The Most Common Reasons Mortgage Applications Are Declined

February 3, 2023

A rejected mortgage application is a disappointing experience, and it will also be recorded on your credit report and may damage your chances of success in the future. Therefore it is important to understand the application process properly and work out how likely it is that you will be approved in advance.

Income and affordability

One of the most common mistakes people make is to rush into an application without taking into consideration whether their financial situation will be enough to meet the lender’s eligibility criteria. A key factor is your income, as most lenders will only let you borrow 4.5 times your annual salary.

You will also need to be able to demonstrate that you have a steady income source to be able to meet the monthly repayments, so if you are self-employed, this may be more of a challenge than for an employee. 

Self-employed people often have variable incomes, and most lenders will want to see at least two year’s worth of accounts before they will consider your application.

The lender will also look at your outgoings to see how many financial commitments you already have, and how much of your monthly income they take up. This is to make sure that you will be able to afford to make the repayments. 

Debts and credit rating

Almost all lenders will use your credit score as part of their assessment criteria. Some attach more weight to it than others, and there are specialist lenders who have flexible attitudes to those with a poor credit score. However they will generally charge higher rates of interest than most high street lenders.

Therefore you should always check your credit rating before applying for a mortgage. There are several free online tools that allow you to do this. The main credit reference agencies in the UK are Experian, Equifax, and TransUnion. 

If you notice any factual inaccuracies on the report, have them corrected before you make your application. Sometimes even small mistakes such as an incorrect word in your address can lead to a low score.

If you have had any issues with your financial track record such as late or missed payments, defaults, or County Court Judgements in the last six years, these will impact negatively on your score and may be the reason for a declined mortgage application. 

You can begin to improve your credit rating immediately by paying off any outstanding debts, setting up direct debits to make sure that all your payments are made on time, and ensuring that you are not borrowing near to your credit limit on any of your accounts.

Not registered on the Electoral Roll

Lenders will use the Electoral Roll as an official method of verifying your identity. Not being registered to vote can also lower your credit score so it is important to do this before your mortgage application.

If you are looking for a mortgage broker bankruptcy, please contact us today.

Your home may be repossessed if you do not keep up with your mortgage repayments.

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