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How to avoid being rejected on your mortgage application

Whether you’re concerned about your mortgage application being rejected, or have just received a rejection letter, you’ve come to the right place. Here, we’ll help you understand why a mortgage application is rejected and what you can do to get the mortgage next time you apply.

First, we’ll explore a range of reasons why lenders and underwriters reject mortgages.

Poor Credit history

Your credit score is something lenders look at very carefully to work out how risky it may be to lend to you. A poor credit score is one of the main reasons for a mortgage application rejection. There are so many potential reasons for a poor credit rating and we’ve summarised the main ones here.

If you have been declared bankrupt or been issued with a County Court Judgement (CCJ), you’re almost certainly going to be rejected by lenders. Unfortunately, these events remain on your credit history for up to six years.

Missed bill payments, for example, utility or credit card bills, will also put off many lenders. Even though these missed bills are not as dramatic as bankruptcy, lenders will have cause for concern.

Payday loans ring alarm bells to mortgage lenders as well. Any payday loan since 2011 will appear on your credit file, even if it was paid off on time.

A “rejection footprint” is another reason. If you’ve been rejected for a mortgage or other credit products too many times recently, lenders may see this as ‘desperate behaviour’ and reject your application.

A lack of credit history is a problem too. For example, If your utility bills are in someone else’s name then your credit history could be lacking.

Employment

A lender wants to know that you earn enough money to pay off the mortgage, as well as cover your own expenses. If you offer little or no proof of current and past employment, your mortgage application is destined to fail.

Your past jobs are also relevant. A lender wants to see a steady income over an extended period of time. If you have a history of moving between jobs in less than six months, this is a red flag. Similarly, gaps in your employment history will count against you.

This can make things tricky for those who are self-employed. If you work as a contractor, how do you prove to the lender where your next paycheck is coming from? What's more, you’ll likely have a history of inconsistent income.

Affordability and expectations

It’s important to have realistic expectations. If you apply for a mortgage that your salary simply cannot afford, the lender will reject the application.

The deposit is also part of the equation. Lenders want to see that you have a minimum deposit to be eligible and to cover the initial upfront costs.

Other reasons

  • Not registered to vote: Lenders look up your details in the electoral register to check your address and identity. If you’re not registered, the application may be rejected.
  • Mistakes or lack of information in the application: If you make an error, the lender could misinterpret the information and reject your application. In addition, if you don’t offer certain information to try and improve your chances, it usually works against you and your application may be turned away.
  • Living in the UK: Lenders usually only consider applicants who have lived in the UK for at least three years, although there are exceptions.
  • Demographics: Some lenders don’t lend to those over 40 years old or only lend to certain demographics
  • Online gambling: If you have a history of depositing large sums of money for online gambling, your mortgage application may be rejected.

You may be left wondering, what happens next if your mortgage application is rejected.

What to do if your mortgage application is rejected

It can be stressful to receive a mortgage application rejection. But fear not. The good news is that different lenders have different approval criteria, so you may be approved by another lender. However, before you take further steps, take the time to find out why the initial application was rejected.

First, find out why

For starters, ask the lender why the application was rejected. They may or may not reveal the exact reason or reasons. If the reason is related to your credit score, then the lender won’t be able to reveal the exact reason.

Next, get a credit report from the likes of Experian, Equifax, or TransUnion. You can order a hard copy or digital copy to find out where your credit score has let you down.

Once you’ve pinpointed the issues with your credit score, it’s time to get working on improving it.

Then make yourself more attractive

No, we’re not talking about clothes or makeup, but rather the steps to improve your credit score. We at Sprive have put together a variety of ways to improve your credit score. Here are a few ideas to get you started:

  • Build up a credit history by taking out a credit card and making regular repayments on time. Check that utility bills and mobile phone bills are assigned in your name and address.
  • Make sure you’re not using too much of the credit you have available. Typically, it's wise to keep to less than 50%.
  • Close any unused credit accounts, for example, store cards that you never use.
  • Review the information in your credit report to ensure it is correct and look out for fraudulent activity.

If your credit history is a bigger issue, for example, because you received a County Court Judgement (CCJ) in the last six years, it may be a good idea to seek advice from a specialist mortgage adviser. They will take the time to understand your credit score issues and contact lenders who offer more flexible criteria.

If your mortgage application was rejected due to affordability concerns, try to boost your income. Alternatively, find ways to reduce your living costs. Or take the time to save more so you can borrow less.

Simple as it may sound, make sure your next mortgage application does not have any mistakes or missing information. For example, don’t make estimates regarding income or employment history. Crunch the numbers and get those details as precise as possible.

Hopefully, by now you’ll have an understanding of why your mortgage application could be rejected. Remember, if you do receive the red flag from a lender, don’t panic. There are various steps you can take to give yourself the best chance of success next time you apply.