re not registered to vote at your current address. If you haven’t already, you can register to vote online.
You haven’t lived in the UK for long enough
If you’re not a UK or EU national, you’ll usually need to have been living in the UK for at least two or three years before a mortgage application will be considered. You’ll usually need to have permanent residence rights in the UK as well, or at least a UK work permit.
You haven’t been in your current job for long enough
Your mortgage application may be declined because your job is relatively new, especially if you’re still in your probation period. This varies from lender to lender, with some lenders requiring applicants to have been with their current employer for three years, and others willing to lend from the beginning of employment.
Although you can get a mortgage when you’re self-employed, it can be a little trickier. Your mortgage application may be declined because your business is relatively new, because your earnings aren’t stable enough, or because you can’t show that your business is likely to remain successful.
See our article Getting A Mortgage If You’re Self-Employed for more details.