What to do if your mortgage application is denied

You’ve found a home you want to purchase and have agreed on a price with the sellers, but then your mortgage application is denied. It’s a problem that’s more common than you might think but it doesn’t mean you have to give up on the purchase.

According to research, half of homebuyers have been denied a mortgage this year, despite having an agreement in principle in place. While a mortgage in principle is often advised, it doesn’t mean that your mortgage application will be accepted automatically, even if you apply with the same lender. When offering a mortgage in principle, a lender doesn’t conduct a full credit search, so can reject your application based on this, or lending criteria may have changed.

The impact of Covid-19 has likely increased the number of people finding their mortgage application has been rejected. Economic uncertainty means some lenders have withdrawn certain products from the market. These have tended to be mortgage products with a low deposit, such as 5%, affecting first-time buyers in particular.

So, if you’ve recently been rejected for a mortgage, what should you do?

1. Don’t immediately apply for a mortgage with a different lender

If you’re in the middle of purchasing a home you love, it can be really tempting to start looking for another mortgage provider straight away. But it’s important to take a step back and understand why your first application was rejected.

When assessing your mortgage application, lenders will perform a hard credit search. This provides information to allow them to assess how likely you are to default on repayments in the future. A credit search doesn’t automatically harm your credit score but it does leave a mark, allowing other lenders to see that you’ve applied for credit previously. Too many credit searches can put other lenders off.

2. Find out why your mortgage application was rejected

The first thing you should do is find out why your application was denied. The easiest way to do this is simply by asking the lender. This can provide you with some direction when potentially searching for an alternative lender.

Sometimes, it’ll simply be that you didn’t match this particular lender’s criteria. Other times, you may need to take some time to improve your credit score or adjust your expectations on how much you can borrow. However, you should keep in mind that not all providers have the same lending criteria and other options may be available.

3. Assess if your mortgage application was realistic

Affordability is key when securing a mortgage. After an application has been denied, it’s worth assessing if the amount you were asking to borrow was realistic. Mortgage providers must stress test your finances to assess if you have the ability to keep up with repayments, even if interest rates begin to rise.

As a general rule, you can usually borrow up to four times your annual salary. If you want to borrow more, you may need to approach a specialist lender or reassess how much you want to borrow. Alternatively, depending on your circumstances, demonstrating that your day-to-day living costs will be reduced or that committed spending has decreased, for example, by paying off debt, can help increase the amount accessible.

4. Review your credit report

Your credit report is what lenders use to assess how risky you are. You can access your own report for free and looking at it won’t harm your credit score.

You may have reviewed your credit report before the first application but it’s worth reassessing it again. Is there anything on there that may act as a red flag to lenders? Sometimes there are quick fixes that can boost your credit score and reassure lenders, this may include registering on the electoral roll, requesting inaccurate information is removed or adding a note to explain red flags if necessary.

Negative marks on your credit report don’t mean that a mortgage is out of reach. However, it may mean that approaching specialist lenders is needed. Understanding what these red flags are can help improve the chances of your next mortgage application being successful.

5. Make sure the information you provided was clear

When applying for a mortgage, you typically have to provide a lot of information about your income and expenses. Was the information you provided clear and did it give an accurate picture of your finances?

For example, if you regularly do overtime or receive bonuses through work, was this shown on the payslips provided? Did the bank statements showing expenses accurately capture your usual spending? Make sure the information provided demonstrate affordability and your situation clearly.

6. Work with a mortgage broker to find the right lender for you

There are hundreds of mortgage lenders on the market, many without a high street presence. Each of these lenders has a different criterion and some specialist lenders may be more suitable for you. For instance, if you’re self-employed or have a bad credit score, the well-known lenders may dismiss your application but that doesn’t mean all lenders will.

Searching the market and understanding where your application has the best chance of success can be challenging. This is where engaging the services of a mortgage broker can help. They’ll assess your situation and mortgage needs, finding a lender that matches, allowing you to reapply with more confidence and hopefully a better outcome.

If you’re worried about securing a mortgage or have already had an application denied, please contact us, we’d be happy to help.

July 6, 2020adminBlog

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