So you’ve found your dream home and want to apply for a mortgage. It’s at this point that most house-hunters hit their first major hurdle – getting accepted by a mortgage lender.
There are a number of external factors and slip-ups that can scupper a mortgage application, and if you make sure to avoid them, you can drastically increase your chances of being accepted. We look at the top reasons that could stop you getting a mortgage:
1) You can’t afford the mortgage you’re applying for
Seems obvious, doesn’t it? Only, what you deem affordable and what your lender deems affordable may well be two different things.
If you’ve rented a home in the past, you probably know what it’s like to cough up a large chunk of your income each month to cover your housing costs, the threat of rising interest rates adds further uncertainty for homeowners.
Because they are regulated by the Financial Conduct Authority (FCA), lenders are obliged to consider this when underwriting a mortgage. This means taking detailed accounts of your income and expenditure, ‘stress-testing’ your application against inflated interest rates, and ensuring that your total loan does not exceed a certain multiple of your income (this is usually around four times for a single applicant, and three-and-a-half times for joint applicants).
Affordability checks can be tough and very strict on what a lender will deem acceptable. If you want your mortgage application to be accepted, you need to show beyond any doubt that you can afford to repay it; and if you can’t, then you may need to set your sights lower for the time being.
2) You aren’t on the electoral register
The threat of jury duty might be off-putting, but whether a lender has a quick and easy means to determine that you live where you say you do can make a huge difference to the success of a mortgage application. Find out more about getting registered on aboutmyvote.co.uk.
3) You have too much debt
Existing debt commitments tie in to your income and expenditure, and have a major influence over how a lender will view your application. Lenders won’t just take your existing debt into account, though; many will look at how much debt you could have if you borrowed the maximum amount of credit available to you.
This means untouched overdrafts, old credit cards and any other line of credit you don’t use could act against you. It’s probably a good idea to dig out your old bills and see what you can close. In fact, this can benefit in more than one way, bringing us on to…
4) You have discrepancies on your credit report
Your application could be spotless, but something as small as an unclosed mobile phone contract registered at an old address could complicate the ID checking process and stop the application in its tracks.
Most information is held on your account for around six years∗; a long time to accumulate forgotten contracts and credit cards. Make sure you close the ones you don’t use and register up-to-date information on those you do.
5) You have no credit history at all
Many people don’t like to borrow money if they can help it, and it might seem counter-intuitive that a lender will be hesitant to lend to someone who’s never borrowed a penny. But your credit score is a barometer for your reliability, and a few well-managed debts say far more about your ability to service a loan than no debt at all.
6) You’ve moved around too much
Lenders like to see stability, both in your employment and your residence. If you’ve changed jobs or addresses several times in a short period, your chances of securing a loan are diminished. Similarly, periods of unemployment can hamper a mortgage application.
7) You’ve made too many credit applications in a short period
Several credit applications in a short period could indicate to a lender that you’re applying for more debt than you can afford. It could even suggest fraud.
Credit application searches stay on your report for one year∗. There is a distinction between quotation searches, also called ‘soft’ searches, and application searches; the former won’t be registered on your report at all∗.
In terms of a mortgage application, an application search usually won’t be required until the ‘decision in principle’ stage – so make sure you’ve shopped around and compared deals before requesting a commitment from a lender.
8) You’ve struggled with your finances in the past
Declarations of bankruptcy, county court judgements (CCJs), individual voluntary arrangements (IVAs) and missed credit payments all stay on your credit file for around six years.
Whilst some lenders will entertain applications from customers with minor credit impairments (known as ‘sub-prime’ or ‘near-prime’, depending on the severity), severe difficulties will stymie your application with any lender.
9) There are errors or omissions in your application
Lenders scrutinise each and every application they receive. Every piece of information you give can be verified exactly, and discrepancies can hold up or even sink an application. Always declare complete and correct information to your adviser.
10) You’ve applied to the wrong lender
Your finances could be in impeccable order, and your credit squeaky clean, but if you don’t tick all a lender’s boxes all of this will be for nought.
Every lender has an idea of the type of customer they want to lend to, and not every customer will fit that mould. Perhaps you want to borrow too much or too little; even if you can afford it, some lenders won’t want to know. Maybe you’re self-employed, or too young, or too old. It won’t always be a perfect match.
Rather than risk being turned down, seek advice from a mortgage expert, who will fully assess your circumstances and attempt to match you to the best possible lender.
- Lewis, W (30 October 2014). “House hunter numbers at 10 year high”. Property Reporter.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own and do not necessarily reflect the views of SO Media.