What stops you getting a mortgage?
Regardless of your reason for considering a mortgage, there are a number of fundamental criteria that will apply; for some applicants, one or more of these may impact their ability to be approved.
So, what are the potential obstacles when applying for a mortgage? We’ve enumerated a few of the usual suspects along with suggestions for how to resolve them for success.
Here are eight reasons that might stop you from getting a mortgage:
- Lack of down payment or equity
- Credit rating
- Property issues
- Difficult circumstances
- Anything else…
1. Lack of down payment or equity
Numerous lenders currently require a minimum mortgage deposit or minimum equity. Both have an impact on your loan-to-value ratio (LTV), which measures how much you are borrowing relative to the property’s value or purchase price.
Prior to the credit crunch, there were lenders who would even consider loans of over 100% of the property’s value. However, in more recent times, borrowers are more likely to be required a 5% if not 10% down payment or equity for residential mortgages and a 25% down payment or equity for buy-to-let mortgages.
The amount of deposit or equity you’ll need will be highly dependent on your specific circumstances; however, if you find that you’re falling short of your plans, the following may be able to help:
- Continue to save: Not an immediate solution, but by setting aside more funds, you will have more to put towards the purchase or reduce your remortgage
- Accept a gift or loan from a family member or close friend: Many lenders will accept a non-repayable gift from someone, while a smaller number of lenders will accept a loan. For certain programmes, the person assisting you can invest the funds in a savings account with the mortgage provider. If the mortgage is not in arrears, they can earn interest and regain access to the funds after a minimum period of time, say three years.
- Shared Ownership, offer assistance with the required deposit amount. These are continually under review, so make sure you’re up-to-date on the most recent versions.
A lender will require you undergo an affordability check and depending on the outcome, this can prevent or limit the types of mortgages available to you. A lender will examine your income against your outgoings, assets, and any potential debt, to decide whether you are able to make your mortgage repayments.
Therefore, if your budget limits your options, what could you do to improve this?
- Increase your income. Having an additional source of income, such as a second job or working any available overtime, could increase your affordability. Numerous lenders are willing to account for this in their calculations. You should be aware that the vast majority will require a track record at the time of your application and expect it to appear plausible that it will continue.
- Look for assistance from a third party. Someone may be able to act as a guarantor, or the loan may be set up on a joint borrower sole proprietor basis, in which the person added to assist affordability does not have legal ownership of the property.
- Reduce your expectations. Perhaps the property you’re considering or the loan amount you believe you need is simply too expensive. The amounts a lender deems affordable and the income multiples they use are based on years of data on how much someone should be able to borrow. Therefore, if these calculations indicate that the amount is too high, there is a high likelihood that it is.
- Use your savings. If at all possible, reduce the amount you borrow by using a portion of your savings or, if available, a gift from a relative or friend.
- Extend your term. The shorter your term, the less interest you will pay overall, which is a good thing. However, the shorter your term, the higher your monthly payment will be for a capital and interest mortgage. It is possible that the term you are requesting will result in monthly payments that exceed what a lender believes you can afford.
By extending the term, the monthly payment may be reduced to an acceptable level. If your scheme permits, you can always voluntarily overpay once everything has been established. Keep in mind, however, that your age will impact the maximum loan term, as lenders must account for your retirement and its effect on your income.
3. Credit rating
Your credit rating will provide an overview of how you handle your finances. If you have a good credit rating, you will be regarded as being ‘low risk’, while if you have a poor credit rating, you will be regarded as a ‘high risk’; this may hinder your chances of obtaining a mortgage. To ensure your credit rating remains healthy, ensure you consider the following:
- Pay your bills on time. This may seem like a no-brainer but paying your bills on time demonstrates your financial responsibility and helps you maintain a good credit rating. If your lack of funds is less of a problem than your lack of organisation, set up a direct debit to ensure the payment is made on time.
- Ensure that records are accurate. A mistake on your credit report could have a negative effect on your score, so double-check your information and correct any errors you find.
