There are several common reasons as to why your mortgage may have been refused, and a number of things you can do to improve your chances of getting approved next time. A mortgage loan is used to buy a home or borrow money against the value of a home you own. It is an agreement between you and a lender that gives the lender the right to take your property if you fail to repay the money you’ve borrowed plus interest.
Getting a mortgage is generally a necessity when buying a new property, so understanding the application process – including why you may fail and how to improve on your chances – is incredibly important to anyone looking to take a step on the property ladder.
How to Apply for a Mortgage?
First and foremost, your lender must check if you can afford a mortgage. A lender will work out your household income – including your basic salary as well as any other income you may receive – taking your household bills and any other debt you may have into account. This will allow them to decide if you would have enough left to cover the monthly mortgage repayments.
Your application for the mortgage process may include, for example, your utility bills, proof of any benefits received, your last three months’ payslips and recent bank statements.
Ensure that all information included in your application is correct before applying for a mortgage, or else you may risk being refused a mortgage for simple having incorrect information listed in your details.
Why Was Your Mortgage Declined?
There is a range of reasons that could explain why your mortgage was declined. A common reason may be that you have a poor credit history. This may happen by, for example, applying for lots of credit over a short period of time. This may cause the appearance of money problems as applying for credit can leave marks on your history which your lender can easily search out and find.
If you have substantial amounts of debt, this may also cause your mortgage to be declined. A lender will not want to provide for someone whom they do not believe will be able to pay their mortgage loan back. If you already have considerable amounts of debt, you simply may not be able to afford a mortgage for the time being, and so one will not be granted to you.
Evidence that you have taken out a payday loan over the last few years may also indicate that you won’t be able to cope with the financial responsibility of having a mortgage. A payday loan is a type of emergency short-term loan that can help you if need instant cash, and they are normally utilised to get out of current debt. This may indicate that you are not able to stabilise your finances, however, the impact of taking out such a loan may differ from lender to lender.
With constantly increasing house prices, it may also be the case that your income is simply too low to qualify you for a mortgage. Your income should be enough for you to be able to pay off a reasonable-sized deposit, as well as the regular repayment instalments.
But besides your financial state, you will also need to qualify for a mortgage regarding your living and employment status.
Do I Qualify for a Mortgage?
To qualify for a mortgage in the UK, it will help if you have been a permanent resident for at least a few years. Typically, it will be difficult to get a mortgage if you have lived in the UK for less than three years as most lenders are unwilling to lend to new arrivals. This is because a borrower must be able to have a visa in order to work and make the loan repayments. However, this may differ from lender to lender.
If you are self-employed or a contract worker, it may also be harder to be approved for a mortgage. This is because it may be more difficult to prove that you have a steady source of income, particularly if you are new to self-employment. You will have to prove that you have had a steady income for at least the last 2 to 3 years and that you have reliable work lined up in the future.
Nonetheless, this is not to say that being self-employed will cause you to be refused a mortgage. You must simply be able to approve that in your current employment state, you will be able to make your lenders mortgage repayments.
How Can You Get Approved Next Time?
Therefore, your living and employment status can help to qualify you for a mortgage. Beyond this, there are many things to do regarding your financial state to help you get approved for a mortgage in the future. Put simply, the key is to be able to show that you have a steady source of income that will allow you to make the mortgage repayments plus any interest owed.
To do this, it would be best to try not to take out any payday loans as this will help keep up appearances of financial responsibility. If you need to pay off any debt you may have, there are other alternatives you may consider such as borrowing from a friend or family or getting an advance on your paycheck.
If you are having trouble saving, it would instead be better to take advantage of schemes that can boost your savings if you spend it on buying a property (as opposed to taking out more loans). The government has set up the Help To Buy scheme to encourage aspiring homeowners as it is aimed at making saving for a deposit more attractive.
Before even applying for a mortgage, it is also best to first work out how much you would realistically be able to afford. Do not bother looking at properties that lie outside of your price range as lenders are likely to reject unrealistic mortgage applications.
By careful budgeting and taking advantage of any saving schemes, you may be able to save enough to qualify you for a mortgage and prevent yourself from having to damage your credit score by taking out any more loans that may be unappealing to potential lenders.
