Having a mortgage declined by a lender happens to people every day. It is certainly not uncommon and it certainly does not mean you won’t be able to get a mortgage with another lender. Sometimes if you walked into the bank next door they would’ve done it, it can be that simple. Each bank has extensive lending criteria which stretches far beyond a simple calculation of income vs expenses for gauging mortgage affordability. Property details, the type of income you receive, your credit history and any other properties you own are all factors that will determine which banks will and which banks will not offer you a mortgage.
Now how to avoid having your mortgage application declined…
The short answer is speak to a broker – a good one at that too!
More often than not, people having mortgage applications declined are those who have gone directly to the bank themselves. Whether this is people who have done their own research online or people who have just gone to the bank they hold their current account with, seeking advice on arranging the largest debt you’ll likely ever have is certainly worthwhile! The main two issues with going directly to a bank are how do you know they offer the best mortgage product (it’s not just about the lowest interest rate) and how do you know you meet all their criteria to stop your mortgage getting declined. You may speak to a mortgage advisor at the bank but that “advice” is limited to products offered by that bank only, compared to over 50 mortgage lenders available through a broker like ourselves.
This blog looks at common reasons for a decline and solutions to the problem.
Income. Your income affects your mortgage affordability which simply means how much the bank will let you borrow as a mortgage. Lenders’ mortgage affordability calculations can produce vastly different amounts depending on your type of income and your expenses. If you’re slightly short on what you need with one bank, there may be another that can help. To explain what we mean when we say type of income… We’re referring to things like rental income, dividend income, benefit income, pension income, child maintenance, bonus, overtime and commission income, the list could go on. But even when using basic salary or net profit for those self-employed, there are lenders who will offer different amounts using the same figures.
Your credit history. Firstly, we always stress your credit score is specific for Experian, Equifax or any other third party. It is simply the opinion of an independent company on your credit status and there is not a single mortgage lender who will care to look at this. A mortgage lender is interested in the content of your credit report which provides a full breakdown of your credit history from the last 6 years. Most lenders also have their own internal scoring system that they use to filter applications too. It is not uncommon for us to come across late payments, County Court Judgements (CCJs) and other adverse credit issues. This is why it’s important for you to know what’s on your credit file or for us to see your credit file to ensure you meet the criteria of the bank we apply to. If you do have minor adverse credit issues, it’s often not a problem. There are still major high-street banks still happy to lend with this but it’s important to know which bank to apply to, so your application does not decline.
Properties can be quirky. Whether it’s a thatched roof, large acreage or a listed building, some banks love them, some hate them. Banks do publish extensive guidelines on acceptable property types and while these are generally sufficient, there are times when it’s not clear. As a broker, this is the hardest to prevent as a bank will often roll out the line of “it’s down to valuers’ comments” which refers to the opinion of the surveyor who will come and inspect the property on behalf of the bank when you apply for a mortgage. Again, this is where our relationship managers with each lender come in as they can give guidance on what their bank generally does and doesn’t accept. It is important to get this right first time because a mortgage valuation will often happen a week or so after your mortgage is submitted so it wastes a lot of time if this causes your application to be declined.
Loan-to-value (LTV) is the amount of borrowing secured against the value of a property, expressed as a percentage. LTV can significantly affect the affordability calculation as with some lenders, at lower LTVs, they will allow you to borrow a greater amount relative to your income. However, lenders often restrict the maximum LTV they will go to, typically between 85% and 95% so you will not be able to borrow above this even if the affordability calculation allows you. Also, lenders will often restrict the LTV because of the property type, repayment type or loan amount. If you’re borrowing a large amount of money, lenders normally want you to put down a larger amount of deposit. For example, if you borrowed £500,000 against a house worth £1,000,000 most lenders would love to have you as a customer. Try and borrow £900,000 against a value of £1,000,000 and you’ll have less than a handful of lenders.
As a broker, it’s the fundamental basics of our job to know each mortgage lender’s criteria inside out. Therefore, after talking to you and receiving all necessary documentation, we can analyse your circumstances compared to lenders criteria across the mortgage market to get you the best mortgage available to you. In times where criteria is not 100% clear or we want to know if we can bend criteria, we have relationship managers with each mortgage lender who we can discuss your application with first, to see if it’s something they will be able to do. Using a broker saves you time and money. Professional advice and with us, it’s free of charge – all brokers are paid by the mortgage lender on completion, so we don’t feel the need to charge you on top of this.