I can't get a mortgage. What can I do?
There's a lot of information out there about the different pathways to a mortgage and, ultimately, homeownership. But what about when that journey doesn't go quite as planned?
We all want to end up in our dream home. But unfortunately, the road to homeownership isn't always a smooth one. There's a lot of information out there about the different pathways to a mortgage and ultimately homeownership. But what about when that journey doesn't go quite as planned?
No one wants to see the words, 'mortgage declined' or 'mortgage rejected'. We wanted to break down all of the reasons mortgage applications might be denied. And more importantly, what you can do to improve your chances of not being rejected in the future. We'll also examine the alternative routes to homeownership if being accepted for a mortgage isn't a viable option.
Read our guide to find out more.
Why might your mortgage application be denied?
First, let's look at the potential reasons why you can't get a mortgage at the moment.
A poor credit history
This is a big one. Your credit history can follow you around, lingering on your Experian credit report just waiting for the worst possible time to pop up. It could be one of the biggest factors in your application being declined.
Think about it. Your mortgage is arguably the biggest loan you'll ever take out. Lenders want to be sure that you're 'good' for your mortgage repayments. If you have a track record of bad credit or too much debt, you appear like a much higher risk in your mortgage application.
If you'd like to find out more details about your credit score, you can get a report from websites such as Experian or apps like ClearScore.
Here are a few of the factors that can bring down your credit score.
Failing to stick to agreed credit terms
If you make a late payment, pay the wrong amount or have missed payments on a loan or credit cards, this naturally affects your credit score. Things like this will show up on credit reports from providers like Experian. Think of it like a report at work. If you were constantly late, missing deadlines or not doing your work at all, your employer would see you as high risk, and chances are, you'd face consequences. It's no different when sticking to agreed credit terms on a loan.
Declaring bankruptcy
Unsurprisingly, if you declare bankruptcy, the chances of your mortgage application being declined are significantly higher.
County court judgements (CCJs)
If you're issued a county court judgement and pay the full debt owed within a month, you might not have to worry too much. However, if the repayments aren't made, the outstanding CCJ could affect your credit score for up to six years.
Only making minimum repayments
It's pretty tempting to make the minimum repayments every month. But that's how lots of people end up accumulating debt. Think of it this way, if you manage to over pay, you'll spend less on interest and improve your credit score. No brainer, right?
Identity theft
You might have the best credit score out there, but being a victim of identity theft can quickly undo all of that hard work. You don't want to be refused or declined a loan for something that wasn't your fault!
No history at all
If you want to get a mortgage but have no credit history at all, this can be a reason your application is rejected. There's no evidence that you can pay bills on time or stick to agreed terms. Consider building up your credit score by adding a couple of regular direct debits (where possible).
You're not registered to vote
To be eligible for a UK mortgage, you need to be registered to vote at your current address. This way the banks can confirm your identity and where you live.
It's quick and simple to register. You can do it on the government website in minutes.
You've made too many credit applications
When you apply for credit, you leave footprints. Your footprints all contribute to your overall credit report. If you make too many credit applications and they're not successful, it doesn't look great for your credit potential.
It's a good idea to not apply for any new credit at least 12 months before you plan on making your mortgage application.
You have too much existing debt
If for whatever reason, you have a lot of debt, this will unfortunately negatively impact you getting a mortgage successfully. If you know you need to decrease your debts, there are plenty of free budget planner resources out there.
If you need confidential help about reducing your debts, there are organisations that offer free advice such as National Debtline. Always make sure any financial organisations you work with are authorised and regulated by the Financial Conduct Authority. Check their registered office address as you don't want to be gambling with your finances.
Payday loans
Payday loans can stay on your credit history for a number of years, even if you managed to repay in good time.
While it may not necessarily mean you can't get a mortgage at all, lenders will certainly take it into consideration, and your chances of getting approved might decrease. It may be that they feel you can't cope with the financial commitment of a mortgage.
Everybody's human, there may be administration errors
Lenders are people too. With the best will in the world, humans and technology are capable of errors. If you've been rejected and you're not sure why, you might be able to get the details of the credit reference agencies the lender used (for example Experian). It might be that there's an error on your credit report that needs amending.
You have a modest income
If you earn a modest income, this could be one of the reasons you can't get a mortgage. Lenders may question your affordability when it comes to your mortgage application. With a smaller income, you may want to explore Shared Ownership options or other government house buying schemes to get on the property ladder.
Similarly, if you have a small deposit, there are now a range of mortgages that help you buy your property with as little as 5% of the purchase price.
You don't match the lender's criteria
Here's where a mortgage advisor can really come into their own. They'll usually know exactly what the kind of demographic the lender tends to give a loan to, and can guide you through the process.
You're a contract worker or self-employed
These things won't necessarily mean you'll be declined. The process may just be slightly more complicated. You'll usually need to produce accounts for a minimum of three years for your mortgage lender.
Some lenders will even insist you provide evidence that you have work secured for the future. If you're a contract worker or self-employed, you'll want to consider these factors before applying for a mortgage.
You've lived in the UK for less than three years
A large number of lenders won't give you a mortgage if you're a new arrival in the country. But it's not a one size fits all approach. You can speak to an experienced mortgage broker who will be able to advise on the best way to apply for a mortgage if you're new to the UK.
You'll probably be required to produce an employment contract and your visa. This will prove your right to live and work in the UK.
