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. 

We’re specialists in getting mortgages for people who’ve been refused elsewhere. Get in touch to find out how we could help you. 

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.

Bad credit

Having credit issues is one of the main reasons you can be refused for a mortgage. There are many ways you can get adverse credit. If you have adverse credit, or a history of credit issues, many mortgage lenders have a policy not to lend to you. A poor credit rating or credit issues can come from a large number of things. 

For example, you could have missed or late payments logged against your name that negatively affect your credit rating, or something more serious like a bankruptcy. Things like having a County Court Judgement (CCJ) on your credit record or an IVA will also affect your credit score and be kept on your credit record for six years. 

Sometimes making too many credit applications in a short period of time can also negatively affect your credit rating. 

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. 

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 four major UK credit reference agencies, 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. It’s all about finding the right broker who can help you find the right lender. Read our Bad Credit Mortgage Guide to figure out your options. 

Check out our Bad Credit Lenders Guide for a list of brilliant specialist lenders who’ll still help you if you have complex credit issues. Our Bad Credit Mortgage Calculator will also let you know how much you could borrow on a mortgage.

*Heads up, when you click through to our affiliate links, we may earn a small commission at no extra cost to you. We only recommend sites we truly trust and believe in.

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 going to a lender who doesn't specialise in self-employed applicants, and not being able to prove their income. Having a complex income can be a reason you could get refused for a mortgage if the lender isn’t set up to deal with self-employed people. Sometimes if you’re self-employed it can be more difficult to prove your income than if you’re full-time employed by a company and can give payslips. 

If you’re self-employed, you’ll need to give some kind of proof of income so a lender can assess what they’re willing to lend to you. Generally, you’ll need to give lenders your SA302 form – the form is a statement given by HMRC which shows evidence of your earnings and income tax.

Paperwork you will need to provide if you’re self-employed or a contractor: 

•   Two or more years’ certified accounts

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

•   Evidence of upcoming contracts

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

 Read our Self-Employed Mortgage Guide to find out what can complicate a self-employed mortgage application, and what to do about it. 

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 can make it seem like 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. You can check what financial connections you have by registering for an account with checkmyfile. 

Affordability

Your affordability is how much you can afford to borrow on a mortgage. Lenders calculate your affordability based on your income, outgoings and what your credit score is. 

You can be rejected for a mortgage based on your affordability issues. They’ll look at how much you earn and then what your outgoings are. If they decide they think you can’t afford it based on your income and outgoings, they won’t approve a mortgage for you.

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

• Improve your credit rating 

• Try to save a reasonable deposit, or explore options 

• Close any joint accounts you share with someone who has credit issues

• Clear any debt you owe

Getting your mortgage declined on affordability

When the Mortgage Market Review came into force in 2014, lenders got stricter with their lending criteria. Because of stricter rules, more people started to get rejected for mortgages because they didn’t match up to strict and rigid rules. Often, 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 be refused a mortgage after you’ve received a mortgage agreement in principle. Getting your mortgage agreement in principle means the lender has made a preliminary decision to accept you. 

They do this by taking basic information from you and stating an amount of money they'd lend you ‘in principle’. Your mortgage can still be declined after this stage and this is usually 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

If your outgoings are high, for example, you have a lot of bills and living costs, your mortgage could be declined on affordability if your outgoings are high compared to your income. 

Mortgage lenders look to see if you can manage your money, and 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

Your salary might not meet the mortgage lender’s mortgage lending criteria and this can mean you can be declined on affordability.

‘Mortgage multiples’ is a number which lenders use to multiply your income to figure out the maximum they might be able to lend you. Mortgage multiples are more commonly known as income multiples. For most lenders, their mortgage multiple will be between 3x and 5x your yearly income.

Lenders will use your salary to judge if you can afford a mortgage or not. Typically, mortgage lenders will use their mortgage multiple as the first basis of your mortgage affordability. If your salary doesn’t meet their minimum requirements then your mortgage could be rejected based on your affordability. 

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 complicates your application. 

When it comes to other kinds of income, lenders have different lending criteria that dictates what they will and won’t accept. It differs from lender to lender. 

Some mortgage lenders will accept benefits and other types of supplementary income. Or a certain percent of supplementary income. But the amount they will accept will differ 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. Many lenders won’t accept supplementary income as income.

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

Why was my Help-to-Buy application declined?

Help-to-Buy is a government scheme launched in 2013. It helps first-time home buyers buy their first property. Your help-to-buy application could have been declined for many different reasons, but generally, it’ll be because you didn’t meet the eligibility requirements for the help-to-buy scheme. 

There’s a few different criteria you need to meet to be eligible for a help-to-buy equity loan. They are: 

• Be a UK resident

• Be a first-time buyer

• Buying a new build home

• You need to be using the property as a place you’ll live in, rather than a buy-to-let

• You’ll need a minimum 5% mortgage deposit

• The maximum price of the home is £600,000

If you’ve been rejected for the help-to-buy equity loan and feel you should be accepted because you should be eligible, then you should get in contact with your local help-to-buy agent.

 Explain to your help-to-buy agent there has been a mistake and make sure you have evidence to back up your claim. Read more about Help to Buy.

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. 

A mortgage agreement in principle 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. Get in touch to find out your options. 

Does being declined a mortgage affect your credit score?

Getting your mortgage application won't directly bring your score down, but your report will show that you’ve applied for a mortgage (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.

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. Working with a Mortgage Expert can really minimise the chances of getting knocked back.

What can I do after being refused a mortgage?

Don’t panic. You might still have other options. Just because one lender has turned you down, doesn’t mean all lenders will. The best thing you can do is find out WHY you were refused so you have full visibility and understanding.

If there’s an issue like your income is complicated due to being self-employed, or you have credit issues, it's best to work with a specialist mortgage broker like Haysto. Our Mortgage Experts know this industry inside out, know the lenders and will help you understand your options. Make an enquiry to find out your options.