If you’re new to understanding the property ladder and mortgages, you might have been asking yourself ‘can a mortgage be declined after offer?’ unfortunately the answer to that is yes. As upset and frustrated you will likely feel if your mortgage application is rejected, it’s important to understand some of the reasons why you’re the lender isn’t proceeding with your mortgage, so you can make the changes needed to be successful next time.
In this article, we’ll be looking at some of the most common reasons why mortgage offers are declined and what you can do to avoid it happening to you in your next application.
Low credit score or bad credit history
A large number of mortgage applications are rejected because of credit scores. Particularly, if there is a history of missed payments, too many credit applications, defaults, or CCJs. If you have had any of these listed in your credit reports over the last six years, it’s likely that most lenders won’t proceed with your mortgage.
Despite many high street banks and building societies having strict lending criteria relating to bad credit history, you can find a lender that is specialised and equipped to help individuals who have had some adverse credit in the past. However, there are no guarantees that a specialist lender will approve your application so you should work to improve your credit score as much as possible before applying for a mortgage.
When you apply for a mortgage, the lender will ask you about your monthly outgoings, credit card debts, loans, childcare costs, and if you have any student loans that need to be repaid when checking whether you can afford a mortgage. Your income and outgoings will be calculated to see how much money is left over each month to potentially cover the cost of mortgage payments.
The affordability will factor in a possible rise in interest rate (known as stress rate) and how that would impact your ability to make your repayments. If your mortgage is declined after offer, it could be because it was determined by the lender that you can’t afford to pay back the amount you want to borrow.
In this case, you might want to think about looking for a cheaper property or reducing your monthly outgoings where you can. Our expert property solicitors in the north east can help advise you further on how to improve your affordability as well as the other reasons listed in this article.
Type of income
The type of income you earn is another common reason why your mortgage application might have been or could be declined. Lenders will require proof of your income and that this sustainable and acceptable. An income that is cash-in-hand is most likely to be rejected and inconsistent monthly payments can raise red flags for the lender.
You will need to provide supporting documents to the lender, these can either be payslips or self-assessment documents. There are some instances where income is more complex, for example, if you have multiple part-time jobs, you are a contractor working under an umbrella company, or you work on a zero-hour contract. If any of these apply to you, you might need the help of a mortgage broker and a specialist lender who can assess applications of this nature on a case-by-case basis.
It might be problematic for your application if you don’t have high enough of a deposit. Despite the government introducing the mortgage deposit guarantee, some lenders are still reluctant to offer 95% mortgages, which means you might not be approved with a 5% deposit.
Additionally, a mortgage on a new-build home may also require a larger deposit, as new-build properties often come with premium prices. In these cases, a Help-to-Buy equity loan could be an option for you to get 20%-40% of the price of the home to fill the gap.
A smaller deposit means a higher mortgage and so affordability could be unattainable. It’s still worth contacting experts like Toomey Legal if you have a low deposit as we can help see what options are available to you.
Proof of residency and not being registered to vote
Every lender will need to see proof of address and residency. If you can’t show 3 years of address history, it could be difficult for you to be approved for a mortgage. Also, if you’re not a British Citizen, there may also be different requirements for the mortgage process.
Lenders will check the voting register to determine the address of all mortgage applicants. If you’re not registered to vote, the checks may come back negative and additional documents could be required. It’s recommended that you register to vote at least 6 months before applying for a mortgage as the voting register is only updated twice a year.
If you’ve been rejected for a mortgage, try not to feel too disheartened as there are many things you can do to improve your chances of being accepted next time. It’s important to note that an agreement in principle is not the same as being completely approved for a mortgage. When you are accepted for a mortgage, there are a number of steps you need to take before getting the keys to your new home.