Mortgage declined on affordability

A mortgage or remortgage rejection is frustrating, especially if you thought you had a good chance of getting accepted. Lenders can be tough, requiring you to have impeccable affordability and clean credit history. Issues like limited income, high outgoings or bad credit can cause some banks and lenders to question whether the risk of lending to you is just too big

If you’re anything like the hundreds of people we’ve helped, you might have applied with a lender that wasn’t suitable for you. While you may have thought that you met their eligibility criteria, tougher stress tests and deep dives into credit history can change that.

The good news? Even if a lender has decided you’re not quite right for their deal, it doesn’t mean it’ll be the same with other lenders. You just need to find the right one. This guide explores:

• Why mortgage lenders decline based on affordability
• How to find a lender with criteria you meet
• Getting approved for a mortgage after a rejection

Your next steps now

• Don’t reapply just yet. The next time you apply for a mortgage, check your eligibility with a mortgage broker to avoid accidentally applying to a lender that isn’t suitable and therefore more likely to reject you
• Don’t put your faith in an unreviewed and inexperienced broker. Check reviews and ask them about their qualifications. Are they CeMAP qualified? Have they helped real people get approved for a mortgage?
• Don’t apply for any other credit either. Too many credit applications in a short space of time can make you look like a risky borrower and creditors (including those for mortgages, car finance and credit cards) don’t like high-risk loans.
• Don’t rely on comparison sites. You won’t find all mortgage lenders listed and you might not always get an accurate quote. Some only provide quotes directly or via an intermediary like a mortgage broker.
• Do build your credit score. Even small changes like signing up to the electoral, making sure your name and address are the same on all credit reports or signing up to Experian Boost can help to push you from having a fair credit score to a good one.
• Do ask for help. Professional mortgage brokers know where the best deals are and what lenders look for in applicants.

Why has my mortgage application been declined?

Mortgage lenders each have their own, individual criteria that need to be met in order to be approved and, compared to lending criteria 10-15 years ago, today’s can seem harder to meet

After the 2008 credit crunch and subsequent worldwide financial crash, the government investigated the mortgage market, publishing The Mortgage Market Review

The findings indicated there were too many instances of high-risk lending, which resulted in people being unable to afford their mortgage repayments and ultimately losing their homes.

Stress tests were introduced

As a result, the mortgage industry had to become stricter to make sure a mortgage was affordable for a customer while also allowing for changes in circumstances such as interest rate rises.

Because of this, more and more mortgage applications are declined each year due to affordability. It’s easy to overlook the lending criteria of a mortgage offer in the excitement of applying but always read the T&Cs and fine details with a professional.

So many people are eligible to get approved for a mortgage but they accidentally apply to a lender that isn’t suitable for them. Getting declined for a mortgage isn’t great but it might be a blessing in disguise as you might even find a cheaper or more advantageous deal elsewhere.

The reasons a lender may decline a mortgage application

Lenders set criteria to filter out people that they deem as higher risk applicants.

If you’ve been recently declined, it’s essential to know why, so you can fix the problem to make the next application a successful one.

A low credit score

When you apply for a mortgage, the lender will perform a credit check to see how you’ve managed your finances in the past. If you haven’t borrowed before, or you’re not registered on the electoral role, or you have debt, you might have a low credit score.

his can indicate poor money management or less experience in managing and repaying debt and most lenders will have affordability criteria that results in them declining an applicant with a low credit score. That won’t be the case for everyone though. Other factors might affect a lender’s decision and there are also UK mortgage lenders with criteria that does allow for a low credit score.

Check out our guide on credit scores if you’re keen to improve yours or find a lender willing to approve you now.

Bad credit issues

Credit issues range from low in severity, such as a missed credit card or mobile phone payment, to high severity, such as county court judgements (CCJs) or bankruptcy. Here are some issues that may show up on your credit report

• Late payments
• Defaults
• County court judgements (CCJs)
• Individual voluntary arrangements (IVA)
• Debt management Plans
• Bankruptcy

Any issues will stay on your credit report for six years and in general, the further back in time, the better. For example, a CCJ in the last 6 months could be a huge red flag to some lenders, whereas it’ll be considered differently if the CCJ was five years ago.

Depending on the severity of your bad credit and the age of the credit issue, you may find that you’ll require a bigger deposit, making lenders more comfortable providing the mortgage

While some lenders provide mortgages for customers with just a 5% deposit or a loan-to-value (LTV) of 95%, if your credit history is at the more severe end, you may require a deposit of at least 15% (with an LTV of 85%) in order to get your application accepted

The good news is there are specialist mortgage lenders who will accept applications from people with a range of different credit issues, the key is knowing which lender to choose. If you’re concerned about an application being rejected due to poor credit history speak to one of our expert advisors or visit our bad credit mortgage guide for more information.