- Close old, unused credit accounts. If you have old credit cards or credit facilities that you no longer use, ensure that these accounts are physically closed. Even inactive forms of credit can be detrimental to your credit score.
- Voter registration. Lenders prefer to be able to verify your address history against your application. One simple way to accomplish this is to ensure that you are registered on the electoral roll.
If you find yourself in the unfortunate position of having a bad credit history or low credit score, you may still be able to obtain a mortgage through a bad credit mortgage, guarantor mortgage, or perhaps a shared ownership mortgage. Contact one of our knowledgeable advisors, who will be able to answer any questions you may have, for more information on the mortgage options that may be available to you.
4. Property issues
Due to varying factors, including a property’s state or the type of construction, a lender may not view a property as mortgageable. If a lender believes your property can be mortgaged, consider the following to increase your chances.
- The kitchen and bathroom are the two primary features of a home that a lender will consider essential for mortgage purposes. They are not required to be aesthetically pleasing, but they must be functional.
- Perform any recommended repairs, it may be that certain repairs or enhancements must be completed first, so try to complete these and then reconsider your options.
- Obtain a second opinion on the property’s value, as this is a relatively common occurrence, particularly in a volatile market. If the lender believes a property is worth less than you believe, provide them with comparable properties to evaluate. These must be actual sold prices, not just the asking price, and they must be comparable in size and style to your own property. If you are making a purchase, you may be able to use a depreciation to your advantage and renegotiate the price.
- If you are trying to buy a home, and it is proving difficult to do so due to mortgage issues, then it may be best to look elsewhere, as you may find that when you come to sell the property, it may cause problems for yourself.
Fill out our quick and easy Mortgage Affordability calculator below. We only require a few details to see how much you may be able to borrow.
NO CREDIT CHECKS!
We are all inevitably getting older, which is the only thing we can be certain of. We may be able to alter our appearances to appear younger, but we cannot turn back the hands of time. For their mortgages, mortgage lenders typically set maximum ages that correspond to retirement ages.
There are variations across the market, but some prospective borrowers may find that their age disqualifies them or at least limits their options. While we cannot reduce our age, a number of ideas could be considered.
Look for a mortgage that offers the longest term possible. Your mortgage broker will be able to assist you with this as they use their experience with lenders to find you the right deal.
There are mortgages designed for older adults, including a Requirement Interest Only (RIO) or Equity Release Mortgage. Age is typically irrelevant or more flexible on these mortgage types.
- Arrange the mortgage with a younger person. If this person’s ability to pay is sufficient on its own, a lender may disregard your age because your income is not included in their calculations.
Errors on your application can have consequences, so it’s important that you get it right.
To ensure all the information provided is accurate, ensure you proofread your application thoroughly before submission. Simple errors, even typos, can have consequences and cause delays.
- Verify the documentation you submit to the lender. Ensure that items such as payslips and HMRC and accounting paperwork are accurate. If you are aware that your identification, such as the spelling of your name or your old address on your driver’s licence, is incorrect, you should correct it.
- Check your credit file. Errors on this file can take time to correct, so it’s always a good idea to do so in advance, especially if you know you’ve had credit problems in the past.
An experienced mortgage broker can assist you in preparing your application and checking for errors, maximising your chances of obtaining a mortgage.
7. Difficult circumstances
No one knows your personal life better than you do, but when you apply for a mortgage, a lender must understand your situation and history, particularly in terms of your finances. Where this may be a little more complicated than usual, such as in the case of complex business arrangements or multiple income sources, try to organise your paperwork to aid their comprehension. The more effectively you can present your case, the greater your likelihood of approval.
8. Anything else…
There could be many different reasons why someone cannot obtain a mortgage, making it impossible to list them all here. At The Mortgage Centres, we have advisors who are in the best position to package your application to maximise your chances of approval. Obviously, we cannot guarantee that we will be able to help everyone, but if we cannot see a way to help you right now, we can offer advice on how to improve your chances.