Why you might be turned down for a mortgage (and what you can do about it)

Why you might be turned down for a mortgage (and what you can do about it)
Most mortgage applications go without a hitch, but there are times when applications are refused, leaving buyers or homeowners wondering which way to turn.

The good news is that once you know the reasons why a mortgage might be declined you can work on boosting your chances of being accepted.

Here’s what you need to know.

Common reasons for being refused a mortgage

1. Your credit score isn’t up to scratch

When you apply for a mortgage, the lender will check your credit score to see whether you’ve managed debts responsibly in the past.

If you’ve been late with or have missed payments on other credit arrangements, this will have affected your credit score and may mean your mortgage application is refused.

You can learn more about this in our guide How does your credit score affect your ability to get a mortgage?

What you can do about it

There are several steps you can take to improve your credit score, starting with getting a copy of your credit report from Experian, CallCredit, Clearscore, Noddle, or Equifax, so you can spot any potential issues.

If your score is low, make sure you are on the electoral roll, as even something as simple as this can affect your credit rating.

You should also check there aren’t any errors on your credit report, such as a missed payment you can prove you made on time, and correct them if there are.

Close any credit accounts you no longer use and try to pay off any outstanding credit cards or personal loans, as lenders may be reluctant to offer you a mortgage if you’ve got other substantial outgoings.

2. You haven’t yet built up a credit record

You might think that if you haven’t borrowed money previously this would work in your favour when applying for a mortgage, but in fact lenders are wary of applicants with no credit history.

That’s because there’s no evidence to show how you’d manage any borrowing, so they’ll be concerned that if you have a mortgage, you might be late with or miss payments.

What you can do about it

If you want to build up your credit score, one option is to consider applying for a ‘credit builder’ credit card. These often charge very high rates of interest, but the idea is you clear your balance in full every month to show you can manage debts responsibly.

If you’re renting, you can opt into the Rental Exchange Initiative which is a free scheme from Experian and The Big Issue Group that allows rental payment data to be added to credit reports.

This means that these regular payments are recognised by lenders in a similar way to mortgage payments, which could make it easier to get your mortgage application accepted.

3. You don’t meet lenders’ affordability criteria

Your mortgage application will only be accepted if the lender thinks you’ll be able to comfortably afford your monthly repayments.

Some lenders show their affordability calculations on their websites, so it’s worth exploring these to give yourself an idea of how much they might lend to you.

What you can do about it

It’s a good idea to check how much you might be able to borrow ahead of making a mortgage application. Our mortgage affordability calculator can help you work this out based on your income.

Increasing your savings and the amount you have to put down as a deposit can help improve your chances of meeting affordability criteria. There are various government schemes available such as the Lifetime ISA and the Help to Buy ISA which are designed to give your savings a boost, so it’s worth checking these out if you aren’t already paying into one of them.

Reducing your outgoings can also help, so have a look through your bank statements and see if there’s anything you can cut back on, perhaps a gym membership you rarely use, or a subscription to a magazine you never read.

4. You’re self-employed

Getting a mortgage if you work for yourself isn’t always easy, particularly if you’ve only recently decided to go it alone.

It’s important for lenders to see proof that you’ve got a stable income, which isn’t always the case if you work for yourself.

What you can do about it

Lenders will usually want to see a track record of two to three years’ worth of income, in the form of Self Assessment tax calculations (SA302's), Tax Year Overviews (TYO), or accounts showing trading figures. Alternatively they might ask your accountant to complete a certificate confirming your earnings.

However, some will consider your mortgage application even if you’ve only got one year of accounts, so it’s worth speaking to a broker for advice on which lenders might be more flexible.

Find out more about 'How to get a mortgage if you're self-employed'.

5. You haven’t supplied all the information required

There’s lots of paperwork lenders will need to see before they’ll accept your application, and if any of it is missing, or you can’t provide it, your application won’t be able to proceed.

Documents you’ll usually need to provide include the following, but you can learn more from our blog 'What do I need for my mortgage application?'

• Proof of ID and address, such as your passport or driving license and a utility bill showing your address
• Latest 3 months payslips (online payslips are usually acceptable if they include your personal details on them) – although each lender’s criteria  varies
• Latest 3 months bank statements (the account that your salary is paid into)
• Latest P60 (especially if you have bonus income)
• Last 2 or 3 years SA302s or signed accounts (if you are self-employed).

What you can do about it

Start gathering together everything you’ll need to support your mortgage application well in advance. That way you’ll have plenty of time to track down any documents which you need but are currently missing.

Remember that some lenders will only accept original bank statements rather than internet print-offs and these can sometimes take a while to arrive, so order them as soon as you can.

Before you submit your application, double check you’re sending off everything you’ve been asked for to help avoid any delays.




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