What stops you getting a mortgage?

If you’ve ever been declined a mortgage and are thinking, why can’t I get a mortgage? We’ve put together a list of some common obstacles that could impact your chances, as well as how to resolve them.

Here are eight reasons that might stop you from getting a mortgage:

1. Lack of down payment or equity
2. Affordability
3. Credit rating
4. Property issues
5. Age
6. Errors
7. Difficult circumstances
8. Anything else…

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1. Lack of down payment or equity

Numerous lenders require a minimum mortgage deposit , which will have an impact on your loan-to-value ratio (LTV). The LTV measures how much you are borrowing, relative to the property’s value or purchase price.

Borrowers are likely to require a 5% or even 10% down payment or equity for residential mortgages. This can extend up to 25% for Buy-to-Let mortgages.

The amount of deposit or equity you’ll need will be highly dependent on your specific circumstances. However, if you find that you’re falling short of your plans, the following may help:

• Continue to save: This isn’t an immediate solution, but by setting aside more funds you will have more to put towards the purchase or to reduce your remortgage.
• Accept a gift or loan from a family member or close friend: Many lenders will accept you having a non-repayable gift from someone, while some will even accept a loan.

Shared Ownership can help with the required deposit amount.

2. Affordability

Lenders require that you take an affordability check. Depending on the outcome, this can prevent or limit the types of mortgages available to you. A lender will examine your income against your outgoings, assets, and any potential debt. This helps them decide whether you are able to make your mortgage repayments.

So, if your budget limits your options, what could you do to improve this?

• Increase your income. Having an additional source of income, such as a second job or working overtime. Numerous lenders are willing to account for this in their calculations.
• Look for assistance from a third party. Someone may be able to act as a guarantor, or the loan may be set up on a joint borrower sole proprietor In this case, the person added to assist affordability does not have legal ownership of the property.
• Reduce your expectations. Perhaps the property you’re considering, or the loan amount you believe you need, is simply too expensive. The amounts a lender deems affordable and the income multiples they use are based on years of data. Therefore, if these calculations indicate that the amount is too high, there’s a high likelihood that it is.
• Use your savings. If possible, reduce the amount you borrow by using a portion of your savings.
• Extend your term. The shorter your term, the less interest you will pay overall, which is a good thing. However, the shorter your term, the higher your monthly payment will be for a capital and interest mortgage.

By extending the term, the monthly payment may be reduced to an acceptable level. If your scheme permits, you can always voluntarily overpay once everything has been established. Keep in mind that lenders account for your retirement and its effect on your income, which will affect your maximum loan term.

 3. Credit rating

Your credit rating will give an overview of how you handle your finances. If you have a good credit rating, you’ll be regarded as ‘low risk’. If you have a poor credit rating, you’ll be regarded as ‘high risk’.

This may hinder your chances of obtaining a mortgage. To ensure your credit rating remains healthy, consider the following:

• Pay your bills on time. This may seem obvious, but paying your bills on time demonstrates your financial responsibility. Setting up a direct debit to ensure payment is made on time can make this easier.
• Ensure that records are accurate. A mistake on your credit report could have a negative effect on your score, so double-check your information and correct any errors.
• Close old, unused credit accounts. If you have old credit cards or credit facilities that you no longer use, ensure that these accounts are physically closed. Even inactive forms of credit can be detrimental to your credit score.
• Voter registration. Lenders prefer to be able to verify your address history against your application. One simple way for this is to ensure that you’re registered on the electoral roll.

If you find yourself in the unfortunate position of having a bad credit history or low credit score, you may still be able to obtain a mortgage.

Get in touch today and one of our expert advisors will be able to discuss your options.

4. Property issues

Due to varying factors, including a property’s state or construction type, a lender may not view a property as mortgageable.

If a lender believes your property can’t be mortgaged, consider the following to increase your chances:

• The kitchen and bathroom are the two primary features of a home that a lender will consider essential for mortgage purposes. They’re not required to be aesthetically pleasing, but they must be functional.
• Ask the current property owner to perform any recommended repairs. It may be that certain repairs must be completed first.
• Obtain a second opinion on the property’s value as this is a relatively common occurrence, particularly in a volatile market. If the lender believes a property is worth less than you believe, provide them with comparable properties to evaluate. These must be actual sold prices, not just the asking price.
• If you can’t get a mortgage on a specific property it may be best to look elsewhere, or you may find that when you come to sell the property later, it may cause problems for you too.

5. Age

Lenders typically set maximum ages for mortgages, which usually correspond to retirement ages.

There are variations across the market, but some prospective borrowers may find that their age limits their options. While we can’t reduce our age, a number of ideas could be considered.

Look for a mortgage that offers the longest term possible . Your mortgage broker will be able to assist you with this.

There are mortgages designed for older adults, including a Requirement Interest Only (RIO) or Equity Release mortgage. Age is typically irrelevant or more flexible on these types.

Arrange the mortgage with a younger person. If this person’s ability to pay is sufficient on its own, a lender may disregard your age because your income isn’t included in their calculations.

6. Errors

Errors on your application, even simple ones like typos, can have consequences, so it’s important to get it right.

To ensure all information is accurate, proofread your application thoroughly before submission.

• Verify the documentation you submit to the lender. Ensure that items such as payslips, HMRC and accounting paperwork are accurate. Check your ID address is correct, as this is a common thing people forget to change.
• Check your credit file. Errors can take time to correct, so it’s always a good idea to do so in advance.

An experienced mortgage broker can assist you in preparing your application and checking for errors, maximising your chances of a mortgage.

7. Difficult circumstances

No one knows your personal life better than you do, but when you apply for a mortgage, a lender must understand your situation and history.

Where this may be a little more complicated than usual, such as in the case of complex business arrangements or multiple income sources, try to organise your paperwork to aid their understanding.

The more effectively you present your case, the greater your likelihood of approval.

8. Anything else…

There are many different reasons why someone can’t obtain a mortgage, making it impossible to list them all here.

At The Mortgage Centres, we have advisors who are in the best position to package your application to maximise your chances of approval.

We can’t guarantee that we’ll be able to help everyone, but if we can’t see a way to help you right now, we can offer advice on how to improve your chances.