Low income in relation to the size of the mortgage

Suppose you’ve been told you don’t have enough income. In that case, this usually means your salary isn’t high enough in relation your loan i.e. your mortgage.

For example, most mortgage lenders will calculate the amount of mortgage you’re eligible for by multiplying your salary (or gross income before tax) by 4.5. Therefore, if your salary is £50,000, you’ll be offered a mortgage for £225,000.

However, the lender may have rejected your application because your salary isn’t high enough for your mortgage needs. For example, perhaps the mortgage you require is £225,000 but your annual income is £30,000. When mulitplied by 4.5 to get £135,000, that isn’t enough

While most lenders typically multiply your salary by 4.5x, some specialist lenders will use a different multiplier such as 5x or even as high as 6x. Work with a knowledgeable mortgage broker who understood your needs and can find you a suitable lender that can lend you the mortgage amount you need so you don’t miss out on a property you love.

Not all income considered

Unfortunately, some incomes aren’t considered by a lender or they may only allow you to declare a capped percentage of it. This can be extremely frustrating. For example, some sales jobs have a low basic salary, with the majority of the income coming from commission and bonuses. Some lenders will only consider income earned through the salary, excluding money earned in commission or bonuses

In these circumstances, it’s important to be matched with the correct lender because there are those that do accept multiple streams of income, including commission, bonuses, benefits, rental income and even child tax credit. Depending on the lender and your situation as a whole, being able to include more than one income on an application can help to improve your affordability, increasing your chances of acceptance and sometimes allowing you to borrow more.

Too many outgoings or debt

A high amount of outgoings and lots of financial commitments may effect your ability to make mortgage repayments on time and in full, reducing your overall affordability for a mortgage.

When lenders assess an application they’ll calculate your debt-to-income ratio (DTI) which is your total monthly recurring outgoings divided by your monthly income and multiplied by 100 to give a percentage.

For example, if your monthly outgoings are £1000, and your monthly income is £2000, your DTI is 50%. That would be considered a high DTI.

As expected, the lower your DTI, the better because it indicates you have plenty of available money every month which puts you in a better position to afford mortgage repayments and ultimately presents less of a risk to a lender.

In general, a DTI of 20% or less will be considered by the majority of lenders, and as your DTI increases, the number of available lenders decreases, so to maximise your chances of being approved, it’s important to be matched with a lender that’s most suitable for your unique situation.

Speak to one of our specialist advisors who can match you to the right lender based on your circumstances.

The property maintenance is too expensive

Perhaps because it’s been built using non-standard construction materials. Some lenders will approve mortgages for properties built with such materials but they’ll require the borrower to prove they can afford the maintenance and repairs of the building.

Thatched rooves, for example, can require the ridge of the thatch to be replaced every 10 – 15 years, so before approving a mortgage for such a commitment, lenders will want to check that your income and circumstances as a whole, are right for the task.

Deposit is too low

Another essential part of the affordability calculation is the deposit. Every lender has different criteria for how much deposit they require. For example, some lenders are currently accepting mortgages with a 5% deposit. This provides a loan-to-value (LTV) of 95%.

Usually, mortgages with a deposit as low as 5% are available for people with excellent affordability. If your credit score is low, you have bad credit or an income that relies on seasonal work, lenders might ask for a higher deposit.

What to do next if a mortgage application is declined because of affordability

Don’t panic. It’s important to remember that there are lots of other lenders out there who could be the perfect match for you.

As mentioned before, not all lenders assess affordability in the same way. So, just because one lender has decided you can’t afford a mortgage, it doesn’t mean they’re right.

It’s important to consider at this stage that too many mortgage applications in a short period of time can negatively impact your appeal as a borrower. So if you’ve just had an application declined, you may want to think twice about re-applying straight away.`

Getting approved for a mortgage after a rejection

Now is the perfect time to speak to an experienced mortgage broker who will assess your situation, give you bespoke advice and provide hope for future approval. They’ll be able to match you with a lender that suits your needs so you can confidently reapply with the knowledge that you meet your chosen lender’s eligibility criteria.

Speak to one of our expert mortgage advisors today. They’ll look at why the lender declined your application, and advise you on the quickest and easiest way to turn that no into a yes by matching you to a lender, where relevant, who

• Offers a higher loan calculation based on your income, such as 5x rather than the standard 4.5x
• Accepts customers with a higher debt-to-income ratio
• Takes into account other sources of income such as commission and bonuses or benefits
• Specialises in customers with adverse credit history.