How to sell a house having been previously refused a mortgage

A mortgage refusal is something that no home-buyer wants to hear, especially if they’re also looking to sell their home. Although a mortgage refusal isn't the outcome you want, there are still plenty of ways you can ensure the sale of your home.

Selling a house is no easy task, and neither is buying one, both are equally demanding and time-consuming. If you’re looking to sell but have been refused a mortgage for the new property you’d like to buy, things can get tricky. However, don’t give up, there's still hope!

Common reasons why a mortgage application is declined

There are many reasons as to why your mortgage application was declined, some reasons are easier to combat, and some can make it harder to apply for another mortgage in the future.

Before you think about why your mortgage application was refused, it's important to consider taking professional advice, from either mortgage brokers, lenders, conveyancers and estate agents.

Reasons why your mortgage was declined include:

1. Poor credit history: Mortgage lenders review your credit history to decide if they should approve your application, and how much they should lend you. Having a poor credit history is one of the most common reasons as to why your mortgage was refused.

2. No credit history: Because of your lack of credit history, mortgage lenders are unable to analyse your payments. For example, how soon you pay back money on a credit card, or how consistent your monthly mobile bills are.

Credit agreements are important to develop your credit score, helping you in your future investments, such as housing. Banks and lenders look over your credit report to see if you can appropriately manage credit, as well as paying it back in a timely manner.

3. Low income: It's important that the loan size you've applied for matches your salary, if you apply for a large mortgage and you earn much less, you'll be rejected.

This is because with a lower income, you won't be able to afford the monthly mortgage payments. Therefore, it's crucial that you apply for a mortgage based on your salary, and nothing more, as you don't want to risk being refused a mortgage.

4. Not having the right information on your application: You may forget to include certain details and documentation on your application form. This is detrimental to the likelihood of a successful application.

It's vital that you include all of the required documentation, make no mistakes and be 100% honest about all of your outgoings and income. If you don't have enough of the right information, lenders won't be able to determine if they should give you a mortgage and how much they should give you.

For example, something like a P60 from your workplace will provide evidence of your salary, which will help lenders decide how much your mortgage should be.

5. High debt to income ratio: If you have high debt, lenders will be less inclined to approve your mortgage application. This is because it'll be harder for you to afford your mortgage payments and you may be a liability to your lender.

6. Unstable employment history: Lenders like to see that you have a stable employment history and are likely to continue earning a steady income in the future. If you have a history of changing jobs frequently, or have recently become self-employed, this could raise concerns.

Employment gaps can affect mortgage applications, which showcases you don't have a steady flow of income. Lenders become wary because the gaps in your employment suggest you won't be able to pay your monthly payments in time.

Many lenders prefer borrowers to be in their current employment for at least six months, to show stability and consistent income. To ensure you'll be able to pay your mortgage payments, lenders will check to see if you meet the affordability criteria.

7. Property valuation: The lender will usually carry out a valuation of the property you intend to buy to ensure it's worth the amount that you're borrowing. If the property is valued lower than the amount you're seeking to borrow, the lender may refuse your application or offer you a lower amount to borrow.

If you want to find out an estimate of your property value, use our Free Online GetAgent Valuation tool!

Documents needed for a mortgage application

The documentation required to apply for a mortgage may vary depending on the lender and the type of mortgage you're applying for. However, there are some common documents that you'll typically need to provide.

• Proof of identity: You'll need to provide proof of your identity, such as a passport or a drivers licence.

• Proof of income: You'll need to provide proof of your income, such as recent payslips, P60 forms, or tax returns if you're self employed.

• Bank statements: You'll need to provide bank statements that show your income and outgoings, as well as any investments and savings.

• Proof of address: You'll need to provide your proof of address, such as a recent utility bill or a council tax bill.

• Employment contract: If you're employed you may need to provide your employment contract to showcase you're working.

• Proof of deposit: You'll need to provide evidence of the funds you'll use as a deposit for the property, such as bank statements.

• Credit report: Some lenders may require a copy of your credit report to assess your creditworthiness.

• Property details: You'll need to provide details of the property you intend to buy, such as the purchase price and address.

It's important to note that lenders may have different requirements, so it's a good idea to check with your chosen lender to find out exactly what documents you'll need to provide.

Does a mortgage refusal affect your credit score rating?

Now, you won't hurt your credit score from being refused a mortgage, however it can affect your overall credit report. This is because the more you apply for a mortgage, each application will leave a hard search. A hard search essentially lowers your score and reduces your chances of acceptance.

After declining your mortgage application, the lender will typically report the declined application to the credit reference agencies, which can be viewed by other lenders when you apply for credit in the future.

Having a history of multiple mortgage rejections can signal to lenders that you're a high risk borrower, and may make it more difficult for you to obtain credit in the future. This is why it's important to only apply for credit when you're confident you meet the lender's eligibility criteria, and to shop around to find the best deal for you.

What can you do if your mortgage application was refused?

If your mortgage application has been refused, before taking any next steps, think about the reasons behind its refusal. It's important to go over your application, and speak to a mortgage broker, estate agent and your lender. This will help to make sure the next time you apply for a mortgage you won't be refused.

You can try to convince lenders that you're ready for a mortgage, and to prevent this from happening again, it's crucial to spread out the applications, to avoid lowering your credit score.

Can you get a mortgage with bad credit?

Having a bad credit rating isn't the end of the world! You can still very much get a mortgage, however, it may be a little more challenging. Lenders will typically look at your credit history to determine if you're a high-risk borrower, and if you have a history of missed payments or defaults.

