Applying for a mortgage can be a difficult procedure! If you are applying for a mortgage, it’s vital to understand all of the typical reasons why your application maybe declined, as well as what to do if a lender rejects your application.
- You work for yourself or as a contractor. 🏠
If you are self-employed or work as a contractor, without what is regarded as a regular, consistent income, it can be harder to have a mortgage approved through standard mortgage lenders. Usually, when you apply for a mortgage, the lender will request that you provide your last three payslips as proof of income, so self-employed people and contractors are not able to prove their income this way. Specialist mortgage brokers for self-employed people and contractors are the best way to avoid having the application declined.
- Credit Score and Poor Credit History 🏠
Lenders use credit ratings to determine your ability to handle debt and make regular payments. It determines your suitability as a client. If you have a poor credit history, you will have a more difficult time obtaining a mortgage.
Check with companies like Equifax and Experian to discover what information they have on file for your profile. It is vital to review this file to ensure that your credit report is free of errors. The good thing is that you can repair any mistakes you find.
A lack of credit history, such as never having taken out a loan or used a credit card, is also an issue. Lenders will be unable to establish your ability to repay loans if you do not have a credit rating.
Obtaining a mortgage with poor credit is more complex, but not impossible.
- Construction of income 🏠
You may be in a position whereby you receive bonuses or commission on top of your basic salary. Lots of lenders will consider this however these will need to be evidenced accordingly and some lenders may only take a fraction of said additional income. Always apply with the breakdown of your income so that lenders can see the construction of your income.
- You’ve taken out a payday loan 🏠
Some lenders may assume that if you take out payday loans, you may have difficulty paying your mortgage, therefore you may need to locate a suitable lender who does not reject applications from those who have used a payday loan. Remember a payday loan will remain on your credit report for six years.
- Does being declined for a mortgage affect my credit score? 🏠
When you apply for a mortgage, a hard search record is created in your profile. As a result, if you are initially turned down for a mortgage and then apply numerous times with other lenders, you may wind up with a large number of hard searches on your record. This reduces your score and your chances of approval.
- Existing financial commitments 🏠
If you are currently repaying loans, credit cards, or other financial commitments, your chances of acceptance may be diminished. However, paying off that debt before qualifying for a mortgage may have a negative influence on your credit score. As a result, speaking with a professional mortgage adviser is the best option.
- Are you on the voters roll ? 🏠
Lenders will have a more difficult time authenticating your identification and where you reside if you are not registered to vote on your electoral roll. Check whether you are registered to vote at your current address and keep this updated on every relocation.
- Have been in the UK for less than three years? 🏠
You will need to find suitable lenders as well as make sure that you have got all the required documents to prove you have the right to work and live in the UK.
- What can I do if my mortgage application is declined? 🏠
If your mortgage has been declined, there is a good chance that it is down to one of these reasons listed above. The lender you have applied to may be able to tell you exactly why the application was declined so that you can then try and rectify the situation.
There may be some quick improvements you can make to your credit report, such as closing down unused accounts, financially de-linking from a past partner, or registering onto the electoral roll.
If your credit history is the problem, then you should request a recent report from a credit agency so that you can look through any missed payments that are affecting your application. There could be a loan that you forgot about that you have accidentally not been paying, or you could even be the victim of fraud, where someone has taken out credit in your name and left you with debt and non-payments.
If you have a large loan payment going out of your account each month at the moment, but it will be paid off in the next few months, you might find that your application is approved once that debt has been fully paid off. Similarly, if you had some missed payments on your credit history dating back a few years, these will no longer be on your report after six years, so your credit score will improve after that time.
You might also consider using a different mortgage lender, as each one has different lending criteria, so whilst you might get declined by one lender, another could approve your application. Sometimes this might mean that you are expected to pay a higher amount of interest rate, so it is worth talking to a broker like 3mc to identify the right type of mortgage lender for your situation.
Frequently Asked Questions
Why was my mortgage application declined?
Common reasons include being self-employed or a contractor without easily proven, consistent income, a poor or limited credit history, bonus or commission income that isn’t clearly evidenced, a recent payday loan, existing debts and financial commitments, not being on the electoral roll, or having lived in the UK for less than three years.
Can I get a mortgage if I’m self-employed or a contractor?
Yes, but it can be harder with standard lenders, because you can’t prove your income with payslips in the usual way. A specialist mortgage broker who works with self-employed people and contractors can help you find lenders more likely to approve your application.
Can I get a mortgage with no credit history?
It can be difficult. If you’ve never had a loan or credit card, lenders can’t easily see how you manage repayments. Check your credit file with agencies such as Equifax and Experian, and register on the electoral roll to help build your profile.
Will a payday loan stop me getting a mortgage?
It can. Some lenders see a payday loan as a sign you might struggle with mortgage payments, so you may need to find a lender that doesn’t automatically reject applicants who have used one. A payday loan stays on your credit report for six years.
Does being declined for a mortgage affect my credit score?
A mortgage application creates a hard search on your credit file. If you’re declined and then apply to several other lenders in quick succession, the number of hard searches can build up, which lowers your score and your chances of approval.
Why does being on the electoral roll matter for a mortgage?
If you’re not registered to vote at your current address, lenders find it harder to confirm your identity and where you live. Check you’re registered and update your details every time you move.
Can I get a mortgage if I’ve lived in the UK for less than three years?
Yes, but you’ll need to find suitable lenders and make sure you have all the documents needed to prove your right to live and work in the UK.
What should I do if my mortgage application is declined?
Ask the lender why, so you can address the problem. Check your credit report for errors, forgotten accounts or even fraud, close unused accounts, financially de-link from a former partner and register on the electoral roll. If a large loan is nearly paid off, you may be approved once it’s cleared. Missed payments drop off your credit report after six years. Different lenders have different criteria, so a broker can help you find one more likely to approve you.
At 3mc, we have a team of expert advisers who can discuss all your mortgage requirements. If you would like to discuss your options, give the 3mc team a call on 0161 962 7800.
All calls are recorded for training and monitoring purposes. 3mc for intermediaries only.
*Your home may be repossessed if you do not keep up repayments on your mortgage. 3mc (UK) Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register https://register.fca.org.uk/s/ under reference 302992. Please note: The FCA do not regulate Business Buy to Let Mortgages.
About the Author: Doug Hall, Director at 3mc
This article was written by Doug Hall, a Director at 3mc, one of the UK’s leading mortgage packagers, distributors and brokers. Doug has over 35 years of experience in the mortgage and specialist lending industry, giving him an unparalleled understanding of the challenges and opportunities facing landlords, brokers, and property investors across the UK. A recognised voice in the industry, Doug regularly speaks at major industry events and is widely respected by lenders, intermediaries, and fellow professionals alike. His insight is shaped by three decades on the front line of mortgage distribution, working closely with the brokers and lenders who keep the UK property market moving.