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Bad Credit Score
While you can still get a mortgage with a bad credit score, having poor credit does limit your options. For example, you may not get approved for a loan from a high-street bank or an online mortgage provider.
A bad credit score suggests that you’re irresponsible with money. This is especially true if you’ve filed for bankruptcy or had a repossession in the last six years. Mortgage lenders will generally look six years into your credit report to gain an understanding of your recent financial history.
However, a bad credit report doesn’t mean you can’t get a mortgage. Mortgage providers will judge the severity of your credit issues alongside your job, age, and deposit size. If you make a steady income and have a good amount of money saved for a deposit, you may get accepted for a mortgage by a high-street bank.
If your credit score is particularly bad, you can use the services of a bad credit broker. These mortgage brokers specialise in finding lenders who are willing to grant mortgages to those with bad credit.
However, the worse your credit is, the higher the level of interest and the bigger the deposit you’ll likely have to make to secure the mortgage.
Here are a few other things to do with your credit score that could be preventing you from getting a mortgage:
No credit history
Having no credit history at all could also limit your chances of mortgage success. There are several reasons why you might have no history at all. This includes being 18 years old and just entering the world of work or simply never having owned a credit card.
Having a history is necessary for proving that you can responsibly borrow and return money. So, before applying for a mortgage, it would be a good idea to get a credit card and borrow and return small amounts each month. As long as you make all your credit payments on time, you should build up a healthy financial history.
Too many credit applications
While having a few credit applications on your report is fine, having lots is a cause for concern to lenders. If you’ve got lots of applications for credit in the months before you submit your mortgage application, the mortgage lender will likely reject your mortgage. This suggests financial instability and may put the lender off letting you borrow money from them.
Credit report mistakes
If you don’t regularly check your credit score, you may miss mistakes that have been made on your report. Mistakes include a payment being recorded as a default when you actually paid it on time or when someone else’s debt is attached to your report.
Report mistakes happen occasionally and should be resolved as soon as they are spotted. If you employ the services of a mortgage broker, they’ll be able to help you review your report and rectify any issues found.
If you haven’t employed a mortgage broker, you could fix the problems yourself by contacting the relevant provider. You can check your credit reports for free on each of the UK’s three main credit reference agencies’ (Equifax, Experian, and TransUnion) websites.
You Can’t Meet the Affordability Checks
Your earnings and financial history will be analysed by the lender. If they deem that your financial status isn’t strong enough, they’ll reject your application.
You may be unable to meet the affordability checks for several reasons. This includes:
- Being too far in debt
- Relying on credit
- Too low of an income
- Annual outgoing spending is too high
- Not enough deposit saved
If you fail to meet the affordability checks, you won’t be able to keep on top of the mortgage repayments. In this case, the house you’re applying for is potentially out of your budget.
Being Self Employed With No Proof of Income
If you’re self-employed and applying for a mortgage, you’ll likely have to submit around 2-3 years’ worth of accounts to get your mortgage approved. If you aren’t able to provide this many years’ worth of accounts, or you’ve only just started working on a self-employed basis, you may struggle to get your mortgage approval.
However, if you have a significant deposit saved up and you can prove you’re earning a steady income, you could get a mortgage by providing only one year’s worth of accounts. For this, you may need to hire the services of a broker who deals with finding specialist lenders for those working for themselves.
You Move Jobs Too Frequently
If you move jobs frequently, it suggests employment instability, which also suggests financial instability. On these grounds, your lender may reject your mortgage application.
However, even if you’ve only moved jobs once in the last year, your mortgage could have been rejected because of this. Being in the same position long-term is preferred by lenders as it suggests stability.
If you’ve recently switched jobs, waiting six months – one year can improve your mortgage application success.
You Don’t Have Enough Deposit Saved
Mortgage approval can depend on how much deposit you have saved. The amount of deposit you require depends on the property you’re buying, its price, as well as your credit score.
If you have a good credit score, you’ll only have to save around 5% – 10% of the property’s value. However, if you’ve got a bad credit score, you may be required to submit somewhere between 10% and 30% as a deposit.
If you don’t have the required amount saved, your application will be rejected.
Your Debt-to-Income Ratio
When you apply for a mortgage, one of the factors considered by mortgage providers is your debt-to-income ratio. This is a percentage that reflects how much of your monthly income is used to pay off existing debt. The lower your debt-to-income ratio, the easier getting a mortgage will be.
Age Restrictions
This can apply to those who are too old as well as those who are too young. Most lenders have an age cap of some sort, normally between 65 and 70. On the other hand, if you’re too young, you won’t have enough financial history to prove your trustworthiness.
Too Many Applications
Multiple applications won’t harm your credit score, but they will show up in your report. This is especially true if the lender conducts hard searches of your financial history. If a new lender sees loads of rejected mortgage applications in your credit report, they’ll likely do the same.
Issues with the Property
The reason your mortgage was rejected could be no fault of your own. Rather, an issue with the property itself could be behind the lender’s decision to reject your mortgage application.
Potential property issues are varied. For example, if the property suffers from dampness or has a high flooding risk, mortgage lenders may reject the application form.
Other reasons include:
Non-standard construction
When a building is classed as a “non-standard construction”, it means that the house was built with materials other than standard brick and mortar. While the building materials may be solid, some mortgage lenders would rather stay clear of construction types they are unfamiliar with. Certain types of constructions are classed as “non-mortgagable” by certain lenders.
Renovation work is needed
If extensive renovations are needed, lenders may reject an application to avoid taking on any risks.
Environment
If the location is deemed as being too risky, lenders are likely to refuse your application. For example, your mortgage may be rejected due to the building sitting on a floodplain. Or, due to Japanese knotweed growing in the garden.
The surveyor found the property to be worth less
Once you apply for a mortgage, the lenders will send a surveyor around to the property to determine its worth. If the surveyor deems the mortgage you’re applying for to be more than the property is actually worth, your application may get rejected.
You Have Financial Ties to Someone Else
If you share a bank account with someone else, particularly someone with bad credit, this could be the reason your mortgage lender is rejecting your application. If this other person has a bad credit rating, it can reflect negatively on your own credit rating.
Before applying for another mortgage, make sure to cut all financial ties you share with others with bad credit.
Incomplete Application
Sometimes, a rejected mortgage could simply be the result of an incomplete application. Getting a mortgage is a tricky process, especially when it comes to the application. A broker will be able to review your applications before you submit them, which will ensure that everything is in order.
FAQs
Is it common to get your mortgage application refused?
On average, 1 in 6 homeowners had their mortgage application rejected before being accepted later on. Based on this, getting your mortgage application refused is a very common occurrence. This often happens to first-time applicants. The process for getting a mortgage can be confusing, especially for the self-employed. To help make it easier, you should hire a mortgage broker.
At what stage will your mortgage application be declined?
Your mortgage application can be declined as soon as you submit it. An experienced mortgage broker will be able to tell whether your application will be approved or declined before submitting it. The second stage in which your mortgage could be declined is the underwriting stage after you make an offer. At this point, a more in-depth analysis of your spending history will be carried out.
Sources:
https://www.onlinemoneyadvisor.co.uk/apply-for-a-mortgage/debt-to-income/
https://www.onlinemortgageadvisor.co.uk/mortgage-application/what-stops-you-getting-a-mortgage/
https://www.habito.com/hub/article/what-stops-you-from-getting-a-mortgage-6-things-to-know