Reasons for Mortgage declines

Reasons for Mortgage declines

Reasons for mortgage declines can be classified into several main categories. You may or may not have had this experience with a lender or mortgage broker. Lenders consider credit profile, mortgage affordability, suitability of the subject property, age of retirement, proof of income, proof of address and so many other factors. A mortgage decline will have a bad footprint on your credit file. Therefore, it is critical to deal with your mortgage with an experienced mortgage broker who can provide you with the best advice and real-time updates.

#01 Adverse Credit Profile- Mortgage declines

You cannot get a mortgage without running a credit check. It does not mean that mortgage underwriting is going to damage your credit profile. The majority of lenders use soft credit checks when dealing with residential and BTL mortgages with deposits. Before applying for a mortgage, you should check your credit file. The most reliable way to do this is by using checkmyfile.com. It will provide you with multi-agency credit check results with all your outstanding loans, credit card balances, and any other credit commitment including personal loans, hire purchases, etc. Lenders also use different credit agencies such as,

  1. Experian
  2. Equifax
  3. Transunion/Call Credit

Therefore, generating your credit file from check my file would be of great help. If your credit score is above 850, you have a very good chance of qualifying for the mortgage. Specifically, if you are applying for a BTL remortgage with additional borrowing, lenders will assess your case based on their lower stress rate when determining the maximum loan amount. On the other hand, if you have an adverse credit history, your case is on the higher stress rate.

#02 Mortgage Affordability Declines

Checking the mortgage affordability is the primary job of your mortgage broker. Anything to do with the failure of mortgage affordability in terms of the maximum loan amount is up to the mortgage broker. So, where this can really go wrong? Common mistake when checking the affordability is the income consideration. For example, some lenders do not consider the whole of commissions or bonuses as other income. there are instances where the lenders only consider 50% or 40% of such other income. However, if your mortgage broker has considered this as a whole amount, there is a high chance of your mortgage being declined.

Overall, this is a very straightforward reason which you can easily overcome by having effective communication with your fin-tech mortgage broker. It is important to disclose all your income. Employed income and maximum affordable loan amounts do not always go line in line. There are instances where high-income applicants can raise less money compared to low-income applicants. For example, a BTL remortgage with extra borrowing would consider a high taxpayer with more income as riskier than a low taxpayer with low income.

#03 Misleading Proof of Income

It is important to cross-check the annual income figures you gave at the beginning of the application process with real documentation. For example, you might have given 65k GBP as your annual income whereas your actual pay-slips or SA302 documents suggest otherwise. If you are an employed applicant, it is best to calculate your annual income based on gross monthly income on pay-slips. Further, a copy of your latest P60 can be more helpful to verify your income.

For limited company self-employed applicants, it is important that all your salaries and dividends withdrawn from the company should match with your personal and business bank statements. This will ensure that your income will be verified accurately and the mortgage will be secured.

Further, a sudden increase or decrease in your income will also make the lenders and underwriters think twice before approving the mortgage. Lenders always like consistency when checking a mortgage application for income. Therefore, it is important to disclose your regular income figures.

#04 Property being not suitable for lending

There are instances where everything has gone right including all income assessments, ID checks, and credit checks, and still the mortgage application being declined due to the property being not approved as suitable for lending by a surveyor. This is a really worrying scenario for first-time buyers, as they will have to find a new property with this result. This is actually a reason which is very hard to overcome, because a valuation or a survey report will be called only after full application submission. Therefore, it is important to check with your estate agent on the suitability of the property for lending. Some examples where surveyors claim as unsuitable property are,

  1. Property with cross-wall structures
  2. Property located in a bad surrounding
  3. BTL properties located in areas with low demand for renting
Reasons for mortgage declines
Reasons for mortgage declines

#05 Proof of Residency

Not all lenders are comfortable with lending to applicants who do not have permanent citizenship of the country. They want the applicants at least to have Indefinite Leave to Remain in the country. Therefore, applicants who are on work VISA or someone not having a valid British passport or ILR for the subject country, it is difficult to apply for a mortgage.

#06 State Retirement Age- Mortgage declines

Lenders have specified up to what age based on the state retirement age, that they can lend up to. This has all to do with deciding your mortgage term. For example, for an applicant who is 45, the maximum term of the mortgage has to be something around 25 years. They can increase the term only if they provide the lender with a retirement income or pension plan. Your mortgage will be declined if you cannot settle the mortgage within the stipulated time period.

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