What stops you getting a mortgage?

Most people finance their home moves with mortgages. Unfortunately, it's tougher than ever for first-time buyers to make their first property purchase. And with mortgage rates higher than they've been in a decade, it's a big ask all round for homeowners and buyers alike to take that next step on the property ladder.

Not to worry - in this article, we take you through the key reasons a mortgage application might be rejected. If you follow the advice in this article, you'll be in the best position for your future application.

So without the further ado, let's crack on with 'What stops you getting a mortgage'.

What stops you getting a mortgage?

Your ability to get a mortgage and your potential for refusal depends on your borrowing capability. As such, there are several things that can stop you getting a mortgage:

1. Affordability issues
2. Credit history
3. Employment stability
4. Property-related concerns
5. Deposit size
6. Application issues

Let's take a look at each of these issues in closer detail.

1. Affordability issues

You may be declined a mortgage because you don't meet the lender's criteria for the mortgage you want because your combined income is too low.

Mortgage lenders want to make sure you can afford your monthly repayments - otherwise they don't get paid. To ensure you can afford a mortgage, lenders use a variety of stress tests to work out whether your income can support you, even in the event of an economic downturn.

How do the affordability checks work?

Mortgage providers apply income multiples to prospective borrower's declared earnings to decide how much they can feasibly lend. Most lenders cap their available deals at 4.5 x income while others draw the line at 5 or 6 times under the right circumstances.

So if you need to borrow £300,000 for a property you want to buy, and your declared annual income is £50,000...

• 4.5 x Income (lower multiple): If your chosen lender follows a more conservative approach with a 4.5 times income multiple, the maximum they might be willing to lend you is £225,000 (4.5 times £50,000).
• 5 x Income (moderate multiple): Another lender might be willing to extend the multiple to 5 times your income, allowing you to borrow up to £250,000 (5 times £50,000)

Debt to income ratio (DTI)

While meeting your lender's income requirements is essential, it's crucial to recognise that your Debt-to-Income Ratio (DTI) plays a pivotal role in securing a mortgage. Even if your income meets the threshold, a high DTI can raise concerns for lenders, as it suggests that taking on a mortgage could exacerbate existing financial challenges and hinder timely repayments.

Lenders often view a DTI below a 60/40 split (Income vs Debt) as low risk. In contrast, ratios exceeding this benchmark may trigger apprehension. That's why it's worth maintaining a balance that demonstrates your financial stability and ability to manage both current debts and the additional responsibility of a mortgage.

How to fix affordability issues

You might be setting your sights a little high! If your income is too low and lenders are worried about future repayments, you may need to adjust your property aspirations.

Alternatively, you could shop around. Hire a mortgage broker and see if there any lenders who are comfortable lending to you based on your DTI. A lender with lower income multiple brackets could be damaging your borrowing potential.

Of course there are some other ways you can fix this issue but they're a little more long-winded. Finding a higher-paying job is an option - but you'll need to pass probation or have worked there for at least 12 months.

Another option is saving for a larger deposit. Larger deposits merit lower rates of interest, allowing you to better meet your lender's affordability tests. Saving, however, takes time, and you might not have time on your side.

If you want to find out whether or not your application will be accepted based on your mortgage affordability, it's well worth using an online mortgage affordability calculator. MoneySavingExpert has one available.

2. Credit history

Your credit history indicates your ability to consistently make debt repayments, as well as your overall debt. If you have mistakes on your credit report, high levels of outstanding debt, a history of missed payments, or no credit history at all, these issues can negatively impact your chances of receiving a mortgage.

How do I fix my credit history?

Improving a poor credit history takes time. While there are some specialist lenders and loans out there that cater to your situation, they often come with higher interest rates and fees. You also risk exposing yourself to predatory practices, with illegal lenders preying on those with bad credit.

The best thing you can do is hold tight, pay off your existing debts, and bring up your credit score the old reliable way.

Making a debt repayment plan

If you need help making a debt repayment plan, it's always worth contacting the debt charity, StepChange. They can help you devise a repayment plan that works for both you and your lenders. They'll even speak to your lenders on your behalf to ensure the plan is accepted.

3. Employment stability

Recent or frequent job changes and being self-employed without proof of income, can all impact your ability to be accepted by a mortgage provider. But why is this the case?

Your employment status suggests to lenders your ability to receive a stable income and your potential for making mortgage repayments on time and in full...

Recent job changes

It's natural to think that because you've landed a new job with a higher income, you are now in a good position to buy a property. For the most part, this is true!

However, a mortgage lender is unlikely to lend to someone who has not yet passed their probationary period, or has not otherwise shown that they're likely to remain in employment for the foreseeable future. Lenders like stability because it means their revenue will remain stable.

Frequent job changes

Likewise, frequent changes in employment will also suggest to lenders that you are an unreliable borrower. While you have proven that you can get other jobs, lenders prefer stability. They want to know that you'll be earning a similar income as to what was outlined in your mortgage application so you make regular payments.

