I've been declined a mortgage - what should I do?

Why might I have been turned down for a mortgage?

A lender looks at the value of the property you want to buy, the deposit you’ve saved up and your general financial situation before coming to a decision on your mortgage application. Ultimately, it comes down to the question of whether the lender thinks you can afford the repayments.

Here are some common reasons why you might have been refused a mortgage:

Your credit score is low

When you apply for a mortgage, lenders will do a ‘hard’ credit search of your credit report. This gives them a better understanding of your financial behaviour and history, and your ability to pay back your mortgage.

Your credit report will show things like:

• How much you owe on credit cards

• Details of any other loans

• Recent missed or late payments

• County Court judgements (CCJs) in the last six years

• Financial links with someone else - a joint bank account for example

• If you’re registered on the electoral roll

Every time you make a credit application, it will show up on your credit file. Too many hard credit checks over a short period of time is a red flag for mortgage lenders. It can affect your credit score and your chances of being approved for a mortgage.

Your credit score might also be low if you’ve had little or no credit in the past, as lenders won’t have any evidence of how you manage money.

The lender doesn’t think you can afford the repayments

Since affordability rules were introduced in 2014, lenders have become far stricter when checking whether you can afford your mortgage repayments. This means they’ll go over your finances with a fine-tooth comb.

You’ll need to provide evidence of your income and your household expenses, for example, outstanding loans, child maintenance, utility bills and basic everyday living costs like groceries and clothing.

Lenders will also take into account known or likely future changes to your income or expenses that could affect your ability to repay the mortgage if interest rates go up.

You don’t have enough deposit

You'll normally need a deposit of at least 5% of the property price - but the more you can put down, the better. This is because lenders will see you as a smaller risk if you're borrowing less, and so may be more likely to offer you a mortgage.

Too many credit applications

As we mentioned a bit earlier, repeatedly applying for credit could make mortgage lenders wary. Every time you apply for credit, a hard search will leave a footprint on your credit report. It could make you look a little desperate and could imply that you have money problems.

You’re not registered to vote

If you’re not on the electoral roll at your current address, lenders won’t be able to confirm who you are and where you live – simple as that. If the lender doesn’t accept other proof of your identity and address, this could cause an issue for your application.

An error on your credit file

A simple admin error on your credit file can have an impact on your credit score and therefore your ability to get a mortgage approval. For example, inconsistent name spellings, an old address or an unused bank account that you forgot to close.

The lender might not give a specific reason why your credit report isn’t up to scratch, so it’s up to you to check it out and correct any mistakes.

You don’t meet the lender’s criteria

Every mortgage lender is different and they all have their own criteria. It could just be that you don’t fit the profile type for that particular lender. For example, it might be that you’re self-employed or have lived in the UK for less than three years.

Some lenders are also picky about the type of property they’re willing to lend money for. If you don’t keep up with repayments on your home and it’s repossessed by your lender, they don’t want to be stuck with a lemon that they can’t sell on.

You haven’t provided the right paperwork

There’s a mountain of admin to complete when you apply for a mortgage. If you don’t supply a crucial bit of paperwork, like bank statements, you could find yourself being turned down.

The property is ‘unmortgageable’

It might be that your dream home isn’t one that a provider is willing to lend on. Lenders have their own criteria, but if the home you want to buy is non-standard in some way, you may be turned down for a mortgage. For example, it may be that the property’s walls are concrete rather than brick or stone, or it’s got issues like serious damp.

Just remember that these are ‘possible’ reasons why your mortgage application could be refused. Each lender has their own criteria, so a refusal from one, doesn’t necessarily mean the same for another, so try not to get disheartened. You could still find one who is prepared to offer you a mortgage

Your home may be repossessed if you can’t keep up repayments on your mortgage.

What should I do if I’m refused a mortgage?

If your mortgage application is refused, you’ll want to know why. You can ask the lender why your application was declined. They don’t have to tell you the reason, but it’s worth a try.

Consider if applying for another mortgage straight away is the right thing to do. This could make the situation worse as another hard check will be marked on your credit file and could lower your score.

If the lender hasn’t given you a specific reason, check your credit report to see if anything’s there that may have put them off.

You can check your credit report free of charge, from one of the three main credit agencies: Experian, Equifax and TransUnion. This won’t affect your credit score in any way.

Take your time to address any issues that may have caused your application to have been rejected, so you can improve your chances of getting approval next time.