When you apply for a mortgage, you always run the risk of being declined. If you’ve recently been declined and aren’t sure why, below is a list of the top 10 reasons mortgage lenders rejected an application for you to consider to help your next mortgage application.
1. Poor credit history
You can check your credit file with a credit reference agency, such as Experian. If you don’t think that your credit score is particularly low, it’s worth checking that all of your information is up to date. Having an old account still registered to your previous address can cause for example.
2. Not registered to vote
You need to make sure that you’re on the electoral register for your current address so that lenders can prove your identity alongside your application. If you’re registered at a previous address, or not registered at all, you run the risk of your mortgage application being rejected.
3. Too many credit applications
When lenders search your credit report, many of them are recorded searches which leave a footprint on your credit file. If you’ve applied for several different credit deals – credit cards, payday loans or other mortgage applications – these may all have left traces on your credit file. If your data shows regular searches but no agreements, it will look like there is an issue with your file and that those lenders have declined your application. This raises red flags for mortgage lenders and can result in a rejection. If you can, try not to apply for any new credit deals in the year leading up to your mortgage application to keep it free of any potential issues.
Your credit file will be affected by late payments, and if you’re in any form of debt, this can be a big issue. It will also raise questions for your mortgage lender. If you’re currently in debt, will that affect your ability to pay back your mortgage?
5. Payday loans
If you have had a payday loan in the last six years, it will show on your credit file. Even if you paid it back on time, it leaves a footprint. These payday loans can put mortgage lenders off as it brings into question your ability to handle payments.
6. Admin error
Sometimes, there is a fault in the check that the lenders run. If you suspect this has happened, you can ask the lender which credit agency they ran your check through and speak to them to see if there was an error. Once this has been rectified, you can reapply.
7. Earning below the threshold
This threshold will change depending on the mortgage you’re applying for. If you’ve been told that you don’t earn enough for the mortgage you’re applying for, you have two options. You can either look at a smaller mortgage that is more suitable for your salary or reapply when your earnings have increased.
8. Small deposit
Most lenders will request a 5-20% deposit, but the more you have, the better. If you don’t have at least 5%, you will most likely be rejected. You can take some time to save up for your deposit, and then reapply when you have built your deposit up.
9. Being self-employed
If you’re self-employed, you will need tax statements and business accounts for over two years to prove your income. Some lenders will also want proof of future earnings, so they know you’ll be able to pay off your mortgage each month.
10. Having lived in the UK for less than three years.
Some lenders will refuse your application if you’ve been in the UK for under three years. However, not all lenders will. Those who will still process your request will need to see your employment contract and a valid visa to prove your right to live and work in the country to approve you.
If you’ve recently applied for a mortgage, been declined and don’t think that it’s down to any of the above reasons, you should get in touch with a professional mortgage broker. They will be able to go through your application and see what may have caused the rejection. Once you’ve identified this, you can work towards it to get an approval for your next application.