In a sign that the housing market is starting to recover after a difficult 2019, new data has revealed that January saw UK banks approve the highest number of mortgages for four years.
According to the Bank of England, mortgage approvals for house purchases rose to 70,900 in January, up 4.4% from December’s figure of 67,930.
While mortgage approvals may be on the increase, not every application will be agreed. So, what are the common reasons why your mortgage application may be declined?
Since changes to mortgage rules came into force in 2014, lenders must strictly assess whether a mortgage is affordable to a borrower.
It’s no longer the case that a lender will offer you a mortgage of three or four times your income. Now, each lender undertakes a careful assessment of affordability, based on both your initial repayments and if interest rates were to increase in the future.
Most lenders will require three months’ bank statements to assess your income against your outgoings. They need to be sure that you will be able to continue to repay other debts and pay for essentials once your new mortgage has begun.
If a lender does not believe you can afford your new mortgage – either now or in the future – they will decline your application.
Bear in mind that every lender uses different criteria, so just because one lender won’t agree your mortgage doesn’t necessarily mean that all others will also decline your application.
2. Credit issues
When you apply for a new mortgage the lender will access your credit information from a credit reference agency. If you have adverse credit, then a lender may have concerns about whether you can manage your debts and whether you will keep up your repayments.
Examples of credit issues that might result in a lender declining your application include:
- Missed payments on mortgages, loans or other credit
- Late payments
- County Court Judgements or defaults
- You have taken out lots of credit in the recent past
- You are using a high percentage of your available credit.
Getting a mortgage with bad credit is possible, but you may need a large deposit or a guarantor.
3. Other loans or debts
Lenders want to see that you can manage your money responsibly and that you have a good history when it comes to making repayments.
So, if you have lots of other loans or debts, it may give a lender concerns that you can’t manage your finances. For example, if you have taken a payday loan in the last 12 months a lender might see this as evidence you could not manage your money.
Similarly, if you are in a large amount of debt, or you have continually shifted money between various accounts to pay bills, a lender might see this as a negative factor when considering your application.
4. Your lifestyle
On the whole, a mortgage lender just wants to be sure that you can afford the new mortgage. However, there are some lifestyle choices that can be a red flag to lenders.
One example is a regular gambling habit. A lender might overlook the odd debit to a gambling company if it is from your disposable income, but if you are in debt and gamble regularly your application could be declined.
5. You or the property don’t fit a lender’s criteria
Every lender has different lending criteria, and some prefer to target a particular type of borrower.
This means that, if you don’t fit a certain lender’s demographic, they may decline your mortgage. Perhaps you’re older, or a first-time buyer? A lender may simply not want to take on this type of business.
Similarly, certain lenders won’t lend on a particular type of property, such as a flat above commercial premises or an apartment in a high-rise block.
It doesn’t mean that you won’t get a mortgage, just that you might not fit a lender’s specific criteria. Speaking to an independent mortgage broker who knows the market can help you to find the right lender for you and the property you are buying.
How to improve your chances of getting your mortgage approved
- Make sure you are on the electoral register. It can improve your credit score if a lender can find you at your current address
- If you can, repay any debts
- In the six months leading up to your application, focus on your lifestyle choices and ensure your bank statements look as good as they can be
- Consider putting off any big-ticket purchases until after you buy
- Be mindful about how you manage your everyday money
- Ensure you pay any loans or credit cards on time
Eleanor Williams, finance expert at Moneyfacts, says: “There has been a huge shift in how lenders assess potential borrowers. Rather than simply looking at income alone, lenders have a responsibility to assess the overall financial status and activity of applicants.
“This ensures that they are considering, not just your ability to meet the new monthly mortgage repayment, but also taking into account the crucial expenses we all have to meet – our existing credit commitments, childcare costs, even ensuring you budget for clothing, for example.
“By assessing bank statements, it also means that lenders are going to be aware of and consider how your finances are balanced at the end of each month, with the main concern being that you are not going into debt in order to fund your lifestyle.
“If you have any questions about what you could afford when taking on a new mortgage, speaking to a qualified, independent financial adviser will be vital.”
Get in touch
We can help you to get the mortgage that you need to buy your dream home. Please get in touch by email firstname.lastname@example.org or call (0207) 808 4120.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.