What Stops You Getting a Mortgage?
- Always provide accurate information. Your mortgage offer can be revoked if circumstances change, even if you've already exchanged contracts.
- Income, credit score, and debt are carefully analysed by a lender when approving a mortgage. If you have CCJs or Bankruptcy Orders then you'll struggle to get approval.
- If you pass the lender's checks and the valuation survey reveals defects, you might not be able to borrow as much as you need or your application might be declined.
- Your best option is to contact an independent mortgage broker, which has access to the whole market and can find a suitable product for you.
Many people want to own a home, but getting a mortgage can feel overwhelming. There are common challenges in mortgage approvals faced by both first-time buyers and experienced buyers alike, but there are solutions to help increase your chances of securing a mortgage.
The factors that prevent you from getting a mortgage can be broadly categorised into two areas: your financial situation and the property itself.
Mortgage declined after 'agreement in principle'
An agreement in principle (AIP) is a pre-approval which shows a lender's willingness to offer you a mortgage loan, up to a certain amount. It's a preliminary step, not a guarantee.
Reasons for mortgage refusal after AIP: In a nutshell
- Change in circumstances: Your financial situation might have changed since the AIP was issued. For example, a job loss, increased debt, or a change in credit score could affect your eligibility.
- Property issues: A valuation might reveal unexpected defects or problems with the property that make it ineligible for a mortgage.
- Lender policy changes: Lenders can change their lending criteria, which might impact your eligibility.
- Documentation errors: Incomplete or inaccurate documentation can lead to a declined application.
Are you worried you won't secure a mortgage?
- Access to the whole market.
- Not tied down to selling any particular lender's products.
- 100% impartial advice.
- No need for face-to-face meeting.
What will stop you from getting a mortgage?
Credit issues
This is the first and most important area, which can show you the financial factors that might stop you from getting a mortgage.
If you have a poor credit history, including missed payments, defaults, or County Court Judgments (CCJs), it'll turn up on your credit report. Excessive credit applications within a short period can also negatively impact your credit score.
You can apply online to Equifax, TransUnionUK, or Experian. You can check your overall score and access a monthly statutory report for free.
You'll get an overall score, which is a broad and quick way for credit-giving firms to consider if you have bad credit or are a potential risk.
What should you do?
- Check your report for any errors, such as old addresses and old partners - either in love or life - that you've separated from. Once you're tied to an address or a person, you're also connected with their credit history.
- If there are old accounts that need cancelling, you should contact the companies involved to get them to clear things with the particular credit agency.
Debt
If you've been repossessed or made bankrupt, you won't be able to get credit for 7 years. Similarly, if you have County Court Judgements (CCJs) against you because you've defaulted on a court's order to pay a debt, you'll be shut out from getting credit from most lenders for at least a few months or up to 6 years if you don't pay back the amount. You might have to pay more to use a specialist lender.
Income and affordability
Your bank account and statements will undergo careful analysis by the mortgage lender to determine if you have sufficient income to cover the mortgage repayments. A high debt-to-income ratio indicates that you have significant existing debt which will be a red flag for the agency.
If you're self-employed or recently employed, you might need to provide additional documentation such as recent tax returns, bank statements and accounts to show your income stability.
The type of mortgage product you're applying for (e.g. fixed-rate, variable-rate) will also affect your eligibility. Lenders will assess your ability to handle potentially higher interest rates in the future.
Did you get turned down for credit? Leave it for 6 months
Once one organisation turns you down for a credit application, it hurts your score, so you'll find it more difficult to get a 'yes' from someone else.
If you apply and get refused again, you're in an even worse position. Your best choice is to wait for 6 months and try again.
Don't make too many applications at once; it can look like you're desperate for money which is not a good look to agencies and lenders.
How often do mortgages get denied?
Mortgage denial rates can fluctuate based on economic conditions and lender policies:
- Economic factors: interest rates, unemployment, and housing market conditions can influence denial rates. Lenders may tighten or loosen their lending criteria in response to these factors. Read an example from The Guardian.