How to improve your chances of getting a mortgage
It's frustrating and disappointing when your application is refused. Even if you have an agreement in principle, lenders can still back out. But it's important to remember that this isn't the end of the road. There are things you can do to help strengthen your mortgage application.
Find out why you were refused
Not all lenders will provide the answer, but some will. This will give you a jumping off point to know how you can strengthen your application in the future.
If they're not able to provide the reasons you've been declined, it's time to have a look at your credit report and see if there's anything in your file that could have raised alarm bells for the lender. Something about your application may not have met their criteria and it's important to know what this is.
Websites like Experian have different options available depending whether you want to view your report once or on an ongoing basis as you try to make improvements. Experian can give you plenty of useful advice that will help your future applications.
Make your money go further
One of the reasons your mortgage might have been declined is because the lender assumes you can't afford the monthly repayments. Time to sit down and see how you can change your budget to achieve your goal. This might be by decreasing your living costs. Or it might be saving for a larger deposit for your next mortgage application.
At this point, you might want to consider government house buying schemes or Shared Ownership options.
Make yourself a candidate the lender can't resist
Every lender has their own criteria for who they accept for mortgages. But there are a number of things you can do to make yourself as attractive as possible across the board.
Save as much of a deposit as you can
The higher deposit you have, the less risky you're likely to look to a lender because you don't need to borrow as much. However, we know that everyone's personal circumstances are different (income, single households etc) and this isn't always an option. But more on that later.
Check your credit report before the lender and build on your credit score
If you need to do any damage control on your credit report, it's a good idea to try and do it before you open yourself up to investigation by lenders. Remember, sites like Experian are your friend here. There may be information that needs updating or simple changes you can make to improve before you apply for a mortgage.
This is where having a trusted mortgage broker is helpful. They'll be familiar with sites like Experian, and can cast an eye over your report to help you better understand your credit score before you apply.
As part of this process, they might suggest disassociating your finances with anyone who might damage your credit rating. If you've ever had a joint bank account or similar and that relationship has ended for whatever reason, you'll need to make sure you're disassociated from anyone you're no longer financially involved with.
Check whether you have inactive accounts and close them. You'd be surprised at what's lurking out there. Having stagnant accounts leaves you open to potential fraud attacks which could be damaging to your credit report.
Get your bills paid on time, every time
This is self explanatory. Any missed, late or incorrect payments will count against you. Some can stay on your file for up to six years. It's not worth the risk!
Show your lender that you're reliable. Where possible, set up direct debits or standing orders to ensure your payments are made correctly and on time.
Register to vote!
As we mentioned previously, lenders use the electoral roll as a means of identity verification. It's a two minute job that could save you a lot of hassle down the line.
Keep an eye on your spending before applying for a mortgage
You'll usually be required to produce bank statements during your mortgage application. A mortgage lender will want to be confident that you can afford your monthly repayments, even if rates went up by a few per cent. If they see you have a large number of 'unnecessary' outgoings, they may question your capability of making your repayments.
It's a good idea to go easy on the spending in the months leading up to your application. Tightening your belt buckle a bit will help you save every penny possible.
Check your mortgage application ahead of time
To decrease the odds of you being declined, you can actually do a 'test' run of your mortgage application. This is what's known as an 'agreement in principle' (or AIP).
An agreement in principle is a conditional offer that indicates whether or not you could expect to be accepted when you make your full application. It's based mostly on your credit file and your income. But be aware, it's not a guarantee and it's not compulsory. However, some cautious sellers may only accept viewings based on whether you have an agreement in principle.
If you decide to carry out this process with a particular lender or broker, it doesn't mean you necessarily have to buy from them when you commit to your mortgage.
Be mindful because, similarly to credit applications, too many of these checks may harm your credit report. This may ultimately harm your mortgage application in the future.
Could I buy my property without a mortgage or deposit?
There are a few ways of going about purchasing property that are away from the traditional criteria. These will be entirely dependent on your individual financial situations (income, whether you're self employed etc) and you'll probably want to seek the advice of your mortgage broker before you take any next steps.
There are advantages and disadvantages to having a mortgage but you should carry out that research individually.
Here's a quick guide to how you could get your first (or next) property mortgage free or without a deposit.
Springboard mortgages
One way to potentially purchase your property without a deposit is a springboard mortgage. This will rely on the bank of mum and dad (or other friends and family). Your 'helper' would put a percentage of the purchase price into a savings account as security against the loan, giving you the chance to show your lender that they're able to trust you to repay your loan.
This gives you a helping hand into the housing market and into a mortgage without the financial difficulty of saving for a large deposit. Generally speaking, you'll repay a fixed rate for the first three to five years (depending on the lender). At the end of this term, your 'helper' will receive their money back (provided you've kept up with your monthly repayments).
Cash buyers
You may have heard the term 'cash buyer' before. This means that they've saved the purchase price and don't need the assistance of a bank loan to help them to buy.
Advantages
- The sale of the property is much less likely to fall through.
- You won't have to deal with any potential mortgage issues. A large number of failed sales are because someone has been declined for a mortgage.
- The chain is typically dramatically reduced because the purchaser isn't relying on the funds from the sale of their property.
- The time it takes for sales to go through is typically reduced.
- You'll have the security of knowing that you own the house outright, avoiding the financial stress of monthly repayments.
What we're trying to say is there there are options out there. You could still be able to find your dream home for the future.
If you still can't get a mortgage for the type of home you want and need, we might be able to help.
What do you fancy doing next?
