Having your mortgage application declined can be really upsetting, especially if you’ve found a property you love, or you wanted to remortgage to reduce your monthly outgoings.
There are various reasons why your application might have been declined, so you’ll need to understand what these are and establish whether there are any ways you can boost your chances of being accepted next time. Before exploring these steps, it’s best not to send off any new applications and risk getting declined again, because each application will show up on your credit report, potentially making it harder for you to borrow in future.
Here we look at some of the common reasons why your application may have been refused, and what you can do to avoid it happening again.
Why has my mortgage application been declined?
Here are some of the most common reasons why mortgage applications are refused.
You have a poor credit history
When you apply for a mortgage, lenders will want to see whether you’ve managed debts responsibly in the past, and will therefore look at your credit history. If you have a low credit score, they may consider that the risk of you not being able to pay back your mortgage payments is too high, and refuse your application. A poor credit score can be caused by various circumstances, such as missing a payment on your credit card or only paying the minimum payment each month, not paying mobile phone bills on time, making too many credit applications, not being on the electoral register, or falling victim to identity theft. Ironically, if you’ve never even taken out a credit card, or any kind of loan, then your credit score may also be affected as lenders won’t have enough data on your repayment history to be able to make an assessment of how you have managed your borrowing in the past.
Before making a mortgage application, it can be helpful to take a look at your current credit score to see what it is, and check there are no mistakes on there. There are three main credit scoring agencies in the UK – Experian, Equifax and TransUnion (formerly Callcredit) where you can check your credit score. If you don’t want to pay to access your credit score, there are a number of marketing services now offering to give you access to your credit score for free. For example, MoneySuperMarket’s Credit Monitor tool enables you to check your credit score and report free of charge using data from TransUnion. Experian has a free service that enables you to sign up and check your credit score with them. ClearScore is another free credit checking service that accesses Equifax data.
First off, it is important to check your credit file for mistakes. Many of the services above will have a process where you can ask them to correct errors on your file, although it might be quicker to contact the lender themselves and ask them to correct any mistakes if things don’t look right or they have put a mark on your credit file incorrectly. If things look correct and your report has a few issues flagged, then it will be helpful to spend some time looking at ways you might be able to improve your credit score before applying for a mortgage. You might find our article Seven steps that could improve your credit score helpful.
The mortgage payments may be deemed unaffordable
When deciding whether to approve your mortgage application, mortgage lenders will take into account your income and expenditure to determine whether you’re likely to be able to afford the regular mortgage repayments. To do this, they will assess your income, outgoings and any outstanding debts that you have. They are also required by the financial regulator to ‘stress test’ how affordable the mortgage repayments would be if interest rates were to rise – sometimes quite substantially. To get an idea of the amount you can afford to borrow, you can use this mortgage affordability calculator from the Money Advice Service.
If your lender has declined your mortgage application because it thinks it is unaffordable, other options that you could consider include requesting a smaller mortgage, considering a retirement interest-only mortgage or a lifetime mortgage, seeing if you’re eligible for one of the government home buying schemes, or looking into shared ownership. You can find further information about government home buying schemes here.
If, like many people, you’ve recently experienced a fall in income or are struggling to budget, you might like to read our article Budgeting if your income has reduced, or consider using this budget planner to help your money go further.
Mortgage providers are only human, and there’s always a chance that they could have made a mistake when recording the details of your application on a computer. This can sometimes be the reason behind a failed application, and it’s more common than you might think. Something as simple as having the incorrect house number for your address can lead to an application being declined. While it’s unlikely that a lender will share with you the specific reason why your mortgage application failed if you have checked your credit file and it all looks OK, it might be worth running through the application with them to double check all the information they have is correct.
You only have a small deposit or are looking to borrow with a high loan to property value ratio
Mortgage providers essentially want to have confidence that when they lend money to someone, they will get it all back, plus any interest owed. The bigger the deposit, or the more equity you own in your home, the lower the risk to the mortgage lender. This is because in the worst case scenario where you have to sell your home to pay back your mortgage, the more you own of the house through a bigger deposit – the lower the risk that the proceeds from the sale will not cover the full mortgage amount owed. It’s never nice to have to think of this scenario, but it’s why lenders typically offer their best rates to those with the biggest deposits.
Many lenders withdrew their mortgages for buyers with smaller deposits at the beginning of the pandemic, but recent weeks have seen a growing number of mortgage options available for those with a 5% deposit. The government is also introducing a new mortgage guarantee scheme from April to help both first-time buyers and those looking to move up the property ladder who only have a 5% deposit. You can find out more about how this works here.
You’re self-employed or work as a contractor
If you’re self-employed or work as a contractor and therefore don’t have what is regarded as regular or consistent income, then it can be trickier to have your application approved through a standard mortgage application process.
Lenders are generally looking to reduce their overall risk of lending, so salaried employees with a contracted regular income are typically seen as more likely to be able to meet regular mortgage payments consistently through ups and downs over the coming months and years. With the rise of the freelance economy, arguably this assessment criteria feels a little outdated, but it certainly still factors into a mortgage application process today. As part of the application process, lenders will usually request your last three payslips for proof of income, which can be quite volatile for self-employed people or contractors.
If you’re self-employed or work as a contractor, then it can be helpful to use a specialised mortgage broker to avoid your application being declined. They will have a broad knowledge of the different types of mortgages and lenders that are available and welcome applicants from self-employed individuals. They will also be able to recommend the best deal for you based on your individual circumstances and advise you on how much you’re likely to be able to borrow. They can also crunch all the numbers on your behalf so you can see exactly how much different mortgage deals will cost you. If you’re currently in this situation and would like further advice on deals, you might find this resource by CMME helpful.
You applied for the wrong type of mortgage
There are various different types of mortgage available and each has a separate set of criteria. For example, if you applied for a first-time buyer mortgage but you’ve previously already had a mortgage, then you would not fit the criteria and your application would be declined. Similarly, if you apply for a residential mortgage for a property that you are renting out, this will also be declined as the lender would expect to assess you for a Buy-to-let mortgage. You can read more about different types of mortgages here.
The property is unmortgageable
Sometimes, the reason behind a declined mortgage application is the property itself. Every mortgage lender will have slightly different criteria but some of the main reasons why a property may be unmortgageable include structural problems, severe damp, and non-standard construction (if your property isn’t made from brick or stone with a tile or slate roof).
You can find out more about unmortgageable properties and what you can do here.
Where can I seek help if my mortgage application is declined?
If your mortgage application is declined, then it’s a good idea to seek regulated advice from a professional mortgage broker. They know the market well and will be aware of the different lending criteria that each provider has, meaning they’ll be able point you in the direction of a lender suited to your personal circumstances. Mortgage brokers will also be able to help you assess why your application was declined and determine what went wrong.
If you’re considering getting a mortgage adviser and would like to know how to find the right one for you, then you might find our article Should you get a mortgage adviser? helpful.
Alternatively, there are a number of well respected fee-free mortgage brokers available in the market. We have partnered with Fluent Mortgages who offer fee-free mortgage advice on the various options that may be available to you based on your individual circumstances. You can request a free, no obligation callback here.