Buying a home maybe a dream but it could turn into a nightmare if your mortgage application is refused.
If your application does not succeed, do not worry, you are not alone! According to a study late last year, a third of applicants were rejected by at least one lender after applying for a mortgage.
A total of 44% of those who were rejected said that having irregular income was the reason for refusal.
Many people believe that they will have no problem securing a mortgage because they’ve saved up for a deposit. But there’s more to a mortgage than that!
How a mortgage application is refused
As we’ve seen, irregular income can make it difficult for lenders to work out what you can really afford, so in such cases, they may refuse your application. Don’t forget, lenders are taking a risk when loaning you money. If they believe you can’t pay, that is one reason for rejecting an application! Here are other occasions when a mortgage application is refused.
1. Credit ratings and history
If you go to a bank, sign a mobile phone contract or apply for a mortgage, the company that loans you money will check your credit history and rating. They can access your history using credit agencies, and from this they assess your ability to manage debt. For example, they’re checking to see if you pay on time!
If you have any history of not keeping up payments, they’ll see you as a bigger risk and may refuse you a mortgage. Someone without any history may also be refused because the lender cannot assess your ability to pay.
The good news is you can check your credit score with the likes of Experian. If any information is incorrect, you can correct it before applying for a mortgage. Find out more about credit ratings here.
2. Electoral roll
Being registered to vote on an electoral roll allows lenders to check your identity. It’s worth checking to make sure you are registered at your current address. If you’ve moved recently, make sure you register to vote at your new address as soon as you can. Not being registered on the electoral roll could mean for refusing a mortgage application.
3. Self-employed and contractors
People who are self-employed or who contractors may have more difficulty securing a mortgage offer. This is usually due to not having regular income that’s easy to check through a PAYE record. But don’t worry, it is not impossible!
You need to be prepared to prove that you have had steady income through tax statements and annual accounts for the past two to three years.
Find out more about how to improve your chances of successfully applying for a mortgage if you’re self-employed in a previous blog.
4. Too much debt
Having credit cards, loans and other debts means you’re already paying debts – and in some cases, that can lead to an application being rejected. Paying off debt before applying for your mortgage is advisable to ensure there is not a negative impact on your credit score.
The best move is to see advice from a mortgage broker, such as our team The Mortgage Dog, for advice.
5. Income and deposit
You may have seen a dream home, but is it beyond your means? If your income is considered by lenders to be too low, then your application might be rejected. Also, your deposit may not be enough to secure a mortgage for a property you’ve set your heart on.
We would advise you speak to a mortgage broker for an affordability test. This will tell you how much you can realistically afford and might help reduce the risk of being refused a mortgage.
6. Too many applications
Using a comparison site may seem like a great idea when looking for mortgages, but be careful! Trying applying for a mortgage with multiple lenders may mean you have too many ‘hard searches’, which goes against your record. This lowers your score and changes of approval.
7. Application errors
Little administrative errors are easy to make – but they could make a big difference to your mortgage application. Information that doesn’t match on your records can lead to applications being refused. Before starting an application, it is worth checking you have all the information you need.
8. Time in the UK
Anyone you has lived in the UK for fewer than three years may find it more difficult to secure a mortgage. Make sure you have all the required documents to prove you have the right to work and live in the UK.
If you’re struggling or just about to apply for a mortgage, contact our team for help. We ask you for information on our contact form to help us make sure you get the best advice from the start.