There are certain lenders who specialise in mortgages for those with bad credit scores. These lenders may be willing to offer you a mortgage, however, you can expect to pay higher interest rates and fees than a traditional mortgage.

To improve the chances of getting a better mortgage with good interest rates, you should aim to improve your overall credit score as much as possible.

Steps to take to improve your credit score!

Improving your credit score takes time and effort, but there are several steps you can take to start rebuilding credit and increase your chances of getting a mortgage.

Firstly, make sure you pay all of your bills on time and reduce your overall debt!

Here are some steps to take to improve your credit score:

1. Check your credit report: Request a copy of your credit report from one of the UK's credit reference agencies. Review it carefully to make sure all the information is correct, and if you spot any errors, dispute them with the relevant agency.

2. Pay your bills on time: Late payments can negatively impact your credit score, so make sure you pay all your bills, including credit card bills, loans and utilities on time.

3. Reduce your debt: High levels of debt can also harm your credit score, so focus on paying off any outstanding debts like credit cards and personal loans. Set up direct debits or standing orders to ensure you never miss a payment.

4. Avoid applying for new credit: Every time you apply for credit, it leaves a "hard inquiry" on your credit report, which can lower your score. Try to avoid applying for too many credit applications until your credit score has improved.

5. Consider a credit builder card: A credit builder card can help you improve your credit score by giving you access to credit that's designed to be easier to manage. Make small purchases and pay them off in full every month to show lenders you can manage credit responsibly.

6. Use a specialist mortgage lender: If you're struggling to get a mortgage with a traditional lender, consider using a specialist mortgage lender who specialises in bad credit mortgages. These lenders may be more flexible and willing to work with borrowers.

What to do if you've been refused a mortgage and need to sell your house?

If you've been refused a mortgage and need to sell your house, there are several steps you can take.

These steps include:

• Talk to your lender: If you've been refused a mortgage, talk to your lender to understand the reasons for rejection. They may be able to provide guidance and what you can do to improve your credit score or financial situation.

• Ask for help from professionals: A professional mortgage broker or independent financial advisor who specialises in mortgages and understands the lending criteria, can guide you and provide you with the necessary information to address the issue and navigate the process.

• Consider alternative financing options: If you can't secure a traditional mortgage, consider alternative financing options such as a private mortgage, seller financing, or a lease purchase contract.

• Lower your asking price: If you need to sell your house quickly, consider lowering your asking price to make it more attractive to potential buyers.

• Hire an experienced real estate agent: A real estate agent can help you market your home, and find potential buyers. They can also provide guidance on pricing and negotiating with buyers.

• Consider applying for an agreement in principle: Obtaining an agreement in principle from a mortgage lender can be a helpful step for those who have been previously declined for a mortgage. It provides an indication of how much the lender may be willing to lend and can help demonstrate to potential buyers that the seller is serious about the sale.

• Be flexible: If you're struggling to sell your home, consider being flexible with your terms. For example, you may need to accept a lower offer or be willing to negotiate on closing costs.

Remember, selling your home can be a stressful process, but there are always options available. With some persistence and the right advice, you can find a solution that works for your situation.

If you're worried about finding the right estate agent to sell your home, have a look at our Free Online GetAgent Comparison Tool!

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What is an Agreement In Principle?

An Agreement In Principle is a rough estimate of how much a bank might be willing to lend you for a mortgage. They look at your financial situation and give you an idea of what they think you could borrow.

Having an AIP can help reassure potential buyers that even though your mortgage was declined in the past, you're serious about selling and might still be able to get a mortgage in the future.

But keep in mind, an AIP isn't a guarantee that you'll actually get a mortgage, and the lender only did a basic check of your finances before giving it to you.

What's a lease purchase contract?

This is an agreement that allows you to obtain rent-to-own real estate without actually having to enter an agreement with a credit contract, such as a mortgage agreement. This essentially allows a renter to purchase a property at the end of their lease term.

Here are some benefits:

1. It allows the renter time to build up their credit score and save for a down payment.

2. It may be easier to qualify for a lease purchase than a traditional mortgage.

3. It allows the renter to lock in a purchase price for the property at the beginning of the lease term, which can be beneficial if property values are rising.

4. It may offer more flexible terms than a traditional mortgage.

Here are some things to look out for:

1. The purchase price of the property may be higher than its market value.

2. The renter may be responsible for repairs and maintenance during the lease term.

3. The renter may lose their options to purchase if they fail to make payments or violate terms of the lease.

4. The renter may be required to pay additional fees and charges that would not be required with a typical mortgage.

Ultimately, whether a lease purchase contract is good depends on the individual circumstances and goals of a person. It's important to carefully review the terms of the contract and seek the advice of a real estate attorney or financial advisor before entering into the agreement.

Summary: You can turn a mortgage decline into a successful home sale!

Selling a house can be challenging if you've had your mortgage application rejected. However, obtaining an Agreement In Principle from a lender can be a useful tool for reassuring potential buyers and getting your sale back on track. With some preparation and guidance from professionals, it's possible to turn a previous mortgage decline into a successful home sale.

Improving your credit report and considering a lease purchase contract are two strategies for successfully selling a house. By taking steps to boost your credit score and demonstrate your creditworthiness, you can increase your chances of getting approved for a mortgage. Additionally, a lease purchase contract can be a creative way to sell a home to buyers who may not qualify for traditional financing.

By following these tips and working with knowledgeable professionals, you can turn a previous mortgage decline into a successful home sale and move forward with confidence into your next chapter.