What To Do If You've Been Refused a Mortgage

The most important thing to do before looking for any new lenders is to make sure you fully understand what’s stopping you getting approved for a mortgage in the first place. You could have been refused a mortgage over something that’s easy to rectify, or it might take some more time. 

In this Guide, you’ll find the reasons you could have been refused a mortgage, what to do and how to avoid this in the future.

What can stop me getting a mortgage?

Bad credit

Having credit issues is one of the main reasons you can be refused for a mortgage. There are lots of ways you can get adverse credit and many mainstream mortgage lenders will adopt a ‘computer says no’ policy with applications of this nature.

For example, you could have missed or late payments logged against your name that negatively affect your credit rating. It could be something altogether more serious like a bankruptcy or a County Court Judgment (CCJ) registered on your credit record from the last six years. 

Having no credit history can also be seen as a negative to mortgage lenders because if you’ve never taken out any type of credit or loan, they don’t know how reliable you’ll be at paying them back. 

After being refused by one mortgage lender, the temptation can be to rush in and lodge an application straight away with another. But, too many credit applications in a short period of time can negatively affect your credit rating even further. 

If you know your adverse credit is affecting your ability to get a mortgage, or suspect it is, we recommend using Checkmyfile** to get a clear view of your credit history and what’s on there that mortgage lenders can see. 

Checkmyfile shows you data from the three major UK credit reference agencies - Experian, Equifax, TransUnion - so gives you a thorough and clear overview of what is held about you and your credit history. Read our Checkmyfile Explained Guide, to find out how to use their credit report. 

Having bad credit can make getting a mortgage harder, but it is certainly not impossible. Our mortgage team specialise in tricky cases like this and have strong working relationships with several of the best bad credit mortgage lenders available in the UK. If you get in touch we’ll arrange for one of our Mortgage Experts to contact you and discuss all of your options.

Not being on the electoral roll

Being registered on the electoral roll is one of the easiest things you can check that could be affecting your credit rating. It’s also important to be on the electoral roll when applying for a mortgage because it helps the lender confirm your identity and where you live. Being easily identifiable means you’re trustworthy to lenders.

To check if you’re on the electoral roll, visit the Gov.uk website. 

Deposit amount 

Getting a deposit together is never an easy task. And sadly, it can affect your chances of getting approved for a mortgage. Basically, lenders like big deposits because it means they don’t have to lend you as much money. The larger your deposit, the less ‘risk’ they think there is. 

Putting down a deposit is one of the main blockers to being able to get a mortgage. But there are options to consider. For example, you could explore the possibility of getting a guarantor, put off buying until you have saved up, or ask a close family or friend to help you with a deposit. 

Self-employed income

The main problems self-employed people face when applying for a mortgage is being able to offer sufficient evidence of earnings. Having a complex income can be a very common reason you could get refused for a mortgage. If you’re self-employed it can be more difficult to prove your income than if you’re a full-time employee with lots of payslips available. 

To get a mortgage when you’re self-employed, you’ll need to provide lenders with your SA302 tax calculation statement, given by HMRC which shows evidence of your earnings and income tax paid.

Other paperwork you’ll typically need to provide if you’re self-employed or a contractor includes: 

•  Two or more years’ certified accounts (preferably from your accountant)

•  SA302 forms or a tax year overview (from HMRC) for the past two or three years

•  Evidence of upcoming contracts

• Profit projections (if only recently self-employed)

•   Limited company directors need to provide evidence of dividend payments or retained profits

Debt

If you have debt, it’ll be visible to mortgage lenders in your credit file. Having a lot of debt can turn off lenders and make them think you’ll be unable to take on even more debt. Payday loans could also put off lenders, as it could give the impression you have poor money management skills.

Who you’re linked to financially

Whoever you’re linked to financially, lenders also look at their credit history. This could be people you live with, have shared a credit card with or have had a mortgage with in the past. Basically anyone you share a bill with. 

Lenders will look at your financial associates because they like to find out if there’s any possibility you have any financial dependents, or could possibly get into debt via any means. Lenders want to avoid anything that could prove to be an issue to you making your mortgage repayments, so they’ll always check to see who you’re financially linked to. 

