Have you been turned down for a mortgage? Don’t Panic
Recent research by Which? showed that Londoners and 18-24 year olds have the biggest problem, with mortgage rejection rates at nearly 30% in the capital and over 40% for the under 25s. If you’re planning to buy a property or remortgage getting turned down for a mortgage can be a real kick in the teeth, and make you believe you’ll never get on the housing ladder.
Don’t give up though. Taking the right steps and talking to the right professional mortgage broker can help you understand what went wrong, and how to put it right.
We spoke to Adam Hinder at Simply Adverse, who specialise in mortgages for customers with bad credit history, and Liam Atkins at Simply Lending Solutions, who work with unusual and specialist customer mortgage circumstances; e.g. the self-employed, consultants and harder to mortgage properties. Both teams are rated 5 star by their customers and FCA approved and fully qualified.
They gave us the lowdown on why you might be turned down. As lenders all use their own set of rules to determine exactly whether or not they accept your application, you can never know for sure why you have been rejected for a mortgage, but looking at some of the common reasons for rejection can help with your next application.
When was your application declined?
The first thing to think about is what stage of the application process your mortgage was turned down. There are two main stages:
At the pre-approval stage
The first step in applying for a mortgage is the pre-approval stage. This is a comparatively quick process, and once you have completed it you will receive an agreement in principle (AIP).
The lender carries out a credit search and combines this with information you provide such as your income, as well as information they may already hold on you if you are an existing customer.
If you get turned down at this stage it could be for something as simple as not being on the electoral register, or making mistakes on your application that don’t tally with the credit search. Alternatively, you may be rejected because the lender doesn’t believe that you meet the affordability criteria or because you only have access to a small deposit.
After an agreement in principle
Receiving an agreement in principle doesn’t mean that you are guaranteed to get a mortgage, however. There are a number of points at which you can be turned down once you have your AIP. If you have paid upfront fees, this is particularly annoying.
Your mortgage may be declined by the lender’s underwriter. Essentially the lender’s underwriting team carries out a deeper dig into your ability to service your mortgage. As they look more closely at your financial history it is possible that they will uncover adverse credit that you have tried to conceal. They may also decide that the way your income is made up, for example if you included commission or bonuses in your initial figures, isn’t acceptable.
At this stage the underwriter will also flag any changes since the pre-approval stage which may negatively impact on your ability to repay a mortgage. You might for example have changed job or taken out a further borrowing that negatively impacts on your ability to pay or your credit score, such as a HP on a new car or a payday loan.
Lenders will also carry out their own independent valuation of the property you are hoping to buy. If the lender’s valuation differs significantly from the seller’s valuation, again your application may be declined. The lender’s valuation may also flag up concerns about the materials used for the property or about the structural integrity of the property. This is another reason for an application to be rejected at this stage.
On some very rare occasions your mortgage may fall through after exchange of contracts has taken place. When this does happen it’s generally because of a major change in your financial circumstances.
Finally, you may find that your mortgage falls through if your sale takes longer than the valid period of your mortgage offer – usually 6 months. If you are getting toward the limit of your offer, then speak to your lender about an extension.
What to do next
When you’re ready to reapply for a mortgage there are a 5 key steps that you can take to reduce the risk of having your application declined again.
1. Pick the right lender or broker
This really is key. Some lenders are much more used to, for example, lending to applicants who are self-employed or receive part of their income via commission. Others are happy to offer mortgage deals to borrowers with a small deposit. There are also lenders who have experience in lending to homebuyers who are considering purchasing a property made of non-traditional materials – which as we’ve seen may otherwise lead to a rejection at the valuation stage.
Knowing which lender to apply to, understanding which lenders are most likely to approve your application, is half the battle. It can be difficult for a layperson to be able to find out which is the most appropriate lender to approach, but speaking to the right professional mortgage broker can help you through this complex landscape.
Ask your broker if they deal with the whole mortgage market, plus whether they have experience preparing applications for your specific circumstances. If the answer to either is no, then walk away, as you need this expertise to ensure you’re not declined again.
Simply Lending Solutions specialise in mortgages for the self-employed, company directors and unusual properties/circumstances. They even offer a guarantee on remortgages, they won’t charge you a penny if they can’t beat the deal from your existing mortgage lender.
2. Sort out your credit history or use an adverse credit specialist broker
A history of adverse credit can make it far less likely that you’ll find a lender willing to accept your application – although if you take our advice and use a mortgage broker who specialises in working with people with bad credit you will find it much easier. However some of these reasons for being turned down could be solved by checking your credit history and making any necessary corrections.
For example, you may have financial associations showing on your credit history that no longer apply, such as with an ex-partner. Checking this and having them removed could improve your chances of a successful mortgage application.
Even serious recent credit issues can sometimes be improved; e.g. a Count Court Judgement (CCJ) paid within 30 days can be removed from your credit file, and even older CCJs can be marked as satisfied if you pay them off. It’s imperative that you get a copy of your credit file, or use a broker that can review your credit history to match you with the right lenders.
At Simply Adverse the CeMap (Certificate in Mortgage Advice and Practice) qualified brokers only deal with adverse credit history mortgages. If you’re looking for a bad credit mortgage and mortgage decline specialist then you can find out if they can help via a 2 minute quiz on their website. They offer a complete service; from reviewing your credit history, through matching you with the right lender, to pre underwriting the application to get it approved. They also don’t charge any fees unless they secure you a mortgage.
3. Increase your deposit
Often easier said than done, but if you can possibly put together a larger deposit you will improve your chances of finding a deal. There are several UK Government schemes that help you save or add guaranteed funds if you’re able to wait and save before you reapply; such as the Help to Buy ISA or London Help To Buy scheme.
Although don’t forget the right broker could still find a deal for you, even with a small deposit, keep in mind these are not likely to be available from high street banks.
4. Make sure your information is accurate
This is an easy one – or should be. Many applications are declined because of inaccuracies or inconsistencies in the information submitted by the prospective borrower.
Make sure everything you submit is accurate, from earnings to outgoings. Or ask a broker to do it for you, this is especially helpful if the broker does a pre-underwriting check, effectively preparing and checking your application in exactly the same way as the mortgage lenders underwriter does.
5. Be honest
Hiding previous adverse credit or omitting some previous details can seem tempting, particularly if your finances are now on track. It can’t do any harm right? Wrong. If an underwriter discovers that you have attempting to conceal a poor credit history, then they may well decline your application. It’s always better to be up front from the start.
Whatever the reason that your mortgage application was declined, this doesn’t mean that you won’t be able to find a deal. Take a deep breath, read our article, then take the steps you personally need to take to complete a successful mortgage application.
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