Six Reasons Mortgage Applications Get Rejected – and How to Avoid Them
Consumer rights expert Martyn James of Resolver walks you through simple changes you can make to improve your creditworthiness when applying for the biggest loan of your life
Despite what some TV hosts would like to think, climbing the housing ladder isn’t easy for the vast majority of people.
Getting a mortgage can be difficult – and stressful. But there are small things you can do to avoid problems later.
Registering to vote, for example, automatically boosts your creditworthiness on paper, while staying in your job for three or more years suggests you’re a stable candidate to lend to.
If you’re in the market to buy in the near future, here are six things that could be blocking your app — and how to fix them.
1. Are you registered on the electoral list?
Let’s start with the most obvious, but surprisingly common.
Many people assume they are on the voters list when in fact they are not.
Remember those reminders you get at your door asking you to confirm who is in the household for survey purposes? It always makes sense to fill them out, just in case.
Mistakes happen and people sometimes disappear from the registry by mistake.
But most of us just forget to re-register when we move house. It is very easy to rectify this, just contact your local election office.
2. Defaults or late payments
County Court Judgments (CCJs), bankruptcies and bills you just haven’t paid.
These are all things that can end up on your credit report and ruin any credit application.
Yet credit records can often be a mystery. For starters, you can often have a good score with a credit reference agency and still be turned down.
This is because different lenders may research different things and decide whether or not to offer you the mortgage based on the answers they get.
Minor payment defaults or late payments can impact obtaining credit, even if the error is not your fault.
Any credit agreement you have will show up on your credit report along with a range of other things.
Mistakes can and do happen, so it makes sense to go to the three main agencies; Experian, Equifax and TransUnion (other brands use the same data).
If you dispute anything on file, the agency can help you correct it, but it may take a few weeks until the system is updated.
Your legal credit report is now free – although the agencies all also offer paid services.
3. You failed the lender’s credit check procedures
This can happen even after you have received an “agreement in principle” which is not a guarantee that the mortgage will be granted to you.
An agreement in principle is based on basic information that the mortgage lender has received from you or a broker.
But when it comes to crisis, you still have to formally meet all of the lender’s criteria. It’s not just about clearing the credit reference agency check.
There are a range of criteria – from consistent income to a large enough deposit and financial stability – that must be met before you get a formal mortgage offer.
4. You had too many credit applications
Credit reference searches can sometimes go all the way to your file.
This is called “extensive searches” where a company performs a complete check of your file.
A “soft” search consists of checking certain data to give you an indication of your chances of passing a test.
This is important because hard checks appear on your record while soft checks do not. It is not just loans, credit and finance that appear.
Credit file checks can come from mobile phone contract apps, utility companies, landlords, rental agencies, debt collectors, employers, and more. If you have a number of hard checks in a short period of time, it may suggest that you are overburdened with your loan.
The good news is that most final checks on your record drop after 12 months, so you can wait for them. Appeal anything for which you did not authorize the check.
5. Typos and incompatible information
Mortgage applications are surprisingly outdated – and lenders are notoriously sensitive to allegations of improper lending.
So the whole mortgage application process can be tedious and bureaucratic. But even minor mistakes — like subtle differences in your address from official documents or estimated timeframes for things like employment that could be verified — can cause the computer (or human) to say no.
As the Mirror recently reported, societal changes, like the use of the title “Mx,” can upend the system and lead to rejection.
I would never ask anyone to compromise who they are to get a mortgage, but know that until the system catches up, it can – and does – have an impact.
6. You are on the verge of success
Many mortgages are turned down because you’re close to passing, but little things add up and work against you.
Having a few debts that you never miss can have an impact if the lender feels that your ability to borrow is limited and it would be better if you paid those debts off first.
But keep in mind that lenders have different criteria and you might find a nicer one through a broker elsewhere.
The more risky you are, or the lower your deposit, the higher the interest rate could be. So taking time to settle your debts, get your finances in order, and make a larger deposit is the best way to climb the housing ladder.