Applying for a mortgage can feel like a big milestone in life, whether you’re a first-time buyer or moving up the property ladder. But there’s always a chance that your mortgage application might get declined. Understanding why this happens can help you prepare better and potentially avoid common pitfalls.
In this article, we’ll dive into the top 10 reasons why mortgage applications may be declined and give you tips on how to navigate these hurdles.
- Poor Credit
Your credit score is one of the most important factors lenders consider when assessing your mortgage application. A low score can indicate to lenders that you’re a high-risk borrower, which can lead to a declined application. Missed payments, defaults, or high levels of debt could negatively affect your credit rating.
Tip: Before applying, check your credit report through services like Experian or Equifax and take steps to improve your score. Ensure any mistakes are corrected and pay off outstanding debts where possible.
- Insufficient Income
Lenders need to see that you earn enough to comfortably afford the mortgage payments. If your income isn’t high enough in comparison to the amount you’re looking to borrow, your application might be rejected. This includes income from your job as well as any additional sources such as investments, rental properties, or government benefits.
Tip: Be realistic about how much you can borrow based on your income. Use online mortgage calculators to get an idea of what’s affordable before applying.
- High Debt-to-Income Ratio
Even if your income is decent, having too much debt can raise a red flag for lenders. Your debt-to-income (DTI) ratio is the percentage of your monthly income that goes toward paying off debts. A high DTI suggests you may struggle to make your mortgage payments on top of your existing financial commitments.
Tip: Try to pay down any outstanding loans or credit card debt before applying for a mortgage to lower your DTI. This will make you more attractive to lenders.
- Unstable Employment History
Lenders prefer applicants with a stable employment history, as it shows you’re likely to have a steady income to support mortgage payments. If you’ve recently changed jobs or are self-employed with fluctuating income, your application may be seen as higher risk.
Tip: If possible, wait until you’ve been in your current role for at least six months before applying. If you’re self-employed, make sure you have two to three years of tax returns to prove your income is stable.
- Inadequate Deposit
The size of your deposit can make or break your mortgage application. Most lenders require at least 5-10% of the property’s value, but a larger deposit will always improve your chances of approval. A small deposit can suggest to lenders that you may struggle with financial discipline.
Tip: Save as much as possible for your deposit. A 20% deposit or more can not only increase your approval chances but may also help you secure a better mortgage rate.
- Problems with the Property
Sometimes, it’s not you, it’s the property. If the property you’re trying to buy is considered non-standard or risky, such as a high-rise flat, ex-local authority house, or a property in poor condition, lenders may be hesitant to approve the mortgage.
Tip: If you’re buying a less conventional property, make sure you work with a mortgage advisor who has experience in securing mortgages for these types of properties.
- Applying for Too Much
Overestimating how much you can borrow could lead to a declined application. Lenders use affordability checks to determine how much you’re likely to afford, considering your income, debt, and spending habits. If you apply for more than the lender believes you can handle, they might reject your application outright.
Tip: Be realistic about how much you can borrow. It’s always better to go slightly under your borrowing limit than to stretch your finances to the edge.
- Recent Large Financial Changes
Making big financial changes just before applying for a mortgage can raise questions. If you’ve recently taken out a large loan, closed credit accounts, or changed your spending habits significantly, lenders might be concerned about your financial stability.
Tip: Avoid making major financial changes or applying for new credit in the months leading up to your mortgage application. Lenders like to see consistency.
- Lack of Documentation
Applying for a mortgage involves a lot of paperwork. Lenders will ask for proof of income, bank statements, identification, and more. If you fail to provide the necessary documents or if there’s a mismatch in the information, your application could be delayed or declined.
Tip: Make sure you have all your paperwork in order before applying. Having the correct documents ready can speed up the process and improve your chances of approval.
- Errors on Your Application
Sometimes, it’s the simple things that can cause your mortgage to be declined. Mistakes like misspelled names, incorrect dates, or incomplete forms can lead to delays or a flat-out rejection of your application.
Tip: Double-check all the details on your mortgage application. Even better, work with a broker or mortgage advisor who can help ensure everything is filled out correctly before submission.
What To Do If Your Application Is Declined
If your mortgage application is declined, don’t panic. You can take steps to improve your situation and reapply in the future. Start by understanding why your application was declined—lenders should be able to provide feedback. Once you know the reason, take action to address the issue, whether it’s improving your credit score, saving a larger deposit, or stabilising your employment.
Working with a mortgage broker or advisor can also be a game-changer. Brokers and advisors have access to a wide range of lenders and can help you find the best mortgage for your circumstances. They can also provide advice on how to make your application more appealing to lenders.
Final Thoughts
Having your mortgage application declined can be frustrating, but understanding the reasons behind it can help you avoid common pitfalls. Whether it’s your credit score, income, or the property itself, each of the reasons above is something you can work on and improve. If in doubt, speak to a mortgage broker who can guide you through the process and help you find the right lender for your needs.
At the end of the day, getting a mortgage is a big financial decision, and being prepared will always give you the best chance of success.
Need more advice or help with your mortgage application? Get in touch with us today, and one our friendly team of experts will be happy to help