Welcome to another Quick Property Sale blog.

Mortgage applications can be daunting as there are several processes homebuyers would have to complete before they are qualified to get mortgages from mortgage lenders. Such individuals would have to ensure that everything is in check prior to taking a mortgage. Although several mortgage applications scale through to the final phase – Approval – a lender may decline a mortgage application for a variety of reasons.

At Halifax, eight out of ten mortgage applications are approved, indicating that the success rate outnumbers the rejection rate. But what happens when a mortgage lender rejects your application? There is so much to learn from this guide about mortgage refusals and how to avoid them.

Types of Mortgage Refusals

If your mortgage application is turned down, it could fall into one of the following categories:

• Full mortgage application refusal
• Mortgage rejected by an underwriter
• Mortgage offer expires before completion
• Mortgage application declined after valuation
• Mortgage rejected despite an agreement in principle
• Mortgage application declined after the exchange of contracts

In such cases, you should know why the lender declined your mortgage application. The next section discusses these reasons at length.

The Reasons Behind Mortgage Refusals

On what grounds can a mortgage lender reject your mortgage application? Here are some of the underlying factors worth noting.

Bad Credit History

After applying for a mortgage, the lender evaluates the homebuyer’s creditworthiness by reviewing the individual’s credit history. The goal behind this background check is to ensure that such a person can honour the mortgage agreement. Bad credit history raises red flags, which may prompt the lender to decline the application. What are those negative signs to consider?

Please read this QPS article explaining debt around mortgages: Can I get a mortgage if I am in debt?

First, it will appear on your credit report whether you have had issues repaying debts in the past, been declared bankrupt, received a County Court Judgement (CCJ), or entered into an Individual Voluntary Arrangement (IVA). The gravity of the circumstances, along with the type of mortgage lender, will determine if the approval status of your mortgage application.

To the lender, you are more likely to default on the mortgage repayment, than someone else with good credit history. As a result, it is essential to improve your credit score before you take out a mortgage or remortgage your home.

Zero Credit History

Not everyone seeks a credit agreement from a lender. Some individuals opt for cash-only transactions to prevent debts. Being debt-free is good, but not in all circumstances. There are good debts and bad debts. However, the absence of debts implies that you have a limited or no credit history. Lenders cannot precisely evaluate your creditworthiness and may slow down on approving the mortgage application.

To address this dilemma and boost your credit score, take out a credit card and use it to make small purchases regularly, paying off the debt in full each month. Your activities will reflect on your credit history and credit score, giving the lender an impression that you can manage credits and honour loan agreements effectively.

Low Income

A homebuyer’s creditworthiness does not solely revolve around credit scores and credit histories. Income is also a necessity in determining if the individual can manage the mortgage properly. Some applications come with unrealistic expectations despite the small pay checks earned. Taking a mortgage that greatly exceeds an individual’s take-home wages may affect the repayment plan. That is not to state that such persons cannot apply for a mortgage.

However, it is ideal to use a simple mortgage calculator to determine what amount can be borrowed. This evaluation tool displays the mortgage’s total cost, including fees and interests. When used effectively, the chances of having a mortgage application approved increases.

Insubstantial Application Form

Another reason a lender may reject a mortgage application is if it lacks concrete information. The omission of specific details can hamper the application process, including leaving out personal, banking, and employment information. Lenders lookout for such pieces of information to conduct a proper evaluation.

Incorporate transparency into your mortgage application. Moreover, you are making the most significant financial commitment that comes with long-term benefits. Consider including the following documentation when applying for a mortgage application.

• Utility bills
• Proof of benefits received
• Last three months’ payslips
• Identity details (passport or driving license)
• PAYE forms: P60, obtainable from your employer
• Bank statements of your current account, ranging between the last three to six months
• Statement of account from an accountant, ranging between two to three years (if employed
• Tax return form SA302, if you receive income from multiple sources or are self-employed
• Additional information supportive of the SA302 stance on income (including bank statements), alongside your tax return (if self-employed)

Kindly note that the provision of such information may differ from one mortgage lender to another. Hence, carefully review your lender’s requirements before submitting a mortgage application.

You may also have to highlight your outgoings, such as the amount you owe on credit cards and other debts, as well as your household bills. Such details include, but are not limited to:

• Utility bills
• Insurance policies
• Council tax
• General living costs, including entertainment, childcare, and travel

Employment

Employment gaps influence potential homebuyers’ mortgage applications. Lenders consider income source and stability when assessing an individual’s creditworthiness. Short-term job roles depict an unstable income generation, which may affect the mortgage agreement. Some lenders prefer applicants to maintain their current position for at least six months to demonstrate stability and consistency in earnings.

Mortgage lenders may also reject applications from recently self-employed homebuyers as they lack evidence of a steady income. They may question the borrower’s creditworthiness in repaying the mortgage on a newly self-employed income. If your mortgage application is turned down because you are self-employed, you have two options: hold on until you have received consistent income or halt your self-employment status until you have secured the mortgage and made consistent repayments. Defaulting in repayments can put your property at risk of repossession.

Age

Your age may influence a mortgage lender’s decision on approving your mortgage application. For some lenders, 65 to 70 years may be the age limit for new mortgages and 70 to 85 years for mortgage repayment. Other lenders may not include age as a requirement, provided that you can cater to the repayment plan.

What to Do After a Mortgage Refusal

You can see a mortgage broker if your mortgage application has been declined. These professionals understand the industry and each lender’s funding prerequisites. Hence, they can notify you of potential pitfalls that may affect your application and source for the ideal lender that matches your situation.

Do Mortgage Refusals Affect Credit Ratings?

Whereby your mortgage application was declined, do not rush into applying for another one immediately as your credit application will reflect on the credit report. Multiple applications may raise eyebrows, even though the results of the hard search will not appear on the report. However, it will show your credit application and the lender’s search, also known as a hard search.

Having several hard searches on your credit report will affect your credit score and discourage lenders from approving your application. Mortgage lenders will conclude that the application has a flaw that has resulted in many rejections. Take a break and apply with the assistance of a mortgage broker later. Before reapplying, make sure your credit score is in good shape and up to date.