REFUSED A MORTGAGE?

Affordability: A calculation a bank will carry out to ascertain whether you will be able to meet your mortgage repayments consistently.

LTV: ‘Loan to value’ refers to the price of a property after the deposit has been paid.

Mortgage in principle: Statement from your lender confirming they are willing to lend a certain amount of money based on the information provided.

Underwriting: The process of determining if the risk of lending is low enough to be acceptable.

Stress test: A test that reviews whether you could still make repayments if interest rates fluctuate.

Research published by a credit card company reported that one in five applicants have a credit application rejected. Of those, 10% had their mortgage application declined. Different banks vary in terms of services and features. The lending criteria for being refused a mortgage differs from lender to lender. Do not assume that a refusal of your mortgage application is the final word.

Banks tend to be overly pessimistic. They often anticipate the worst outcome when dealing with their customers!

Banks, therefore, take all the necessary measures to safeguard themselves from financial losses, and if repayment of the loan is in doubt, they may deny the application request.

If you have fulfilled the essential requirements, for example:

• Only wanting to borrow as much as the bank is prepared to lend according to your income
• You have enough deposit money for the mortgage application

Listed below are several reasons leading to a mortgage application declined scenario, such as:

• An inability to demonstrate your income or having a pattern of inconsistent income
• There are mistakes in your application, such as incorrect or mismatched information
• Self-employment can create risks for lenders
• You are employed on a short-term contract, variable hours contract, or maybe even a zero-hour contract
• You are tied to various financial commitments
• You are a foreign national without citizenship or indefinite leave to remain
• There is no record of you on the electoral register
• You have applied for the wrong type of mortgage
• There have been recent instances of missed or late payments

You may also have a mortgage declined if your credit score shows that you have:

• Experienced a bankruptcy
• Have a county court judgement (CCJ) or default against you
• Had loans or applications for credit and credit cards rejected
• Had a high number of credit checks
• Missed or made payments late

These situations may cause a bank to lose confidence that you will be able to make the monthly repayments. Remember that the bank aims to make a profit, so they will shy away from most things that will put them at risk.

The first thing is to confirm why you had a mortgage declined, as this may not be revealed initially. Once you understand why you have been refused a mortgage, you can approach the right mortgage lender or make a plan of action to increase the likelihood of your next application being approved.

Every mortgage application requires a hard credit check, which impacts your credit score. Therefore, it is essential that, after your initial application is declined, you take steps to prevent the same thing from happening again. Banks, like any business, endeavour to make a profit and tend to avoid activities that involve potential risks. If you have had a mortgage rejected, or you are concerned that it may be, get in touch with a mortgage broker who has extensive contacts with a variety of banks and lenders.