- Data limitations: Precise data on mortgage denial rates can be challenging to obtain, as lenders may not publicly disclose this information.
If you're concerned about your eligibility for a mortgage, consult with one of our mortgage brokers who have access to the whole mortgage market.
They can assess your circumstances and guide you in improving your chances of approval.
When is a house not suitable for a mortgage?
Assuming you've managed to get a mortgage in principle, the next step in your mortgage process is to pay for a valuation.
Lenders have specific criteria for properties they are willing to offer mortgages on. It might be because of seller valuations, construction materials, defects found in a survey, or even the property's location.
Property condition
- Structural defects: Foundation issues, cracks in walls, or signs of subsidence can significantly impact a property's value and mortgage eligibility.
- Safety hazards: Asbestos, lead paint, or other hazardous materials can make a property difficult to finance.
- Maintenance backlog: Extensive delayed maintenance, such as leaking roofs, faulty plumbing, or outdated electrical systems, can raise concerns for lenders.
Location
- High-risk areas: Properties in flood zones, areas with high crime rates, near industrial sites, or above shops and takeaways might be considered less desirable by lenders.
- Environmental hazards: Contamination, pollution, or proximity to hazardous waste sites can affect property value and mortgage availability.
Unique features
- Non-standard construction: Properties built with unusual materials or unconventional methods can pose challenges for lenders. For example, concrete built houses, steel frame houses and timber frame houses.
- Unusual layouts: Complex or inefficient layouts might require additional renovations or alterations to meet mortgage standards. Restricted use: Properties with specific restrictions or limitations, such as agricultural land or listed buildings, might have financing constraints.
Legal issues
- Disputes: Outstanding legal disputes or limitations on the property can create uncertainty for lenders.
- Planning restrictions: Zoning restrictions or planning issues can limit the property's potential use and value.
Valuation
- Undervaluation: If the valuation is significantly lower than the asking price, it can make it difficult to secure a mortgage.
- Market conditions: Fluctuations in property values can impact mortgage eligibility, especially in declining markets. A thorough property survey can help identify potential issues that could affect mortgage approval.
It's not that no lender will lend in these circumstances, it's just that your set-up fee and repayment charges might be considerably more expensive and they might be more difficult to find as well, as they're unlikely to be found on the high street.
Get a home survey to protect yourself
The valuation only protects the lender's risk, with your hard-earned deposit as their buffer. We always recommend you get your own RICS home survey for a comprehensive condition report to highlight any defects, on which you may be advised to pull out of the purchase or negotiate a better price.
What to do if you're refused a mortgage?
If your mortgage application is declined, don't give up. Here are some steps you can take:
- Understand the reasons: Request a detailed explanation from the lender regarding the reasons for the denial. This will help you identify areas where you can make improvements.
- Review your credit report: Check for errors or negative items on your credit report that might be impacting your eligibility. If you find any, dispute them with the credit agency.
- Improve your credit score: If your credit score is low, take steps to improve it, such as paying bills on time, reducing debt, and avoiding any new credit applications for at least 6 months.
- Increase your deposit: Saving for a larger deposit can significantly improve your chances of mortgage approval.
- Consider alternative lenders: Explore specialised lenders for borrowers with less-than-perfect credit or unique circumstances.
- Seek professional advice: A mortgage advisor can help you understand the reasons for the denial and provide guidance on improving your eligibility.
Persistence is key. By taking proactive steps to address the underlying issues, you can increase your chances of securing a mortgage in the future.
SAM can help you find a product suitable for your unique criteria
Booking a consultation with an independent mortgage broker can make all the difference. At worst, they can advise you about the steps you must take to make yourself a better mortgage prospect, but at best, they can sift through various lenders and their products to find one that best suits your needs.
You might be self-employed or a contractor or an overseas applicant. Regardless, our panel of mortgage brokers can help.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
