Having your mortgage application rejected can be devastating, especially if you’ve got your heart set on a home. But mortgage application failures aren’t uncommon, and you certainly shouldn’t let it discourage you from finding your next home. Let’s take a look at the steps you can take to improve your chances for future approval.
Why did my mortgage application fail?
There are many reasons why a mortgage application might fail. Sometimes, it’s a minor thing that can easily be rectified – like a misspelling or incorrect personal information. Other times, the issue is more substantial and could take longer to fix, such as a low credit score.
Finding out why you have been refused a mortgage can empower you to make the right changes for your next application.
Related: Do I need a financial adviser?
Common reasons for mortgage application rejection
Poor credit history
Your credit history is important to lenders, as they will use it to assess your affordability and your reliability as a borrower. Things like missed or defaulted payments or County Court Judgements (CCJs) will appear on your report. If your mortgage application fails due to poor credit history, it could be because your lender thinks you will struggle to keep up with mortgage repayments.
Low deposit
Offering a lower deposit could put you at risk of having your mortgage application rejected. Most lenders will require a minimum deposit of between 5% and 10% for an application to be successful.
Using payday loans
Payday loans can stay on your credit report for up to six years. Some lenders may take this into account when assessing your affordability, but others may be more lenient.
Affordability rules
Your lender will assess your household earnings and outgoings before making a decision. If you’re unable to realistically afford the house you want, your application won’t be successful.
Documentation and information errors
As mentioned previously, incorrect or incomplete information can lead to rejection. But this might be the easiest fix of all the application issues. Once the mistakes or misspellings are identified, you can go back and correct your errors before reapplying.
Not being registered to vote
Being on the electoral roll allows your lender to confirm your identity. So if you aren’t registered to vote, you should do so before applying for a mortgage.
UK residency
Certain lenders will require you to have lived in the UK for a specific period of time. You may need to submit a visa as evidence of this. Additionally, you will also need a UK bank account.
Self-employed or contracted workers
Lenders may view self-employment as risky. If you are self-employed, you may need to demonstrate that you have a consistent income and secure future employment. This can be accomplished using tax returns and business accounts.
Related: How much can I afford to borrow?
Steps to improve your eligibility for future applications
Reviewing the rejection letter
If your application is rejected, try not to panic. While it could be tempting to reapply right away, you’ll likely improve your chances of success if you carefully assess your rejection letter first. Knowing where your application went wrong means you can rectify the issue.
Assessing credit issues
Your next step is to take a look at your credit history. A good way to do this is by checking your credit report online through sites like Experian, Clearscore, or Equifax. You might spot something that could have put your lender off, which you can target as an area for improvement.
Building a stronger financial profile
Focus on strengthening your financial profile by prioritising savings and improving stability. A good example of this is building an emergency fund to demonstrate financial responsibility and hedge against unexpected expenses.
Pay off existing debt
Reviewing and paying off any existing debts will improve your debt-to-income ratio, which is a crucial consideration for lenders. You can also demonstrate that you’re a responsible borrower by paying your regular bills (such as mobile phone contracts and utility bills) on time and in full.
Spread your money further
You can improve your affordability by assessing your current outgoings and finding ways to spread your money more efficiently.
This means either increasing the amount you earn each month, or cutting down your living costs. You could also reduce the amount you need to borrow by saving up for a larger deposit.
Related: Moving home? Here’s how to plan your finances
Seeking professional financial advice
If your mortgage application has been rejected, speaking with an expert mortgage adviser can set you back on the right track.
Mortgage advisers have in-depth knowledge of the market and access to a wide range of lenders, including those that may not be available to you directly. They can review your application to identify any issues and provide tailored advice to improve your chances of approval.
By leveraging their expertise, brokers can often find alternative mortgage products that better suit your financial situation and guide you through the necessary adjustments to your application. Their personalised service can significantly improve your chances of securing a mortgage, even after an initial setback.
For more advice, contact your local Ellis & Co branch.