Self-employed without proof of income

Unfortunately for self-employed people, mortgage lenders require more evidence of your monthly income than regular employees. As you own and run your business, there are a lot more factors at stake, as well as potential for wrongdoing or fraud.

Mortgage lenders often seek a comprehensive view of your income, and the documentation required may include tax returns, profit and loss statements, business bank statements, and other financial records.

You'll likely need to provide a minimum of two years worth of your income and outgoings to demonstrate your financial stability and the viability of your business. That's why having a steady income stream over the two-year period can strengthen your mortgage application. If your business has experienced fluctuations, it's important to provide context and explanations for any significant changes.

Be prepared to work closely with your accountant or financial advisor to ensure that your financial records are accurate, up-to-date, and well-documented. Lenders will also consider your personal and business credit histories when evaluating your application - so keeping on top of both is worthwhile.

Don't forget - there are lenders out there who specialise in self-employed mortgages. Contact a reliable broker who can help you find them.

4. Property-related concerns

The condition of the house you want to buy can affect your chance of having your mortgage application accepted. Once mortgage providers receive your application, they send a surveyor round to confirm the value of the property with a valuation survey.

Valuation surveys

A valuation survey is primarily designed to help the lender to determine if the property's value is good enough to support the amount requested by the mortgage applicants. While the valuation survey may highlight structural issues, its primary focus is on the valuation itself.

With older or larger properties, the lender might instruct a more detailed homebuyer's report, which provides an in-depth assessment of the property's issues, including potential structural issues.

The findings of these property surveys can have a significant impact on your mortgage application. If the valuation survey or homebuyer's report identifies structural issues, such as subsidence, damp problems, or a deteriorating roof, it can raise red flags for lenders. It's standard for lenders to lower their offers or even decline mortgage applications.

How do I stop property issues affecting my mortgage application?

If you want to prevent property issues affecting your mortgage application, your best bet is to order a survey of the property before you put in your full application. This proactive approach allows you to identify and address potential problems before they become obstacles to your real application.

Once you've reviewed the survey reports, address any highlighted issues promptly, and consider obtaining quotes for necessary repairs. You may even be able to negotiate with the seller to get them to pay for the repairs.

You may even find that your property you've set your sights on is more trouble than it's worth. Listen to the advice of your conveyancer and your broker and make an informed decision before you contact your mortgage provider.

5. Deposit size

The size of your deposit (which can be influenced by having too much debt or a small deposit relative to the property’s value) can impact your potential for mortgage approval. This is often the biggest problem for people who are looking for lenders to finance their home move.

Most lenders require a deposit of at least 10% to release a mortgage loan to home moving hopefuls. Indeed, if you want to access the more convenient rates of interest, you'll need an even larger deposit.

How do I stop my deposit affecting my mortgage application?

The main factor that is stopping you from getting a mortgage here is your savings. If you are able, enlisting the temporary help of a financial advisor may prove useful. An advisor analyses your spending habits and income to create a plan that allows you to continue to enjoy your life AND save money.

If time really is of the essence, there are other alternatives. The government's Mortgage Guarantee Scheme has helped ensure that lenders provide products that cater to buyers who can only afford a deposit of 5%. You can easily locate 95% Loan To Value mortgages on many banks and building societies' websites.

To get an estimate on how much you can borrow, always apply for a mortgage agreement in principle.

6. Application errors

Application errors can have a significant impact on the success of your mortgage application. These errors can range from minor mistakes to larger omissions that might raise concerns for lenders. Here are some common types of application errors:

• Inaccurate info: Providing inaccurate details about your income, employment history, or financial status can lead to discrepancies that may be flagged.
• Incorrect financial figures: Failing to accurately report your financial figures, such as income, debts, or expenses, can create a distorted financial profile and deter lenders.
• Missed debts: Forgetting to include existing debts, loans, or financial obligations can lead to an incomplete financial picture which can lead lenders to reject your application.
• Property-related errors: Providing inaccurate information about the property you intend to purchase, such as its condition or value, can raise concerns.
• Employment history mistakes: Errors in detailing your employment history, including job titles, duration of employment, or gaps in employment, may be discovered during the lender's process.

How do I fix mortgage application errors?

It's important that your final mortgage application is air-tight. Double-check your application to make sure all the information you've provided is accurate, and include all the necessary documents needed to substantiate your information.

Other issues that stop you getting a mortgage

There are other issues, no less important, that can prevent your mortgage application from being approved.

Not being registered to vote

Being registered to vote can have implications for your creditworthiness and mortgage application. When you're registered to vote, it allows lenders to verify your address and your stability as a borrower. What’s more, voter registration is a key part of preventing identity fraud. Lenders are reassured by applicants who can prove who they say they are.

Age restrictions

Some lenders may have upper or lower age limits for applicants. The upper age limit is often around 70-75 years old, while the lower age limit is more varied - however, individuals must be at least 18 years old to apply for a mortgage.

It's important to be aware of these restrictions, as they can influence the terms and eligibility for a mortgage. You should always check with lenders to confirm their age criteria and ensure they align with your final application.