Unfortunately, if you’re financially linked to someone who has adverse credit, it could also affect your credit score. Always check if you hold any bills or accounts that you don’t need anymore in case they negatively affect your chances of getting credit in the future.

Affordability

Your affordability is how much you can afford to borrow on a mortgage. Lenders calculate your affordability based mainly on your income, outgoings, but your credit score could also indirectly affect how much you can borrow. You can be rejected for a mortgage if a lender isn’t convinced you can afford the repayments for the full term of the loan.

What can I do to avoid being refused a mortgage?

Here’s a tick list of things you can do to avoid being refused a mortgage:

• Make sure you’re registered on the electoral roll

• Take time to improve your credit score 

• Try to save a reasonable deposit, or explore other options (a gift from a family member?) 

• Close any joint accounts you share with someone who you’re no longer personally linked to (an ex-partner, for example)

• Try and clear any outstanding debt you owe and make sure all your financial commitments are paid on time and in full

Getting your mortgage declined on affordability

Following the 2014 Mortgage Market Review, lenders were advised to become much stricter with their lending criteria. As a result, more people were rejected for mortgages and, in most cases, this was down to affordability. 

Understanding why your mortgage was declined on affordability will help you avoid getting your mortgage application refused in the future. Sometimes, you can even be refused a mortgage after you’ve received a mortgage decision-in-principle and this can often be due to affordability issues.

Here are some common reasons why you could be refused a mortgage based on affordability:

Your monthly expenditure is too high

Mortgage lenders look to see that there’s money left over in your bank account after you’ve paid out all your regular bills. Your disposable income should be big enough to cover your mortgage repayments, if it's not then your mortgage application could be declined on affordability. 

When you get your mortgage in principle, the mortgage lender might not have looked too deep into your finances, but when you make a formal application, they will. Mortgage lenders will look for spending habits that show you don’t manage your money well. For example, gambling or payday loans. 

Your salary doesn’t meet the lender’s requirements

Lenders will use a multiple of your salary (usually between 4 or 4.5 times your annual income) to initially judge if you can afford a mortgage or not. Typically, mortgage lenders will use this figure as the first basis of how much you can borrow. If your salary doesn’t meet this requirement once a lender delves deeper into your finances then your mortgage could be rejected. 

Your type of income

All mortgage lenders will accept a salary that’s paid through PAYE, as long as you don’t have any issues like adverse credit that further complicates your application. 

When it comes to other kinds of income, lenders have different criteria that dictates what they will and won’t accept. This will vary from lender to lender. Some mortgage lenders will accept benefits and a percentage of other types of supplementary income. This will vary from lender to lender.

If your income is mostly made up of a supplementary earnings (e.g. benefits) then you need to find a mortgage lender who'll accept that. Some lenders will and some won’t.

Types of supplementary income are:

• Investments

• Pension

• Income earned overseas

• Income from rental properties

• Maintenance payments

• Bursaries

• Stipends

• Child benefit

• Carer’s allowance

• Bereavement allowance

• Maternity allowance

• Incapacity benefit

• Child tax credit

• Pension credit

• Severe disablement allowance

• Industrial injuries benefit

This is where the services of an experienced mortgage broker can make all the difference. Your broker will be able to identify the right lenders who have a track record of looking more favourably on applicants with more complex incomes.

Why was my mortgage agreement in principle declined?

A mortgage agreement in principle is the initial decision made by a mortgage lender. At this stage, they’ve taken basic information and done a soft credit search on you. 

It is not a guarantee of acceptance, but it’s a great indication that a lender is willing to lend you the mortgage money. If you are declined at this stage, you can still be accepted by another lender. Find out why you were rejected so you know your options for the next application. 

Hopefully, you’ll either be able to fix the reasons why you were rejected, or get help from a mortgage broker who will help you find a lender who can approve you.

Does being declined for a mortgage affect your credit score?

Being declined for a mortgage won't directly bring your score down, but your report will show that you’ve applied (but won’t show if you were accepted or rejected). However, lots of hard search mortgage applications will signal to a lender that you've been previously rejected multiple times.

Hard searches are when lenders take a thorough and full look at your credit report and score. They can lower your credit score and make it harder for your mortgage application to be approved.