What Stops You from Getting a Mortgage in the UK?
Being rejected for a mortgage can make you feel like you’re hitting a wall. After all the excitement of looking for a house, you certainly don’t want to receive a rejection letter. But you are not alone, as it’s a situation that a lot of people experience in the UK. The good news? A mortgage denial is typically not the end of the line. Lenders consider many factors beyond your earnings, and understanding the pitfalls makes them easier to avoid. In this guide, we’ll explain the top reasons mortgages are denied, and what you can do to improve your chances of approval.
Credit History Problems
Your credit is among the first items that lenders consider. If you’ve had missed payments, defaults, CCJs, or even bankruptcy in the past, these can all give lenders pause. However, it does not always have to be something significant that raises concerns. Even a handful of late mobile phone bills or overdraft fees can affect your score.
Lenders are not only going by what you say, they have access to data from the UK’s leading credit reference agencies: Experian, Equifax and TransUnion. They all contain slightly different information, so it’s worth checking all three before you apply.
If your report indicates you repay loans consistently, you’ll look like a safer bet. But if it is full of financial hiccups, a lender might wonder how you’d scrape together the cash for your monthly mortgage payments. Seeing problems early and clearing them away counts for a lot. The cleaner the record, the stronger you are as a mortgage applicant.
Insufficient Deposit
The more money you can put down for a deposit, the greater the chance it will be approved. Although you can buy with just 5% under the government’s Mortgage Guarantee Scheme, there are hardly any lenders that offer deals at anything lower than 10%. Make a bigger one, 15% or even 20%, and your odds are significantly better.
Why? Because the larger your deposit, the less risk the lender will need to take. It also demonstrates that you’re serious, and as a sweetener, it often means better rates. Let’s put that into context: for a £200,000 house, you’re looking at a £20,000 deposit for a 10 per cent one and double that (£40k) for 20 per cent.
It can seem intimidating to save that much money, but the more you’re able to tuck away, the better position your application will be in. It’s not just about making do with the bare minimum; it’s about proving to lenders that you’re financially in good shape.
Income & Affordability Issues
Even if you have a substantial deposit, your income counts. Most lenders will limit borrowing to about 4.5 times your annual salary. So if you bring in £30,000 a year, perhaps you might bank on getting a mortgage of around £135,000. But affordability is not just about income.
They also scrutinise outgoings. Typical costs such as childcare, repayments on a loan, car finance, or even hefty monthly subscriptions, can also impact the size of mortgage you can get. They’re estimating how comfortably you could afford to repay these loans without overstretching your finances.
If you’re self-employed, it can be trickier. You’ll typically need two or three years of accounts or tax returns to prove that your income is regular. For newer businesses, that requirement can hold you back.
The key is to be realistic. Just because you could borrow a certain amount doesn’t mean you should push yourself to the max. Demonstrating that you have put some thought into what is affordable also makes you appear more responsible to lenders.
Employment Type or Instability
Lenders like stability. If you’ve stayed in the same job for a while, it tells them your income is consistent. But if you’re jumping between jobs, on zero-hour contracts, or have recently set up your own business, it can be more difficult to persuade lenders that you’re a safe bet.
That doesn’t mean you can’t get a home loan if you’re self-employed or have more flexible work arrangements, but it may prompt further questions. A longer job history, especially one with consistent earnings, always helps. Don’t switch roles right before you’d like to apply, even for a pay rise, if possible. Because sometimes hanging on a little longer is actually what makes your application stronger.
High Existing Debts
Car finance, personal loans, and credit cards all chip away at your monthly budget. In the eyes of a loan officer, the higher your debt-to-income ratio is, the less money you have to buy a home. Here’s where the debt-to-income ratio comes into play.
It’s essentially a gauge of how much of your income already goes toward paying off debts. A high ratio signals risk. Even if you’ve never missed a payment, lenders may still be concerned that a mortgage would stretch you to your financial limits.
And that’s why you should be smart and pay down as much debt as you can before applying. As an example, paying off or paying down credit card balances can make a big difference in your affordability.
Incomplete or Incorrect Paperwork
You might have a pristine credit record and a large deposit, but slip-ups over missing or messy paperwork could still happen. Lenders will want hard evidence of your income, outgoings, and the source of your deposit. If you don’t have six months of bank statements that match your pay stubs, or if you can’t explain where a deposit on your statement came from, it can streamroll over your application.
Anti-money laundering checks are strict. For instance, if you’ve received a gifted deposit from relatives, lenders usually require a signed letter to prove its existence.
The sooner you get organised, the smoother things go. Have your payslip, tax return, ID, and bank statement with you to avoid any last-minute setbacks.
Property-Related Issues
Sometimes it’s not you that’s the problem, it’s the property. Mortgage lenders can refuse to approve a mortgage if they regard the house as too risky. Nontraditional construction, such as timber frames or thatched roofs, can raise red flags. Leasehold properties can also be a worry, particularly those with a short lease or high charges.
Down valuations are another frustration. If a surveyor determines that the property is worth less than the asking price, your mortgage lender could decide to drop its offer of a loan. That can leave you rushing around to come up with a larger down payment or to negotiate the price again.
How to Improve Your Chances
So how do you increase the odds in your favour? Start with your credit file. Do it months in advance of your application, so you have time to fix any mistakes or pay down debts. Preparation goes a long way here.
Next, focus on your deposit. Even if you reached that minimum, the more you can save, the stronger your position. Trimming excess spending, or creating a dedicated savings account, could get you there even more quickly.
Think about your debts too. Balances should be paid off before applying, whenever possible. And don’t add new credit in the months leading up to your application.
Employment stability matters as well. If you are thinking about a job move, it might pay off to wait until after you have your mortgage in hand.
Last, you’ll want to get your paperwork in order. The more organised you are, the easier it gets.
If you’re not sure where to begin, Mortgaged can help you evaluate your options and better your odds for being approved.
Overcoming Barriers to Approval
There are lots of reasons a mortgage might be declined, from credit history and deposit size to affordability, employment, debts, and even the property itself. But none of these are permanent barriers. With preparation and the proper guidance, most issues can be fixed.
If you’re feeling stuck, Mortgaged offers expert advice to help you navigate the process and boost your chances of success. Contact us today and take the next step towards securing your new home.
Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
There may be a fee for mortgage advice. The precise amount will depend upon your circumstances and will be agreed with you before proceeding, but we estimate it will be £395.