Most mortgage applications are accepted; however there are many reasons they might not be – some of which can be easily addressed.
We asked Kevin Whiteley, Director of Mortgages at Halifax, which is part of Lloyds Banking Group, the country’s largest mortgage lender, for five of the most common reasons why you could be turned down for a home loan, and what you can do to improve the chances of your application being accepted.
1. Poor credit history
Mortgage lenders always review your credit history when looking at whether or not, or how much, to lend to borrowers – and the most common reason for not accepting applications is a poor credit history.
If you have had problems repaying debt in the past, for example on a credit card, personal loan, or even your utility bills, it will show on your credit report and you may find that a mortgage lender refuses your application. This is because the lender will consider you more likely to miss a mortgage repayment or be unable to repay on time.
Worse still is if you’ve had a County Court Judgment (CCJ) issued against you, been registered bankrupt, or entered into an Individual Voluntary Arrangement (IVA). This will reflect on your credit score and go against you on a mortgage application.
- Understand the application process up front; if you’re a first time buyer this can be daunting. Check out Halifax’s helpful First Time Buyer pledges here.
- Work on being an attractive customer to lenders by being consistent; for example paying bills on time will build a positive credit history.
- When applying for a mortgage, discuss with the potential lender what you did to rectify any situation where you did miss a credit payment.
- Keep a regular eye on your credit file by obtaining copies from credit agencies and monitor your records for any irregularities.
- You can obtain a copy of your credit report – and compare services available – at MoneySupermarket’s credit reporting channel.
2. Lack of credit history
Some people choose to stick only to cash when they transact as they don’t want to risk getting into debt, while others simply have never had the need to enter a credit agreement – such as for a mobile phone or credit card.
The downside to this is that there is no, or limited, established credit history. Any bank you want to borrow money from ideally wants to see if you can manage credit and are in a position to pay it back.
To increase your credit profiling, one option is to take out a credit card. This is a useful way to improve your credit rating so long as you use it – and use it correctly. This means paying off the balance in full every month which will mean you can demonstrate your ability to handle credit and thereby improve your credit score.
- Build up a strong credit history by borrowing responsibly – pay back what you owe every month and avoid building up long term credit card debt wherever possible.
- Apply for a copy of your credit file and check for any irregularities or any outstanding payments that can be paid.
- Speak to your chosen lender before applying – you may have a better credit rating than you think and could obtain a mortgage promise before starting a full application. At Halifax, a Mortgage Promise only takes 15 minutes and lasts for 90 days, giving you confidence to move forward to the next stage of the process.
3. Unrealistic borrowing expectations
Affordability is assessed on various factors and some potential borrowers have unrealistic expectations and apply for a larger loan size in comparison to their salary.
- Understand the lending proposition – many lenders work on affordability calculations which you can often find details of online. This will give you an idea of what a lender may lend to you at the very start of the process. Halifax can give you Mortgage Promise in just 15mins, without leaving a lasting credit footprint, so you know how much you will be able to borrow and can move forward to the next stage of buying your home.
- Use a handy mortgage calculator to understand how much you could borrow. Click the link for the Halifax’s simple and quick calculator.
4. Employment gaps in the application
The amount you are eligible to borrow is based on a rigorous affordability criteria. Employment gaps can also impact an application, as can short term job roles. Some mortgage lenders prefer borrowers to be in their current role for at least six months which shows stability and a steady income stream.
- Be clear and concise regarding your employment history, check your facts and dates before applying.
- Lenders understand in the current economic climate that customers’ employment situations change, so don’t be put off if you’ve moved into a new job or role recently.
5. Insufficient information on the application form
Some applicants think that by omitting personal, banking and employment information which they believe will harm their application, it will improve their chances of acceptance. However, this is not the case: many applications are rejected because borrowers do not provide all the information.
It’s always best to be open and upfront when completing a mortgage application. More often than not, a mortgage is the biggest financial obligation you will enter into.
At Halifax we approve eight out of 10 mortgage applications. By ensuring that your credit file is in a good condition and getting the right advice from a mortgage advisor you will place yourself in a good position as you look to step onto the property ladder.
Please note: Any rates or deals mentioned in this article were available at the time of writing.